AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
AMENDMENT NO. 3
TO
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
8221
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1975978
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1025 15TH STREET, N.W.
WASHINGTON, D.C. 20005
(202) 408-2400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WALTER G. LOHR, JR.
HOGAN & HARTSON L.L.P.
111 S. CALVERT STREET, SUITE 1600
BALTIMORE, MD 21202
(410) 659-2700
RICHARD J. PARRINO
SHAW, PITTMAN, POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, DC 20037
(202) 663-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 16, 1996
PROSPECTUS
3,000,000 SHARES
STRAYER LOGO
All of the shares of Common Stock, $.01 par value (the "Shares"), offered hereby are being offered (the "Offering") by Strayer Education, Inc. (the "Company"). Prior to the Offering, there has been no public market for the Common Stock of the Company. Approximately $19.7 million of the net proceeds of the Offering will be used to make payments to affiliates of the Company. See "Use of Proceeds." It is currently estimated that the initial public offering price will be between $9.00 and $11.00 per Share. See "Underwriting" for factors considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "STRA" upon notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- ----------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of the Offering estimated at $ payable by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional Shares from the Company on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Shares are offered by the Underwriters subject to prior sale, when, as and if issued to and accepted by them, subject to their right to reject any order in whole or in part and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject offers in whole or in part. It is expected that delivery of certificates for the Shares will be made at the offices of Legg Mason Wood Walker, Incorporated, Baltimore, Maryland, on or about , 1996.
LEGG MASON WOOD WALKER
INCORPORATED
, 1996
[MAP OF GREATER WASHINGTON D.C. AND SURROUNDING AREA INDICATING
CAMPUS LOCATIONS AND PICTURES OF EACH OF THE EIGHT CAMPUS
FACILITIES INSERTED HERE]
The Company intends to furnish its stockholders with annual reports containing audited financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Except as otherwise indicated herein, (i) the
information in this Prospectus assumes an initial public offering price of
$10.00 per Share and no exercise of the Underwriters' over-allotment option and
(ii) all references to the Company in this Prospectus include Strayer Education,
Inc. and the business and properties of Strayer College, Inc., a Maryland
corporation ("Strayer" or the "College"), and Education Loan Processing, Inc., a
Virginia corporation ("ELP"), each of which, as a result of the plan of
reorganization (the "Reorganization") described under "Reorganization," will
become a wholly-owned subsidiary of Strayer Education, Inc. Pursuant to the
Reorganization, among other things, the status of the College and ELP as S
Corporations under the Internal Revenue Code of 1986 will be terminated and the
College will make the S Corporation Distribution (as defined herein) to its
current stockholders. All references herein to the College's Financial
Statements are to the combined financial statements of the College and ELP
included in this Prospectus.
THE COMPANY
Strayer is a regional proprietary institution of higher education offering undergraduate and graduate degree programs to more than 7,000 students at eight campuses in Washington, D.C. and Northern Virginia. In early 1996, the College received state approval to operate its first degree-granting campus in Maryland. The College is accredited by the Commission on Higher Education of the Middle States Association of Colleges and Schools ("Middle States"), the regional institutional accrediting body recognized by the U.S. Department of Education. The majority of Strayer students are working adults pursuing their first college degree to improve their job skills and advance their careers. Of students enrolled in Strayer programs at the beginning of the 1995 Fall quarter, approximately 57% were over the age of 30 and approximately 62% were engaged in a part-time course of study. The College believes it attracts working adults by offering a business-oriented curriculum, convenient campus locations, flexible class schedules, a wide variety of information technology courses and an experienced teaching faculty. Many employers of Strayer students, including major corporations and governmental agencies, provide full or partial tuition reimbursement for Strayer courses.
The College was founded as Strayers Business College in Baltimore, Maryland in 1892. Strayer began a program of significant expansion in 1989 when its current President, Ron K. Bailey, acquired ownership of the College. Since 1989, the number of campuses has increased from three to eight, enrollment has increased from approximately 2,900 students at the beginning of the 1990 Fall quarter to approximately 7,400 students at the beginning of the 1995 Fall quarter, and annual revenues have increased from approximately $11.3 million for the year ended December 31, 1990 to approximately $38.2 million for the year ended December 31, 1995. During the same period, the College focused its attention on its degree programs by broadening its course offerings, increasing the number of faculty members with doctoral and other terminal degrees, expanding its library and other learning resources and investing in information systems. The College also closed the Baltimore campus, which was not a degree-granting institution.
The College designs its educational offerings to meet the practical needs of its student body. Strayer regularly revises its curriculum in consultation with area employers to respond to changing business trends and workplace requirements. The College offers associate's, bachelor's and master's degree programs in accounting, business administration, and computer information systems, as well as undergraduate degree programs in related fields, such as marketing and economics. The College has expanded and upgraded its computer-related course offerings as business and governmental organizations have increased their use of information technology. The College offers an intensive twelve-month diploma program in computer information systems to instruct students in new information technologies. Strayer has equipped each of its campuses with computer and networking laboratories containing up-to-date hardware and software for instructional use.
Strayer provides students with classroom locations close to their homes or workplaces and flexible class schedules that make it easier for working adults to attend classes. Strayer currently offers its courses at two campuses in the District of Columbia and six campuses in Northern Virginia. The College plans to open its first Maryland degree-granting campus in early 1997. To accommodate the scheduling requirements of
working students, Strayer offers classes seven days a week at hours ranging from 6:00 a.m. to midnight. In addition, Strayer operates throughout the year on a quarter system, which enables many of its students to attend classes all year.
Strayer recently has taken additional steps to improve the accessibility of its instructional programs. It currently operates programs on-site at the U.S. Department of Transportation and at the General Services Administration, for employees of the federal government; at Quantico Marine Base, Fort Belvoir Army Education Center and Naval Surface Warfare Center, Dahlgren Division, for active military personnel; and at Computer Sciences Corporation, in Falls Church, Virginia, for company employees. The College has submitted a proposal to offer graduate and upper level undergraduate courses at the Southern Maryland Higher Education Center in California, Maryland. Strayer also offers an increasing number of courses through the Internet, which may allow the College in the future to expand its student population beyond the geographical areas served by its campuses.
Students finance their Strayer education in a variety of ways. A significant number of students utilize federal financial aid programs. In addition, many of Strayer's working adult students finance their own education or receive full or partial tuition reimbursement from their employers. Since 1995, Strayer has extended educational loans through an internal program, the Strayer Education Loan Program (the "SEL Program"), to eligible students seeking an alternative to federal programs. The SEL Program enables students to finance their education through monthly payments of between $200 and $300 while they attend college and after they graduate. The administrative costs of the SEL Program to the College are substantially less than those of the federal loan programs. In addition, the SEL Program reduces the College's dependence on the receipt of federal financial aid funds.
The College believes that the demand of working adults for business-oriented higher education in Strayer's market area will continue to increase as the result of a number of demographic and economic trends. According to the American Council on Education, older students are more likely to pursue postsecondary education in professional fields, including business-related studies, than in the arts and sciences. The U.S. National Center for Educational Statistics estimates that by the year 2000 approximately 44% of the 15.5 million students projected to be enrolled in institutions of higher education will be adults over the age of 24. Currently, the U.S. Bureau of the Census estimates that 70-75% of students over the age of 24 are working adults. Management expects that the number of adult candidates for business and computer-related education will increase due to the continuing restructuring of businesses and federal governmental agencies and the rapid growth and change in information technology.
The College seeks to strengthen its position as a leading provider of business-oriented education for working adults in its market area. Strayer believes it will attract additional students by establishing new campuses in Maryland and elsewhere throughout its region, broadening its curriculum and using new distance education technologies such as the Internet. The College intends to expand the SEL Program to reduce its administrative costs, lessen its dependence on federal student financial aid programs and enhance its ability to attract and retain qualified students. The College also will consider the purchase of one or more campus facilities in order to establish permanent campus sites and to facilitate future expansion.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk Factors."
THE OFFERING
Common Stock offered hereby..... 3,000,000 Shares
Common Stock to be outstanding
after the Offering............ 9,000,000 Shares(1)
Use of proceeds................. To fund the distribution to the College's current
stockholders of undistributed income taxable to them prior
to termination of Strayer's S Corporation status (the "S
Corporation Distribution"), to fund the Company's
acquisition of ELP (an education loan servicing company),
and to provide funds for ELP's operations and for other
corporate purposes.
Nasdaq National Market Symbol... "STRA"
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SUMMARY FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA AMOUNTS)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------------- PRO
PRO FORMA
1991 1992 1993 1994 1995 FORMA 1995 1996 1996(3)
------- ------- ------- ------- ------- 1995(3) ----------- ----------- -------
-----------
(UNAUDITED)
INCOME STATEMENT DATA:
Revenues.................. $16,529 $23,793 $29,368 $34,257 $38,196 $38,196 $ 10,635 $ 12,415 $12,415
Costs and expenses(1)..... 14,449 21,298 25,124 29,055 32,020 25,845 7,691 7,787 7,787
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
Income from operations.... 2,080 2,495 4,244 5,202 6,176 12,351 2,944 4,628 4,628
Investment and other
income.................. 186 184 180 350 875 875 148 108 108
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
Net income(2)............. $ 2,266 $ 2,679 $ 4,424 $ 5,552 $ 7,051 $13,226 $ 3,092 $ 4,736 $ 4,736
======= ======= ======= ======= ======= ========= ======= ======= =======
PRO FORMA DATA:(3)
Pro forma income taxes.... $ 5,069 $ 1,852
Pro forma net income...... $ 8,157 $ 2,884
Pro forma net income per
share(4)................ $ 1.08 $ .38
Pro forma weighted average
shares outstanding(4)... 7,548 7,548
OPERATING DATA:
Enrollment(5)............. 4,000 5,600 6,200 6,800 7,400 6,500 7,100
Number of campuses........ 6 8 8 8 8 8 8
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AT MARCH 31, 1996
--------------------------------
AT DECEMBER 31, (UNAUDITED)
----------------------------------------------- PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(6) ADJUSTED(7)
------- ------- ------- ------- ------- ------- -------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 2,572 $ 3,609 $ 2,191 $ 5,564 $ 8,992 $11,905 $ 9,806 $21,764
Working capital.......................... 1,625 3,063 5,195 5,934 9,571 10,944 (5,197 ) 20,803
Total assets............................. 10,465 14,396 16,279 19,824 25,878 29,607 27,508 39,466
Long-term liabilities.................... 605 62 -- -- -- -- -- --
Total liabilities........................ 7,636 10,146 9,651 10,487 10,539 11,043 25,085 11,043
Total stockholders' equity............... 2,829 4,250 6,628 9,337 15,339 18,564 2,423 28,423
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(1) Includes bonus payments to an S Corporation stockholder of the College of $0.2 million in 1991, $0.9 million in 1992, $3.5 million in 1993, $5.5 million in 1994, $6.2 million in 1995 and $1.6 million in the three months ended March 31, 1995 for the payment of income taxes by the S Corporation stockholders on undistributed S Corporation income. No such bonus payments were made during the three-month period ended March 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Background and Overview" and Note 3 to the College's Financial Statements.
(2) Historical data does not reflect any provision for income taxes. The College and ELP were S Corporations during the periods indicated and therefore were not subject to income tax. See "Reorganization -- Termination of S Corporation Status" and "-- Acquisition of ELP."
(3) Reflects the formation of the Company and the acquisition of the College by the Company as if those events had taken place on January 1, 1995. See "Reorganization -- Formation of Holding Company." Following the termination of their status as S Corporations prior to completion of the Offering, the College and ELP will become subject to federal and state income tax. See "Reorganization -- Termination of S Corporation Status" and "-- Acquisition of ELP." The pro forma data reflects the application of statutory corporate income tax rates to net income as if the termination of the S Corporation status of the College and ELP had occurred on January 1, 1995. The effective derived income tax rates for the year ended December 31, 1995 and for the three months ended March 31, 1996 were 38.3% and 39.1%, respectively. For the year ended December 31, 1995, also gives effect to the reduction of costs and expenses by $6.2 million, which represents compensation payments to an S Corporation stockholder of the College in respect of 1995 income taxes on undistributed S Corporation income.
(4) Shares outstanding and per share data have been adjusted to reflect the number of shares outstanding after the Reorganization and the issuance of 1,548,181 shares of Common Stock in connection with the Offering necessary to pay the $14.0 million S Corporation Distribution. See "Reorganization" and Note 3 to the College's Financial Statements.
(5) Reflects student enrollment as of the beginning of the Fall academic quarter for each year indicated and as of the beginning of the Winter academic quarter for the three months ended March 31, 1995 and March 31, 1996, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality."
(6) Reflects (i) the April 1996 distribution of $2.1 million to the S Corporation stockholders of the College in respect of income taxes on estimated S Corporation income for the five-month period ending May 31, 1996, (ii) the recognition of a liability for the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996 of $14.0 million to be paid from the proceeds of the Offering, but without giving effect to the Offering proceeds, and (iii) the acquisition of the College by the Company, as if those events occurred on March 31, 1996.
(7) Gives effect to the pro forma adjustments described in note (6) above and the receipt and application of the estimated net proceeds of the Offering as described under "Use of Proceeds." The adjustment for net proceeds of the Offering includes $14.0 million of the $18.5 million S Corporation Distribution identified in "Use of Proceeds." The $14.0 million S Corporation Distribution adjustment is based on the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996, while the $18.5 million S Corporation Distribution also reflects the estimated additional undistributed S Corporation income accumulated from April 1, 1996 through the termination of S Corporation status. The estimated $18.5 million amount is subject to adjustment for actual S Corporation income of the College in the latter period.
RISK FACTORS
In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Shares offered hereby. Certain statements included in this Prospectus concerning the Company's future financial condition and performance are forward-looking statements and the factors discussed below could cause actual results and developments to be materially different from those expressed in or implied by such statements.
POTENTIAL ADVERSE EFFECTS OF REGULATION
The College is subject to extensive regulation by governmental agencies and licensing and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (the "HEA"), and the regulations issued thereunder subject to significant regulatory scrutiny the College and all other higher education institutions that participate in the various federal student financial aid programs under Title IV of the HEA ("Title IV Programs"). The HEA mandates specific regulatory responsibilities for each of the following components of the higher education regulatory triad: (i) the federal government through the United States Department of Education (the "Department of Education"); (ii) the accrediting agencies recognized by the Department of Education; and (iii) state higher education regulatory bodies.
For the year ended December 31, 1995, the College derived approximately 46% of its revenues from Title IV Programs. Certain recently enacted statutory and regulatory provisions impose new requirements on the College, and the Department of Education has not fully developed administrative interpretations of these requirements. Therefore, it is not clear how the new requirements will be applied and interpreted. In addition, changes in, or new interpretations of, other applicable laws, rules or regulations could have a material adverse effect on the College's accreditation, authorization to operate in various states, permissible activities or costs of doing business. The College's failure to maintain or renew any required regulatory approvals, accreditations or authorizations would have a material adverse effect on the College. See "Licensing, Accreditation and Financial Aid Regulation."
Certain significant regulatory factors that could adversely affect the College are discussed below:
Loss of State Authorization and Accreditation. The College is dependent on the authorization of the applicable agency of each state where the College is offering educational programs to allow it to operate and to grant degrees or diplomas. State authorization and accreditation by an accrediting agency recognized by the Secretary of Education are also required in order for an institution to become and remain eligible to participate in Title IV Programs. The College is subject to extensive regulation by its accrediting agency, Middle States, and by its state licensing agencies, the District of Columbia Education Licensure Commission, the Virginia State Council of Higher Education and, when the College establishes a campus in Maryland, the Maryland Higher Education Commission. State laws and regulations and accrediting agency standards affect the College's operations and may limit the ability of the College to introduce educational programs or to obtain authorization to operate at certain locations or in certain states. The loss of accreditation would, among other things, render the College ineligible to participate in Title IV Programs and would have a material adverse effect on the College. Similarly, the loss of state authorization by the College or an existing campus, or the failure of the College or a new campus to obtain state authorization, would, among other things, render the College ineligible to participate in Title IV Programs for students in that state or location and would have a material adverse effect on the College. See "Licensing, Accreditation and Financial Aid Regulation -- State Licensure" and "-- Accreditation."
Student Loan Defaults; Loss of Eligibility to Participate in Title IV Programs. Under the HEA, an educational institution may lose its eligibility to participate in some or all Title IV Programs if defaults on the repayment of federally guaranteed student loans exceed certain rates. These rates (known as "cohort default rates") are based on the repayment history of current and former students on loans provided under certain Title IV Programs. The Department of Education calculates a cohort default rate for each institution by determining the rate at which borrowers who become subject to their repayment obligation in one federal fiscal year default by the end of the following federal fiscal year. Any institution that has a cohort default rate equal to or exceeding 25% for three consecutive years is subject to immediate loss of eligibility to participate in
certain Title IV Programs for a period of up to three federal fiscal years. The College's cohort default rates on federally guaranteed student loans for the 1991, 1992 and 1993 federal fiscal years, the most recent federal fiscal years for which final information is available, were 14.1%, 10.6% and 16.6%, respectively. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation -- Student Loan Defaults."
Failure to Demonstrate Administrative Capability. Department of Education regulations specify extensive criteria an institution must satisfy to establish that it has the requisite "administrative capability" to participate in Title IV Programs. The failure by an institution to satisfy any of the criteria may lead the Department of Education to determine that the institution lacks the requisite administrative capability and, therefore, to commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV Programs, or to require additional scrutiny as a condition of continued participation. A cohort default rate on federally guaranteed student loans equal to or exceeding 25% in any one of the three most recent federal fiscal years is a basis for such a determination by the Department of Education.
Based on an inspection conducted by the Office of Inspector General of the Department of Education in mid-1992, the Department of Education concluded that there were serious deficiencies at that time in the College's administration of federal student financial aid programs. The Department of Education cited late and unpaid refunds, lack of refund notification, unpaid credit balances, a high student withdrawal rate, lack of exit counseling documentation, incorrect loan certifications and missing financial aid transcripts. Because of these deficiencies, the Department of Education transferred the College from the "advance" system of payment, under which the Department of Education accepts an institution's request for funds and transfers the amount requested (subject to annual audit), to the "reimbursement" system of payment, under which the institution must disburse funds to eligible students and document their eligibility for the aid requested before receiving funds from the Department of Education. The College disputed various of the Department of Education's findings, but took steps to correct certain institutional weaknesses identified in the report. Further, following an internal audit, the College in 1993 and 1994 repaid to the government certain Title IV funds for which the College determined its documentation was inadequate. Following these remedial actions, the Department of Education returned the College to the advance system of payment, effective December 7, 1995. The Department of Education could impose additional sanctions in the future if it determined that the College lacks the capability to administer federal student financial aid programs. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation -- Administrative Capability."
Failure to Demonstrate Financial Responsibility. The HEA and the regulations issued thereunder impose new standards of financial responsibility on eligible higher education institutions. These standards require, among other things, that a proprietary institution such as the College meet an "acid test" ratio (defined as the ratio of cash, cash equivalents and current accounts receivable to current liabilities) of at least 1-to-1 at the end of the institution's most recent fiscal year. For the fiscal year ended December 31, 1995, the College's "acid test" ratio was equal to 1.44-to-1. In addition, an eligible institution may be required to submit an irrevocable letter of credit, payable to the Department of Education, in an amount equal to 25% of the total dollar amount of refunds that the institution paid on Title IV Programs in the previous fiscal year unless the institution meets certain conditions that indicate student refunds will be paid. The College has obtained such a letter of credit in the amount of $500,000. Failure of the College to meet the financial responsibility standards would, among other things, render the College ineligible to participate in Title IV Programs and would have a material adverse effect on the College. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation -- Financial Responsibility."
Regulatory Consequences of a Change in Ownership Resulting in a Change of Control. A change in ownership resulting in a change of control of the College, depending on the type of transaction that gives rise to a change, may have significant regulatory consequences for the College. Such a change in ownership could trigger a requirement for recertification by the Department of Education, reauthorization by certain state licensing agencies or a review of the College's accreditation by Middle States. Based in part on advisory letters that the Department of Education, Middle States and certain of the applicable state authorizing agencies issued in connection with the Offering, the Company does not believe that the Reorganization or the Offering will constitute a change in ownership resulting in a change of control under these standards. Nevertheless,
upon completion, the Reorganization and the Offering must be reported to the Department of Education, Middle States and applicable state licensing agencies, and the reporting could subject the College to further review by any of those bodies. After the Offering, upon a change of control sufficient to require the College to file a Form 8-K with the Securities and Exchange Commission, the College would cease to be eligible to participate in Title IV Programs until recertified or provisionally certified by the Department of Education. In addition, the College's accrediting agency, Middle States, requires institutions that it accredits to inform it and, if required, to obtain its approval, in advance of any substantive change, including a change that significantly alters the ownership or control of the institution. The District of Columbia Education Licensure Commission may require an institution licensed by it to apply to amend its license prior to a change in ownership. Although the Department of Education does not treat retirement or death of an owner as a change in ownership resulting in a change of control if ownership and control are transferred to a member of the owner's family or to certain members of the institution's management, District of Columbia, Virginia and Maryland law and Middle States policies do not specifically address such changes. Consequently, one or more regulatory entities could require reporting, review or reauthorization upon a change in ownership resulting from an owner's retirement or death. If the College undergoes a change in ownership and is not recertified or provisionally certified by the Department of Education, does not obtain reauthorization from the necessary state agencies or has its accreditation withdrawn, the change would have a material adverse effect on the College. See "Licensing, Accreditation and Financial Aid Regulation -- Change in Ownership Resulting in a Change of Control."
Other Regulations. In addition to the regulations discussed above, the College is subject to compliance with numerous other regulatory requirements. These requirements include additional financial responsibility standards; compliance with a rule known as the "85/15 Rule" that limits an institution's dependence on Title IV Program funds; and restrictions on adding new locations and programs. In addition, the College is prohibited from offering its employees incentive compensation or other payments or gifts that might constitute inducements to secure enrollments. Failure of the College to comply with these regulations would, among other things, render the College ineligible to participate in Title IV Programs and would have a material adverse effect on the College. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation."
LACK OF EXPERIENCE IN OPERATING CAMPUSES IN MARYLAND
The College's business strategy includes the establishment of new campuses in the State of Maryland pursuant to approval granted in early 1996 by the Maryland Higher Education Commission. See "Business -- Business Strategy." Although the College formerly operated a campus in Baltimore, Maryland, oriented toward secretarial and clerical training, the College closed that campus in 1992, and management has no experience in operating a degree-granting higher education institution under Maryland state regulatory requirements. There can be no assurance that the College will be successful in establishing any campuses in Maryland, or that any campus established in Maryland will be profitable.
COMPETITION
The post-secondary education market in the College's market area is highly competitive. The College competes with traditional public and private two-year and four-year colleges, other for-profit schools and alternatives to higher education, such as employment and military service. Public colleges may offer programs similar to those of the College at a lower tuition level as a result of government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to proprietary institutions. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The College is highly dependent on certain of its personnel, particularly Ron K. Bailey, the College's President. The loss of Mr. Bailey's services or those of one or more of the College's other significant employees could have a material adverse effect on the College's financial condition and results of operations. The College believes that its future success will depend upon its ability to continue to attract, motivate and retain highly
skilled, managerial, recruitment and marketing, and academic personnel. The College does not carry key-man life insurance on its key personnel. There can be no assurance that the College will continue to be successful in attracting and retaining the personnel it requires. See "Management."
RISKS RELATING TO SEL PROGRAM
In 1995, Strayer began originating educational loans under the SEL Program to eligible students as part of its strategy to reduce its administrative expenses, lessen its dependence on federal student financial aid programs and attract and retain qualified students. The amounts of these loans originated in 1995 and the three months ended March 31, 1996 were approximately $1.4 million and $650,000, respectively. See "Business -- SEL Program." The College intends to expand the SEL Program following completion of the Offering. Strayer will be exposed to the risk of losses associated with this type of unsecured lending. The College has operated the SEL Program only for a limited period and for this reason is unable to evaluate fully its underwriting standards.
ABILITY TO MANAGE GROWTH
The College experienced a period of rapid growth from 1989 to 1992 that strained the College's financial and management information systems and other resources. See "Licensing, Accreditation and Financial Aid Regulation -- State Licensure" and "-- Financial Aid Regulation -- Administrative Capability." Although the College has made a substantial investment in augmenting these systems and resources to support future growth, there can be no assurance that the College will be able to manage any further expansion effectively. Failure to do so would have a material adverse effect on the College's financial condition, results of operations and regulatory compliance.
SEASONALITY
The Company's quarterly results of operations tend to vary significantly within a year because of student enrollment patterns. Enrollment is lower in the third, or summer, quarter than in the other three quarters. The Company expects that these seasonal trends will continue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality."
CONCENTRATION OF SHARE OWNERSHIP; ANTI-TAKEOVER EFFECT
Ron K. Bailey, jointly with his spouse (the "Current Stockholders"), currently owns all of the College's outstanding capital stock. See "The Company." Upon completion of the Offering, the Current Stockholders will beneficially own approximately 66.7% of the Company's outstanding Common Stock. As a result, the Current Stockholders will have the ability to elect all of the Company's directors and to determine the outcome of corporate actions requiring stockholder approval. These facts may have the effect of delaying or preventing a change in control of the Company or causing a change in control of the Company which may not be favored by the Company's other stockholders. The Company will be authorized to issue up to 5,000,000 shares of Preferred Stock in one or more series, having terms fixed by the Board of Directors without stockholder vote. Issuance of these shares could also be used as an anti-takeover device. The Board of Directors has no current intentions or plans to issue any Preferred Stock. See "Principal Stockholders" and "Description of Capital Stock." In addition, a change in ownership resulting in a change of control of the Company could trigger a requirement for recertification of the College by the Department of Education, a review of the College's accreditation by Middle States or reauthorization by certain state licensing agencies. These factors may tend to discourage attempts to acquire control of the Company from the Current Stockholders. See "Licensing, Accreditation and Financial Aid Regulation -- Change in Ownership Resulting in a Change of Control."
BENEFITS OF THE OFFERING TO AFFILIATES
Approximately $19.7 million of the net proceeds of the Offering will be used to make payments to affiliates of the Company. Of this amount, approximately $18.5 million (subject to adjustment) will be paid to
the Current Stockholders as the S Corporation Distribution and approximately $1.2 million will be paid to Ron K. Bailey, a Current Stockholder, in connection with the Company's acquisition from Mr. Bailey of an education loan servicing company. See "Reorganization," "Use of Proceeds" and "Certain Transactions."
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after the Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations between the Company and the Representative of the Underwriters. See "Underwriting" for a discussion of factors considered in determining the initial public offering price. The trading price of the Company's Common Stock may be subject to wide fluctuations in response to quarterly variations in operating results, new regulations or interpretations of regulations, announcements of new programs and locations by the Company or its competitors, or other factors. Those factors, as well as general economic, political and market conditions, may adversely affect the market price of the Common Stock.
DIVIDEND POLICY
Although the Company intends to establish an initial policy of declaring cash dividends, there can be no assurances that dividends will be paid. The payment and rate of future dividends are subject to the discretion of the Board of Directors and will depend upon the Company's earnings, financial condition, capital needs and regulatory considerations. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, there will be 9,000,000 shares of Common Stock of
the Company outstanding (excluding 700,000 shares issuable upon exercise of
options held by employees of the Company). Of these shares, all of the 3,000,000
shares of Common Stock sold in the Offering will be freely transferable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act, generally
may be resold only in compliance with applicable provisions of Rule 144. The
remaining 6,000,000 shares of Common Stock will be held by the Current
Stockholders and are "restricted securities" as that term is defined in Rule
144. The Company and the Current Stockholders have agreed not to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into or exercisable or exchangeable for shares of Common Stock (subject, in the
case of the Company, to an exception for the grant of options under the
Company's stock option plan), for a period of 180 days after the date of this
Prospectus without the consent of the Representative of the Underwriters.
Commencing 90 days after the date of this Prospectus, and subject to such
consent, all but 1,000 of the 6,000,000 shares owned by the Current Stockholders
will be eligible for sale in the public market subject to compliance with the
volume limitations and other restrictions of Rule 144. See "Shares Eligible for
Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Investors in the Offering will experience an immediate and substantial dilution in net tangible book value of $6.71 per Share and may experience further dilution upon the exercise of outstanding stock options by certain executive officers and employees. See "Dilution."
THE COMPANY
The College is a regional proprietary institution of higher education accredited by Middle States that offers business-oriented undergraduate and graduate degree programs at eight campuses in Washington, D.C. and Northern Virginia. At the beginning of the 1995 Fall quarter, approximately 7,400 Strayer students were pursuing studies in accounting, business administration, computer information systems, economics, marketing and general studies.
The College has provided educational services for over 100 years since it began operations in Baltimore, Maryland in 1892 with the founding of Strayers Business College of Baltimore City by Dr. S. Irving Strayer. The College was incorporated under Maryland law in April 1898. In 1904, Dr. Strayer and his business partner, Thomas W. Donoho, started a business school in the District of Columbia. In 1928, the Strayer College of Accountancy was founded and was licensed to confer associate's and professional degrees by the District of Columbia Board of Higher Education. The Business College and the College of Accountancy operated concurrently, in the same building, until 1958, when the two institutions began to offer instruction as Strayer Junior College of Finance. Shortly thereafter, the two schools were incorporated as Strayer Junior College, Inc. The schools principally provided clerical and secretarial training until 1969, when Strayer was first licensed to grant bachelor's degrees at its Washington, D.C. campus. Strayer College, Inc. and Strayer Junior College, Inc. merged in 1973, and the College was accredited in that year as a Senior College of Business by the Accrediting Commission of the Association of Independent Colleges and Schools.
The Donoho family transferred ownership of the College in 1980 to Dr. Charles Palmer. In 1981, the College obtained Middle States accreditation and received approval from the Virginia State Council of Higher Education to offer programs at a campus in Arlington, Virginia. The Middle States accreditation did not extend to the Baltimore campus, which remained a clerical and secretarial institution. The College was authorized to award master's degrees in 1987, and opened a campus in Alexandria, Virginia in 1988.
In 1989, Mr. Ron K. Bailey, jointly with his wife, acquired all of the outstanding capital stock of the College. Under Mr. Bailey's management, Strayer closed the Baltimore campus and inaugurated a program of significant expansion in the greater Washington, D.C. area that resulted in the opening of five new campuses by the end of 1992: Woodbridge in 1989; Manassas in 1990; Loudoun in 1991; and Fredericksburg and Takoma Park in 1992. Student enrollment more than tripled from approximately 2,150 students at the beginning of the 1989 Fall quarter to approximately 7,400 students at the beginning of the 1995 Fall quarter. During the same period, the College focused its attention on its degree programs by broadening its course offerings, increasing the number of faculty members with doctoral and other terminal degrees, expanding its library and other learning resources and investing in information systems.
Upon completion of the Offering, the College will become a wholly-owned subsidiary of the Company. See "Reorganization -- Formation of Holding Company."
The Company's executive offices are located at 1025 Fifteenth Street, N.W., Washington, D.C. 20005. Its telephone number is (202) 408-2400.
REORGANIZATION
In connection with the Offering, the Company and the College will take certain corporate actions described below, which are collectively referred to in this Prospectus as the "Reorganization."
FORMATION OF HOLDING COMPANY
Prior to the Reorganization, the Company's business was conducted through the College. In anticipation of the Offering, the Company was incorporated in Maryland on May 10, 1996, and on May 15, 1996, the Company issued 1,000 shares of Common Stock to Mr. and Mrs. Ron K. Bailey, the Current Stockholders of the College. Upon completion of the Offering, the Company will acquire 100% of the outstanding capital stock of the College from the Current Stockholders in exchange for 5,999,000 shares of Common Stock. Thereafter, the College will be operated as a wholly-owned subsidiary of the Company.
TERMINATION OF S CORPORATION STATUS
The College has elected to be treated for federal income and certain state tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code of 1986 and comparable state laws. As a result, earnings of the College for prior tax years have been included in the taxable income of its stockholders, and the College has not been subject to income tax on those earnings for federal and most state tax purposes.
The College has made regular payments to Ron K. Bailey, a Current Stockholder, in respect of the expected tax liabilities of the Current Stockholders for income earned by the College that was treated as having been earned by the Current Stockholders. These amounts were treated as compensation and are reflected as general and administration expense in the College's Financial Statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Background and Overview." In April 1996, the College made a distribution in the amount of $2.1 million to the Current Stockholders, which represents the Current Stockholders' estimated tax liability for S Corporation income expected to be earned during the five-month period ending May 31, 1996.
Prior to completion of the Offering, the College's S Corporation status will terminate. Termination of S Corporation status will subject the College to federal and state income taxes with respect to income earned after the termination date.
In connection with termination of its S Corporation status, the College will declare to the Current Stockholders a dividend (the "S Corporation Distribution"), which will be paid out of the net proceeds of the Offering. See "Use of Proceeds." The S Corporation Distribution, in the amount of approximately $18.5 million, will be equal to the amount of the previously recognized and undistributed S Corporation income on which the Current Stockholders have paid, or will pay, income tax. The estimated $18.5 million amount is subject to adjustment for actual S Corporation income during the period prior to termination of S Corporation status. Purchasers of Shares in the Offering will not be entitled to the S Corporation Distribution. Following completion of the Reorganization, the Company and its subsidiaries will be subject to corporate income taxation on a consolidated basis. See Note 3 to the College's Financial Statements.
ACQUISITION OF ELP
Beginning in 1995, educational loans under the SEL Program have been purchased from the College and serviced by an affiliated company, Education Loan Processing, Inc. ("ELP"). Ron K. Bailey, President and a Director of the Company and the founder of ELP, has been ELP's sole stockholder. Upon completion of the Offering, the Company will purchase from Mr. Bailey for cash all of the capital stock of ELP, which will become a wholly-owned subsidiary of the Company. The purchase price for the ELP capital stock will be equal to the net book value of ELP on the date of acquisition. As of March 31, 1996, ELP's net book value was $1.2 million. The purchase price will be paid out of the net proceeds of the Offering. The Company also intends to apply a portion of the net proceeds of the Offering to fund ELP's operations. See "Use of Proceeds." Prior to the Offering, ELP has elected to be treated as an S Corporation for federal income and certain state tax purposes. In connection with the Reorganization, ELP's S Corporation status will terminate and ELP will become subject to federal and state income taxes with respect to income earned after the termination date.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby, after deducting the underwriting discount and estimated Offering expenses payable by the Company, are expected to be approximately $27.2 million (approximately $31.4 million if the Underwriters' over-allotment option is exercised in full).
Net proceeds of the Offering of approximately $19.7 million will be applied to make payments to affiliates of the Company. Of this amount, approximately $18.5 million (subject to adjustment) will be used to fund the S Corporation Distribution to the Current Stockholders and approximately $1.2 million will be paid to Ron K. Bailey, President of the Company, in connection with the Company's acquisition of ELP. See "Reorganization -- Termination of S Corporation Status" and "-- Acquisition of ELP."
Of the remaining net proceeds of approximately $7.5 million, approximately $3.5 million will be used to fund ELP operations, up to approximately $3.0 million will be used for the possible acquisition of one or more campus facilities from unaffiliated parties and the balance, if any, will be used for other corporate purposes. See "Business -- Business Strategy" and "Certain Transactions -- Transactions with ELP." As of the date of this Prospectus, the College has not exercised its purchase option under any lease for the acquisition of a campus facility.
Pending their application, the net proceeds of the Offering will be invested in short-term, investment-grade, interest-bearing securities.
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the actual capitalization of the College, (ii) the pro forma capitalization of the Company after giving effect to the acquisition of the College by the Company, the distribution of $2.1 million to the Current Stockholders in April 1996 in respect of income taxes on estimated S Corporation income for the five-month period ending May 31, 1996 and the recognition of a current liability for the estimated S Corporation Distribution of $14.0 million (subject to adjustment) to be paid from the proceeds of the Offering and (iii) the capitalization of the Company as adjusted to give effect to the receipt of the net proceeds of the Offering, the payment of the S Corporation Distribution and the acquisition of ELP. See "Reorganization" and "Use of Proceeds."
MARCH 31, 1996
---------------------------------
(UNAUDITED)
PRO AS
ACTUAL FORMA ADJUSTED(1)
------- ------- -----------
(IN THOUSANDS)
Distribution payable to stockholders........................... $ -- $14,042 $ --
Long-term debt................................................. -- -- --
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued or outstanding............. -- -- --
Common Stock:
$10 par value, 500 shares authorized; 375.5 shares
issued and outstanding............................. 4 -- --
$.01 par value, 20,000,000 shares authorized;
6,000,000 and 9,000,000 shares issued and
outstanding, respectively.......................... -- 60 90
Additional paid-in capital................................ 1,142 1,142 27,112
Retained earnings......................................... 17,163 966 966
Net unrealized gains on investments....................... 255 255 255
------- ------- -----------
Total stockholders' equity........................... $18,564 $ 2,423 $28,423
======= ======= =========
Total capitalization................................. $18,564 $16,465 $28,423
======= ======= =========
|
(1) The adjustment for the S Corporation Distribution is $14.0 million based on the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996. The S Corporation Distribution of $18.5 million identified in "Use of Proceeds" reflects the estimated additional undistributed S Corporation income accumulated from April 1, 1996 through the termination of S Corporation status. The estimated $18.5 million amount is subject to adjustment for actual S Corporation income of the College in the latter period.
DIVIDEND POLICY
After the Offering, the Company intends to establish an initial policy of declaring quarterly cash dividends at the rate of $0.0625 per share ($0.25 annually) on the Company's Common Stock. The amount of dividends payable in the future will be reviewed periodically by the Company's Board of Directors in light of the Company's earnings, financial condition, capital needs and regulatory considerations. There is no requirement or assurance that dividends will be paid.
The College made distributions to the Current Stockholders of $2.8 million in 1994, $3.4 million in 1995 and $650,000 in the three months ended March 31, 1996 for application by the Current Stockholders to the acquisition of campus facilities leased to the College and to the establishment and funding of ELP. See "Certain Transactions -- Lease of Campus Facilities" and "-- Transactions with ELP."
DILUTION
The pro forma net tangible book value of the Company's Common Stock at March 31, 1996 was approximately $2.4 million or $.40 per share. Net pro forma tangible book value represents the amount of the Company's net tangible assets less total liabilities, adjusted to give effect to (i) the formation of the Company, (ii) the acquisition of the College by the Company, (iii) the distribution of $2.1 million to the Current Stockholders in April 1996 in respect of income taxes on estimated S Corporation income of the College for the five-month period ending May 31, 1996 and (iv) the recognition of a current liability for the estimated S Corporation Distribution of $14.0 million (subject to adjustment) to be paid from the proceeds of the Offering divided by the pro forma total number of shares of Common Stock outstanding. After giving effect to the Offering (after deducting the underwriting discount and estimated Offering expenses payable by the Company) and the application of the estimated net proceeds therefrom as described under "Use of Proceeds," the adjusted pro forma net tangible book value of the Company at March 31, 1996 would have been approximately $29.6 million or $3.29 per share. This represents an immediate increase in net tangible book value of $2.89 per share to existing stockholders and an immediate dilution of $6.71 per share to the persons purchasing Shares in the Offering ("New Investors"). The following table illustrates this per share dilution:
Assumed initial public offering price per share.............. $10.00
Pro forma net tangible book value per share at
March 31, 1996........................................ $ .40
Increase per share attributable to New Investors........ 2.89
-----
Adjusted pro forma net tangible book value per share after
the Offering(1)............................................ 3.29
------
Dilution per share to New Investors.......................... $ 6.71
======
|
(1) The adjustment for net proceeds of the Offering includes $14.0 million of the $18.5 million S Corporation Distribution identified in "Use of Proceeds." The $14.0 million S Corporation Distribution adjustment is based on the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996, while the $18.5 million S Corporation Distribution also reflects the estimated additional undistributed S Corporation income accumulated from April 1, 1996 through the termination of S Corporation status. The estimated $18.5 million amount is subject to adjustment for actual S Corporation income of the College in the latter period.
The following table summarizes, on a pro forma basis, at March 31, 1996, the differences between existing stockholders and the New Investors with respect to the number of shares purchased from the Company, the total consideration paid and the average price per share paid:
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
Existing stockholders.................. 6,000,000 66.67% $ 3,801,000(1) 11.25% $ 0.63
New Investors.......................... 3,000,000 33.33 30,000,000 88.75 $ 10.00
--------- ------- ----------- -------
Total............................. 9,000,000 100.00% $33,801,000 100.00%
======== ====== ========== ======
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SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA AMOUNTS)
The following table sets forth, for the periods and at the dates indicated, financial data for the College. The financial information as of December 31, 1993, 1994 and 1995 and for each of the years then ended has been derived from the College's Financial Statements, which statements have been audited by Coopers & Lybrand L.L.P., independent public accountants. The financial information as of December 31, 1991 and 1992 and for the years then ended has been derived from the College's Financial Statements, which statements have been audited by other independent public accountants. The information set forth below is qualified by reference to and should be read in conjunction with the College's Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The unaudited selected combined financial information as of March 31, 1995 and 1996 and for each of the three-month periods then ended has been derived from the unaudited combined financial statements of the College for each respective period presented and, in the opinion of management, reflects all adjustments, consisting only of normal adjustments, necessary for a fair presentation of the results of operations for these periods. The results of operations of the College for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. The combined pro forma financial data does not purport to represent what the College's financial position or results of operations would actually have been had these events in fact occurred on the date or at the beginning of the periods indicated or to project the Company's financial position or results of operations for any future date or period.
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, -----------------------------------
-------------------------------------------------------------
PRO (UNAUDITED)
FORMA PRO
1995(3) FORMA
1991 1992 1993 1994 1995 ----------- 1995 1996 1996(3)
------- ------- ------- ------- ------- (UNAUDITED) ----------- ----------- -------
INCOME STATEMENT DATA:
Revenues
Tuition................. $16,008 $22,961 $28,545 $33,238 $36,934 $36,934 $ 9,989 $ 11,570 $11,570
Fees and other.......... 521 832 823 1,019 1,262 1,262 646 845 845
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
16,529 23,793 29,368 34,257 38,196 38,196 10,635 12,415 12,415
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
Costs and expenses
Instruction and
education support..... 7,399 9,262 14,185 14,740 16,168 16,168 4,042 4,577 4,577
Selling and promotion... 2,023 2,758 3,092 3,667 4,281 4,281 836 974 974
General and
administration(1)..... 5,027 9,278 7,847 10,648 11,522 5,347 2,810 2,205 2,205
Provision for student
loan losses........... -- -- -- -- 49 49 3 31 31
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
14,449 21,298 25,124 29,055 32,020 25,845 7,691 7,787 7,787
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
Income from
operations............ 2,080 2,495 4,244 5,202 6,176 12,351 2,944 4,628 4,628
Investment and other
income................ 186 184 180 350 875 875 148 108 108
------- ------- ------- ------- ------- ----------- ----------- ----------- -------
Net income(2)........... $ 2,266 $ 2,679 $ 4,424 $ 5,552 $ 7,051 $13,266 $ 3,092 $ 4,736 $ 4,736
======= ======= ======= ======= ======= ========= ======= ======= =======
PRO FORMA DATA:(3)
Pro forma income taxes.... $ 5,069 $ 1,852
Pro forma net income...... $ 8,157 $ 2,884
Pro forma net income per
share(4)................ $ 1.08 $ .38
Pro forma weighted average
shares outstanding(4)... 7,548 7,548
OPERATING DATA:
Enrollment(5)............. 4,000 5,600 6,200 6,800 7,400 6,500 7,100
Number of campuses........ 6 8 8 8 8 8 8
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AT MARCH 31, 1996
--------------------------------
AT DECEMBER 31, (UNAUDITED)
----------------------------------------------- PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(6) ADJUSTED(7)
------- ------- ------- ------- ------- ------- -------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 2,572 $ 3,609 $ 2,191 $ 5,564 $ 8,992 $11,905 $ 9,806 $21,764
Working capital.......................... 1,625 3,063 5,195 5,934 9,571 10,944 (5,197 ) 20,803
Total assets............................. 10,465 14,396 16,279 19,824 25,878 29,607 27,508 39,466
Long-term liabilities.................... 605 62 -- -- -- -- -- --
Total liabilities........................ 7,636 10,146 9,651 10,487 10,539 11,043 25,085 11,043
Total stockholders' equity............... 2,829 4,250 6,628 9,337 15,339 18,564 2,423 28,423
|
(footnotes on following page)
(1) Includes bonus payments to an S Corporation stockholder of the College of $0.2 million in 1991, $0.9 million in 1992, $3.5 million in 1993, $5.5 million in 1994, $6.2 million in 1995 and $1.6 million in the three months ended March 31, 1995 for the payment of income taxes by the S Corporation stockholders on undistributed S Corporation income. No such bonus payments were made during the three-month period ended March 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Background and Overview" and Note 3 to the College's Financial Statements.
(2) Historical data does not reflect any provision for income taxes. The College and ELP were S Corporations during the periods indicated and therefore were not subject to income tax. See "Reorganization -- Termination of S Corporation Status" and "-- Acquisition of ELP."
(3) Reflects the formation of the Company and the acquisition of the College by the Company as if those events had taken place on January 1, 1995. See "Reorganization -- Formation of Holding Company." Following the termination of their status as S Corporations prior to completion of the Offering, the College and ELP will become subject to federal and state income tax. See "Reorganization -- Termination of S Corporation Status" and "-- Acquisition of ELP." The pro forma data reflects the application of statutory corporate income tax rates to net income as if the termination of the S Corporation status of the College and ELP had occurred on January 1, 1995. The effective derived income tax rates for the year ended December 31, 1995 and for the three months ended March 31, 1996 were 38.3% and 39.1%, respectively. For the year ended December 31, 1995, also gives effect to the reduction of costs and expenses by $6.2 million, which represents compensation payments to an S Corporation stockholder of the College in respect of 1995 income taxes on undistributed S Corporation income.
(4) Shares outstanding and per share data have been adjusted to reflect the number of shares outstanding after the Reorganization and the issuance of 1,548,181 shares of Common Stock in connection with the Offering necessary to pay the $14.0 million S Corporation Distribution. See "Reorganization" and Note 3 to the College's Financial Statements.
(5) Reflects student enrollment as of the beginning of the Fall academic quarter for each year indicated and as of the beginning of the Winter academic quarter for the three months ended March 31, 1995 and March 31, 1996, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality."
(6) Reflects (i) the April 1996 distribution of $2.1 million to the S Corporation stockholders in respect of income taxes on estimated S Corporation income for the five-month period ending May 31, 1996, (ii) the recognition of a liability for the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996 of $14.0 million to be paid from the proceeds of the Offering, but without giving effect to the Offering proceeds, and (iii) the acquisition of the College by the Company, as if those events occurred on March 31, 1996.
(7) Gives effect to the pro forma adjustments described in note (6) above and the receipt and application of the estimated net proceeds of the Offering as described under "Use of Proceeds." The adjustment for net proceeds of the Offering includes $14.0 million of the $18.5 million S Corporation Distribution identified in "Use of Proceeds." The $14.0 million S Corporation Distribution adjustment is based on the estimated amount of previously recognized and undistributed S Corporation income of the College through March 31, 1996, while the $18.5 million S Corporation Distribution also reflects the estimated additional undistributed S Corporation income accumulated from April 1, 1996 through the termination of S Corporation status. The estimated $18.5 million amount is subject to adjustment for actual S Corporation income of the College in the latter period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND OVERVIEW
The College is a regional proprietary institution of higher education offering undergraduate and graduate degree programs at eight campuses in the greater Washington, D.C. area. Strayer Education, Inc., a Maryland corporation, was incorporated in May 1996 to acquire all of the outstanding capital stock of the College from Mr. and Mrs. Ron K. Bailey, the Current Stockholders of the College. Upon completion of the Offering, Strayer Education, Inc. also will acquire all of the outstanding capital stock of ELP, which services loans under the SEL Program. Upon completion of the Offering, the College and ELP will each be direct subsidiaries of Strayer Education, Inc. See "Reorganization."
Revenues, operating income and net income have increased in each of the last three years. From 1993 through 1995, revenues increased 30.0%, operating income increased 45.5% and net income increased 59.4%. Over the three-year period, tuition revenue accounted for approximately 97.0% of total revenue. The number of students increased 19.3% from approximately 6,200 at the beginning of the 1993 Fall quarter to approximately 7,400 at the beginning of the 1995 Fall quarter. Tuition rates increased approximately 15% over the three years. During the three-year period, the College relocated three campuses to larger facilities, expanded information technology course offerings, added more week-end classes and increased its marketing programs. The opening of five new campuses from 1989 to 1992 contributed to enrollment growth during the 1993-95 period, since enrollment growth rates at a campus historically have been the greatest in the early years following commencement of operations at the campus. In 1995, the College added personnel in the areas of human resources, facilities management and administration to support its plans for expansion. The costs of these additional personnel are reflected in general and administrative expense.
The College's principal source of revenue is tuition collected from its students. The academic year of the College is divided into four quarters which approximately coincide with the four quarters of the calendar year. Students generally must pay the entire tuition for each course prior to the beginning of the quarter. If a student withdraws from a course prior to completion, the College refunds a portion of the tuition which reflects the percentage of the course completed. When students register for courses, tuition is recorded as deferred revenues, which are recognized as courses are taught through the academic quarter. Revenues also consist in part of fees and other revenues derived principally from application fees, "no show" fees and bookstore sales. When a student registers for a course but does not attend any classes, which can have the effect of denying a place in the course to another student, the College imposes a "no show" fee. Student enrollment information presented herein reflects enrollment as of the beginning of the Fall academic quarter for the applicable year and as of the beginning of the Winter academic quarter for the applicable interim period.
The College records tuition receivable when students register for the academic quarter, generally prior to the end of the previous academic quarter. Because the College's academic quarters coincide with the calendar quarter, tuition receivable at the end of any calendar quarter largely represents student tuition for the following academic quarter which is included in current liabilities as deferred tuition revenue. Based upon past experience and judgment, the College establishes an allowance for doubtful accounts with respect to accounts receivable not included in deferred tuition revenue. Any uncollected account more than six months past due is charged against the allowance. The College's historical bad debt expense as a percentage of revenue for the years ended December 31, 1993, 1994 and 1995 was 2.9%, 1.9% and 1.7%, respectively, and for the three months ended March 31, 1996 was 0.8%.
The College's expenses consist of instruction and educational support expense, selling and promotion expense and general and administration expense. Instruction and educational support expense generally contains items of expense directly attributable to the educational activity of the College. This expense category includes salaries and benefits of faculty, academic administrators, and student support personnel, including financial aid officers, registrars and career counselors. Instruction and educational support expense also includes costs of educational supplies and facilities, including rents on campus leases, certain costs of
establishing and maintaining computer laboratories and all other physical plant and occupancy costs with the exception of costs attributable to one floor of the Arlington campus used for administrative purposes.
Selling and promotion expense includes salaries and benefits of personnel engaged in recruitment, admissions, promotion and development, as well as costs of advertising and production of marketing materials.
General and administration expense includes salaries and benefits of personnel engaged in accounting, personnel, compliance and other business functions and plant and occupancy costs attributable to such functions. Further, as discussed below, general and administration expense before 1996 reflected payments made to Ron K. Bailey for taxes payable by the Current Stockholders in respect of the College's income.
Prior to 1996, the College each year paid to Ron K. Bailey amounts sufficient to pay the income tax liabilities of the Current Stockholders for income earned by the College as a corporation electing under Subchapter S of the Internal Revenue Code of 1986. These amounts were paid as bonuses (subject to payroll taxes and benefits) and were reflected in general and administration expense. The bonus payments totaled $3.5 million, $5.5 million, $6.2 million and $1.6 million in 1993, 1994, 1995 and the three months ended March 31, 1995, respectively. Beginning January 1, 1996, amounts previously paid to Mr. Bailey for taxes payable in respect of the College's income are being paid to Mr. and Mrs. Bailey as distributions to stockholders and not to Mr. Bailey as a bonus. Unlike bonuses, such distributions are not reflected as general and administrative expense. The College will continue to make distributions to stockholders for taxes payable in respect of the College's income until the College's S Corporation status terminates prior to completion of the Offering. Following such termination, the Company and its subsidiaries will be subject to corporate income taxation on a consolidated basis.
Investment and other income consists principally of earnings on investments.
Historically, inflation has not had a significant effect on the results of operations of the College or ELP.
RESULTS OF OPERATIONS
The following table sets forth certain combined income statement data as a percentage of revenues for the periods indicated:
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
Revenues:
Tuition............................................ 97.2% 97.0% 96.7% 93.9% 93.2%
Fees and other..................................... 2.8 3.0 3.3 6.1 6.8
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Instruction and educational support................ 48.3 43.0 42.3 38.0 36.9
Selling and promotion.............................. 10.5 10.7 11.2 7.9 7.8
General and administration......................... 26.7 31.1 30.2 26.4 17.8
Provision for student loan losses.................. .0 .0 .1 .0 .2
----- ----- ----- ----- -----
Income from operations.................................. 14.5 15.2 16.2 27.7 37.3
Investment and other income............................. .6 1.0 2.3 1.4 .9
----- ----- ----- ----- -----
Net income.............................................. 15.1% 16.2% 18.5% 29.1% 38.1%
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THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues. Tuition revenue increased 15.8% from $10.0 million in the first quarter of 1995 to $11.6 million in the first quarter of 1996, due to a 10.0% increase in the number of students and a 7.0% tuition increase effective for 1996. Fees and other revenue increased 30.8% from $.6 million in the first quarter of
1995 to $.8 million in the first quarter of 1996, principally as a result of the increase in the number of students in the 1996 quarter.
Instruction and educational support expense. Instruction and educational support expense increased 13.2% from $4.0 million in the first quarter of 1995 to $4.6 million in the first quarter of 1996. The increase was primarily attributable to an increase in library costs associated with a new computer system providing students with access to substantially more resource materials, increased financial aid costs due to the engagement of an outside contractor to manage the student loan default rate and improve financial aid administration and increased physical plant and occupancy costs resulting from the relocation of the Woodbridge campus to a new and larger facility with a higher lease rate.
Selling and promotion expense. Selling and promotion expense increased 16.5% from $.8 million in the first quarter of 1995 to $1.0 million in the first quarter of 1996, due to increased advertising costs, particularly for television advertising.
General and administration expense. General and administration expense decreased 21.5% from $2.8 million in the first quarter of 1995 to $2.2 million in the first quarter of 1996, due principally to the elimination of bonuses payable to Ron K. Bailey, as discussed above. Excluding the bonus of $1.6 million paid to Mr. Bailey in the first quarter of 1995, general and administration expense would have increased 90.3% from $1.2 million in the earlier period to $2.2 million in the later period. The increase primarily reflected costs of the addition of personnel in the areas of human resources, facilities management and administration and the effects of a 7.0% pay increase implemented in the fourth quarter of 1995.
Income from operations. Income from operations increased 57.2% from $2.9 million in the first quarter of 1995 to $4.6 million in the first quarter of 1996. Excluding the bonus of $1.6 million paid to Mr. Bailey in the first quarter of 1995, income from operations would have been unchanged.
Net income. Net income increased 53.2% from $3.1 million in the first quarter of 1995 to $4.7 million in the first quarter of 1996. Excluding the bonus of $1.6 million paid to Mr. Bailey in the first quarter of 1995, net income would have been unchanged.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Tuition revenue increased 11.1% from $33.2 million in 1994 to $36.9 million in 1995, due to a 8.8% increase in the number of students in 1995 and a 7.1% tuition increase effective for 1995. Average course credits per student were lower in 1995 than in 1994. Fees and other revenue increased 23.8% from $1.0 million in 1994 to $1.3 million in 1995, primarily as a result of the enrollment growth, an increase in "no show" fees, which the College first imposed in 1994, and interest income on student loans.
Instruction and educational support expense. Instruction and educational support expense increased 9.7% from $14.7 million in 1994 to $16.2 million in 1995. Salaries and benefits for instructional personnel in all of the College's educational programs were higher as a result of salary increases, the addition of personnel to support increased enrollments and the hiring of full-time managers for the computer laboratory at each campus. Physical plant and occupancy costs also increased substantially in 1995 because of the relocation of the Manassas and Woodbridge campuses to new and larger facilities with higher lease rates. Partially offsetting those increases were reduced expenditures for student financial aid in 1995.
Selling and promotion expense. Selling and promotion expense increased 16.7% from $3.7 million in 1994 to $4.3 million in 1995, due principally to increased advertising costs, particularly for television advertising.
General and administration expense. General and administration expense increased 8.2% from $10.6 million in 1994 to $11.5 million in 1995, due principally to an increase in the bonus paid to Ron K. Bailey. Excluding the bonuses in both years, general and administrative expense would have increased 4.4% from $5.2 million in 1994 to $5.4 million in 1995. The increase was primarily attributable to higher personnel costs incurred by the addition of new administrative staff to support expansion of the College's on-site programs and graduate enrollment. The effect of the increase was partially offset by lower financing costs
resulting from the College's return in 1995 to full access to Title IV Programs. In 1993 and 1994, regulatory action prevented the College from making full use of Title IV student financial aid for its students. In order to make loans available on terms comparable to federally guaranteed student loans, the College contracted with a private company, which purchased institutional loans to students at a substantial discount from their face value. The discount was recorded as a cost of financing reflected in general and administrative expense. In 1995, there was no comparable cost of financing expense.
Income from operations. Income from operations increased 18.7% from $5.2 million in 1994 to $6.2 million in 1995 because of the factors discussed above.
Net income. Net income increased 27.0% from $5.6 million in 1994 to $7.1 million in 1995 because of the factors discussed above.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Tuition revenue increased 16.4% from $28.5 million in 1993 to $33.2 million in 1994, due to a 9.7% increase in the number of students in 1994 and a 7.7% tuition increase effective for that year. Fees and other revenue increased 23.8% from $.8 million in 1993 to $1.0 million in 1994, principally as a result of the enrollment growth in 1994.
Instruction and educational support expense. Instruction and educational support expense increased 3.9% from $14.2 million in 1993 to $14.7 million in 1994. Salaries and benefits for instructional personnel were higher in all of the College's educational programs other than computer information systems. A 6.0% salary increase for all personnel was effective in 1994. Library costs were also higher, due to the addition of personnel, books and equipment to support expansion of learning resources centers at all campuses. Financial aid and placement costs increased as the College engaged an outside firm to augment regulatory compliance and improve the financial aid system. The effect of these increases was partially offset by a substantial reduction in physical plant and occupancy costs as a result of the expiration of two leases on premises previously occupied by the College in Huntington, Virginia.
Selling and promotion expense. Selling and promotion expense increased 18.6% from $3.1 million in 1993 to $3.7 million in 1994, due principally to increased advertising and marketing. The College increased its newspaper and magazine advertising by approximately 50% in 1994, radio advertising by approximately 40%, and television advertising by approximately 25%. The College also hired an additional full-time marketing employee in 1994.
General and administration expense. General and administration expense increased 35.7% from $7.8 million in 1993 to $10.6 million in 1994, principally because of a substantial increase in the bonus paid to Ron K. Bailey. Excluding the bonuses in both years, general and administrative expense would have increased 18.4% from $4.5 million in 1993 to $5.2 million in 1994. This increase was primarily attributable to a 6.0% salary increase for all administrative personnel, an increase in the payment of outside consulting fees and an increase in the number of administrative personnel.
Income from operations. Income from operations increased 22.6% from $4.2 million in 1993 to $5.2 million in 1994 because of the factors discussed above.
Net income. Net income increased 25.5% from $4.4 million in 1993 to $5.6 million in 1994 because of the factors discussed above.
SEASONALITY
The Company's quarterly results of operations tend to vary significantly within a year because of student enrollment patterns. Enrollment is lower in the third, or summer, quarter than in the other three quarters. In 1995, enrollments at the beginning of the Winter, Spring, Summer and Fall academic quarters were 6,475, 6,510, 4,775 and 7,455, respectively. Costs are generally not affected by the seasonal factors and do not vary significantly on a quarterly basis. To some extent, however, instructional and educational support expense is lower in the third quarter because fewer part-time faculty are needed.
The following table sets forth the Companies' revenues on a quarterly basis for the years ended December 31, 1993, 1994 and 1995 and for the three months ended March 31, 1996:
QUARTERLY REVENUE
(DOLLARS IN THOUSANDS)
1993 1994 1995 1996
----------------- ----------------- ----------------- -------
THREE MONTHS ENDED AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
- ------------------------------------ ------- ------- ------- ------- ------- ------- -------
March 31............................ $ 8,822 30% $ 9,169 26% $10,635 28% $12,415
June 30............................. 7,663 26 8,427 25 9,690 25
September 30........................ 5,607 19 7,501 22 7,203 19
December 31......................... 7,276 25 9,160 27 10,667 28
------- ------- ------- ------- ------- -------
Total for Year............ $29,368 100% $34,257 100% $38,196 100%
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LIQUIDITY AND CAPITAL RESOURCES
Since its acquisition by Ron K. Bailey in 1989, the College has financed its activities through cash generated from operations. Cash generated from the combined operations, after payment of bonuses to Mr. Bailey, was $1.3 million in 1993, $9.1 million in 1994 and $8.5 million in 1995. Cash generated from operations has been sufficient to fund purchases of property and equipment and to make distributions to the Current Stockholders for application by them to the acquisition of campus facilities leased to the College and to the establishment and funding of ELP. See "Certain Transactions -- Lease of Campus Facilities" and "-- Transactions with ELP."
The Company expects to realize net proceeds from the Offering, after deducting the underwriting discount and estimated Offering expenses payable by the Company, of approximately $27.2 million. At March 31, 1996, the College had available cash, cash equivalents and marketable securities of $16.1 million. Upon completion of the Offering, the Company will pay approximately $18.5 million (subject to adjustment) to the Current Stockholders to fund the S Corporation Distribution and approximately $1.2 million to Ron K. Bailey in connection with the Company's acquisition of ELP. See "Use of Proceeds." Accordingly, upon completion of the Offering and the foregoing application of net Offering proceeds, the Company expects to have available cash, cash equivalents and marketable securities of $23.6 million. The Company believes that this amount, together with cash generated from operations, will be sufficient to meet its anticipated operating cash requirements, including the funding of student loans, for at least the next 24 months. If the College determines to acquire a campus facility, it may finance the acquisition with indebtedness.
BUSINESS
OVERVIEW
Strayer is a regional proprietary institution of higher education offering undergraduate and graduate degree programs to more than 7,000 students at eight campuses in Washington, D.C. and Northern Virginia. The College is accredited by Middle States, the regional institutional accrediting body recognized by the U.S. Department of Education. The majority of Strayer students are working adults pursuing their first college degree to improve their job skills and advance their careers. Of students enrolled in Strayer programs at the beginning of the 1995 Fall quarter, approximately 57% were over the age of 30 and approximately 62% were engaged in a part-time course of study. The College considers a full-time student to be one who completes 13.5 course credits in an academic quarter or who is enrolled in a master's degree program. In the 1995 Fall quarter, Strayer students completed an average of 9.3 course credits.
Since 1989, when the College came under its current ownership and management, Strayer has evolved from a small traditional business school into a regional college that seeks to meet the special needs of the area's working adult students. The College targets those students that did not go to college immediately after high school or otherwise did not obtain a degree, but who later seek additional education primarily for enhanced career opportunities. Strayer recognizes that a return to school may create special difficulties for these students, some of whom may have been dissatisfied with their secondary education and who must balance educational goals with personal and professional responsibilities. The College emphasizes the following factors to address the needs of working adult students:
- Convenient Locations. Multiple campus locations provide students with convenient access to the College throughout the greater Washington, D.C. area. In early 1996, the College received approval to operate its first degree-granting campus in the State of Maryland, where approximately 20% of the College's current enrollment resides. The College also conducts classes on-site at the Department of Transportation and at the General Services Administration, for employees of the federal government; at Quantico Marine Base, Fort Belvoir Army Education Center and Naval Surface Warfare Center, Dahlgren Division, for active military personnel; and at Computer Sciences Corporation, in Falls Church, Virginia, for company employees. The College has submitted a proposal to offer upper level undergraduate courses at the Southern Maryland Higher Education Center in California, Maryland.
- Flexible Scheduling. The College's eight campuses offer classes seven days a week, with some classes beginning as early as 6:00 a.m. and others lasting as late as midnight. This flexible scheduling allows students to attend classes at the most convenient times, giving them a better chance to complete their programs. The College operates on the quarter system, which allows students to begin their program in any quarter and permits part-time students to complete their programs in less time than at a traditional higher education institution.
- Supportive Learning Environment. The College believes that interaction between teacher and student is important to student success. Accordingly, Strayer limits the size of its classes and focuses the efforts of its faculty on teaching, rather than on research or publishing. All full-time Strayer faculty members maintain convenient office hours to encourage students to seek additional help. The College provides tuition reimbursement for faculty members seeking to update their skills and knowledge.
- Market Responsiveness. The College upgrades and expands its business-oriented curriculum quickly in response to the changing needs of students and employers. Strayer's Curriculum Advisory Board includes representatives of over 20 employers, a majority of whom are from the private sector, and meets regularly to review and recommend curriculum changes to the College. Through its relationships with these and other employers, the College regularly monitors the needs of the market. Centralized decision-making permits the College to implement curriculum changes rapidly.
- SEL Program. Loans under the SEL Program provide students with an alternative to government-sponsored financial aid. The SEL Program enables students to finance their education through monthly payments of principal and interest while they attend college and after they graduate and at interest
rates competitive with federal student loan programs. The SEL Program also contributes to lower administrative costs and enables the College to reduce its dependence on federal student loan funds.
- Capital Availability. Strayer students do not require the capital intensive amenities, such as dormitories, leisure and sports facilities and other plant assets, provided by educational institutions serving a younger, full-time student population. Instead, the College is able to invest its resources in its classroom facilities and instructional programs. By gaining access to the equity capital markets, the College will have an additional source of funds unavailable to public and not-for-profit institutions.
BUSINESS STRATEGY
The College seeks to strengthen its position as a leading provider of business-oriented education for working adults in its market area. To accomplish this objective, the College employs the following strategies:
- Establish Additional Campuses. Strayer intends to increase enrollment at its existing campuses and selectively add new campuses in its current market and contiguous areas. The College plans to begin offering classes in early 1997 at its first degree-granting campus in Maryland, which will be located in Prince George's County. The College believes that additional Strayer campuses in Maryland will help meet an existing demand from Maryland residents and employers for business-oriented programs.
- Expand and Upgrade Curriculum. The College continually considers new course offerings, in existing programs and in new programs, and course upgrades in response to the changing demands of business, industry and government.
- Expand SEL Program. The College intends to expand the SEL Program to give students greater flexibility in financing their education and to reduce its dependence on federal student loan funds. The Company expects to use a portion of the proceeds from the Offering to purchase and fund ELP, an education loan servicing company that serves the SEL Program.
- Control Campus Facilities. The College may seek to control its campus facilities through purchase, as well as through long-term lease. Management believes that permanent campus locations foster institutional stability and market presence and enhance the College's ability to develop and implement financial plans. The College may use a portion of the proceeds from the Offering to purchase one or more of its existing campus facilities.
- Expand Distance Education Programs. The College seeks to offer courses through the Internet, subject to regulatory approval, to give students greater flexibility in completing their programs. The College initiated graduate course offerings through the Internet during the 1996 Winter quarter and offered three graduate courses on-line during the 1996 Spring quarter. The availability of Strayer course offerings on-line may allow the College in the future to expand its student population beyond those geographical areas served by Strayer campuses.
CAMPUS ORGANIZATION
The College organizes its academic programs and administrative operations on a decentralized campus basis to increase its responsiveness to student needs. A Campus Dean and a Campus Coordinator oversee the academic and administrative functions, respectively, at each campus. Each campus is staffed with personnel performing admissions, academic counseling, financial aid and career development functions.
A learning resources center at each campus supports the College's instructional programs. Each learning resources center contains a library and computer laboratories and is operated by a full-time manager and support staff.
CURRICULUM
The College offers a business-oriented curriculum to equip students with specialized knowledge and skills for careers in business, industry and government. The Academic Curriculum Committee reviews and revises the College's course offerings periodically to improve the educational programs and respond to changing and
competitive job markets. The College formed a Curriculum Advisory Board in 1993 to support the program evaluation process. The Curriculum Advisory Board consists of College faculty, current and former Strayer students, and representatives of more than 20 private and federal sector employers in the greater Washington, D.C. area. The Curriculum Advisory Board also studies the career progress of College alumni. The College uses these studies to make decisions about curriculum development, resource allocation and faculty appointments.
The College offers programs in the following areas:
BACHELOR OF SCIENCE (B.S.) DEGREE
Accounting
Business Administration
Computer Information Systems
Economics
ASSOCIATE IN ARTS (A.A.) DEGREE
Accounting
Business Administration
Computer Information Systems
Economics
General Studies
Marketing
MASTER OF SCIENCE (M.S.) DEGREE
Business Administration
Information Systems
Professional Accounting
DIPLOMA (CAREER DIVISION)
Computer Information Systems
Each undergraduate degree program emphasizes oral and written communication skills as well as mathematics and various disciplines in the humanities and social sciences. In addition to its degree programs, the College offers classes to non-degree, non-program students wishing to take courses for personal or professional enrichment. Enrollment of these students at the College has expanded significantly in recent periods.
Although all of the College's programs and courses are offered at each campus, the College adapts its offerings to the preferences of the student population at each location. In addition, Strayer students may enroll in courses at more than one campus. The following table shows Strayer's enrollment by major, degree program and campus location at the beginning of the 1995 Fall quarter:
COLLEGE ENROLLMENT BY MAJOR, DEGREE PROGRAM
AND CAMPUS LOCATION -- 1995 FALL QUARTER
CAMPUS
--------------------------------------------------------------------------------------------------------
WASHINGTON, TAKOMA
MAJOR DEGREE D.C. PARK ARLINGTON ALEXANDRIA WOODBRIDGE LOUDOUN MANASSAS FREDERICKSBURG TOTAL
- ------------------------ ------ ----------- ------ --------- ---------- ---------- ------- -------- -------------- -----
Accounting.............. AA 50 12 11 9 11 10 8 13 124
BS 122 43 70 64 72 56 79 72 578
MS 25 8 28 15 7 7 6 8 104
Business
Administration........ AA 122 42 30 30 29 27 26 50 356
BS 242 90 194 179 192 167 174 168 1,406
MS 83 49 111 77 57 46 52 56 531
Computer Information
Systems............... DP 79 94 47 78 55 39 68 68 528
AA 153 52 62 60 55 52 34 81 549
BS 284 137 243 371 296 244 223 190 1,988
Information Systems..... MS 48 31 75 60 65 36 40 47 402
Economics............... AA 3 -- 1 1 -- -- -- 1 6
BS 10 5 4 8 2 -- 2 -- 31
General Studies......... AA 11 5 8 5 7 -- 1 5 42
Marketing............... AA 7 5 3 5 2 -- 1 1 24
Non-Degree/Non-Program*..NDNP 206 86 144 79 30 134 83 24 786
----- --- ----- ----- --- --- --- --- -----
Total........... 1,445 659 1,031 1,041 880 818 797 784 7,455
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The College allows students to apply credits earned in one program toward attainment of a more advanced degree. For example, a student originally pursuing a Diploma in Computer Information Systems can extend his original objective by taking additional courses leading to an associate's degree in Computer Information Systems, a bachelor's degree in Computer Information Systems, and ultimately a master's degree in Information Systems. The curriculum design provides students a level of competency and a measure of achievement in the event they interrupt their education or choose to work in their field of concentration prior to obtaining their final degree.
The following table illustrates the number of degrees and diplomas conferred by Strayer in each of the last five academic years:
DEGREES AND DIPLOMAS CONFERRED
FOR THE ACADEMIC YEARS 1991 TO 1995
ACADEMIC YEAR ENDED
--------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Diplomas................................... 323 714 826 702 652
Associate's Degrees........................ 115 129 168 217 239
Bachelor's Degrees......................... 285 398 453 673 787
Master's Degrees........................... 91 161 193 290 293
--- -------- -------- -------- --------
Total............................ 814 1,402 1,640 1,882 1,971
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FACULTY
The College seeks to appoint faculty who hold appropriate academic credentials, are dedicated and active professionals in their field, and are committed to teaching working adults. The following chart shows the highest earned degrees of the College's faculty at the beginning of the 1996 Spring quarter:
DISTRIBUTION BY HIGHEST EARNED DEGREE -- 1996 SPRING QUARTER
DEGREES FULL-TIME PART-TIME
--------------------------------------------------------- --------- ---------
Ph.D. ................................................... 21 40
Ed.D. ................................................... 1 3
D.Sc. ................................................... 3 2
J.D. .................................................... 1 11
Master's................................................. 44 185
Bachelor's............................................... -- 17
Other:
D.C.M. ............................................. -- 1
D.P.A. ............................................. -- 2
Th.D. .............................................. -- 1
--
---
Total.......................................... 70 262
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In accordance with its educational mission, the College focuses the efforts of its faculty on teaching. The normal load for a full-time faculty member is four courses per quarter for each of three quarters, or 12 courses per academic year. With the approval of the Campus Deans, faculty members may teach a fifth course per quarter and extra courses during the summer quarter for additional compensation. The College requires full-time faculty members to hold counseling hours at least two hours per week for each course they teach.
Strayer provides financial support for faculty members seeking to update their skills and knowledge. The College maintains a tuition plan that reimburses instructors enrolled in advanced degree programs for one-half of their tuition charges. Strayer conducts annual in-house faculty workshops in each discipline. The College also fully reimburses its faculty for their costs in receiving computer-related instruction and training to keep current in information technology developments.
ACCREDITATION AND APPROVALS
The College was accredited by Middle States in 1981. Accreditation is a system for recognizing educational institutions and their programs for performance, integrity and quality that entitles them to the confidence of the educational community and the public. In the United States, this recognition comes primarily through private voluntary associations of institutions and programs of higher education. These associations establish criteria for accreditation, evaluate institutions and professional programs for accreditation, and publicly designate those which meet their criteria. Accredited schools are subject to periodic review by accrediting bodies to ensure that the schools maintain the performance, integrity and quality required for accreditation.
Middle States reaffirmed the College's accreditation in 1995. The College is required to submit an interim status report to Middle States in 1997, and the next scheduled evaluation visit by Middle States is currently set for the academic year 1999-2000. See "Licensing, Accreditation and Financial Aid Regulation -- Accreditation."
Middle States is the same accrediting agency that grants institutional accreditation to other degree-granting public and private colleges and universities in its region. Accreditation by Middle States is an important attribute of the College. College and university administrators depend on accreditation in evaluating transfers of credit and applications to graduate schools. Employers rely on the accredited status of institutions when evaluating a candidate's credentials, and parents and high school counselors look to accreditation for
assurance that an institution has quality educational standards. Moreover, scholarship commissions often restrict their awards to students attending accredited institutions, and institutional accreditation is necessary to qualify for eligibility for federal student financial assistance.
The College is permitted to grant degrees by each state in which the College offers educational programs. The College is currently licensed by the D.C. Education Licensure Commission and the State Council of Higher Education for Virginia. In February 1996, the Maryland Higher Education Commission approved the College's application to operate in Maryland as an out-of-state institution. See "Licensing, Accreditation and Financial Aid Regulation -- State Licensure."
The College is authorized by the Immigration and Naturalization Service of the U.S. Department of Justice to admit foreign students. The College also employs certain foreign faculty members and administrators in accordance with U.S. immigration laws. See "Licensing, Accreditation and Financial Aid Regulation -- Immigration." In addition, Strayer is approved for the education of veterans and members of the selective reserve and their dependents, as well as for the rehabilitation of handicapped students. Approximately 7% of the College's students are veterans or reservists. See "Licensing, Accreditation and Financial Aid Regulation -- Veterans Benefits."
STUDENT CHARACTERISTICS
The College's students are primarily working adults. At the beginning of the 1995 Fall quarter, approximately 62% of the enrollment consisted of part-time students and approximately 69% attended classes at night or on week-ends. Women constituted approximately 55% of Strayer's students, and the approximate age distribution of current Strayer students was as follows:
PERCENTAGE
AGE OF STUDENTS
----------------------------------------------------------------- -----------
21 and under..................................................... 8%
22 to 29......................................................... 32%
30 to 39......................................................... 35%
40 to 49......................................................... 19%
50 and over...................................................... 3%
Unknown.......................................................... 3%
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At the beginning of the 1995 Fall quarter, approximately 69% of the College's enrollment consisted of Virginia residents. Maryland residents and District of Columbia residents accounted for 20% and 11% of the enrollment, respectively. Reflecting the attraction of the greater Washington, D.C. area for international students, students from over 50 countries collectively represented 9% of the 1995 Fall quarter enrollment.
STUDENT RECRUITMENT
The College focuses its recruitment efforts on attracting students with the motivation and ability to complete its business-oriented educational programs. To generate interest among potential students, Strayer's marketing staff primarily employs direct mailings and television, radio and newspaper advertising. The College monitors the effectiveness of its various marketing efforts in producing student enrollment. Referrals constitute the most important source of inquiries from potential students.
The marketing department tracks and forwards to the College's admissions representatives responses to its direct mail and advertising campaigns. Admissions representatives at each campus pursue expressions of interest in Strayer by arranging interviews for prospective students. The representatives also conduct campus tours and otherwise assist prospective students in the application process. At March 31, 1996, the College employed 51 admissions representatives.
The College has entered into articulation agreements with Germanna Community College, Northern Virginia Community College and Prince George's Community College to facilitate enrollment of students
seeking to transfer course credits earned at these institutions. The College sponsors recruitment events at the campuses of each of these community colleges.
STUDENT ADMISSIONS
The College seeks to ensure that incoming students have the necessary academic background to succeed in their course of study at Strayer. Students attending the College's undergraduate programs must possess a high school diploma or a General Educational Development Certificate. All students must also pass placement exams or submit acceptable standardized test scores. For admission to the College's degree programs, students must attain a certain level of proficiency in English and mathematics. Students attending the College's graduate programs must have a bachelor's degree from an accredited institution. If a student's undergraduate major varies widely from the student's proposed graduate course of study, certain undergraduate foundation courses may be necessary for admission to some of the highly technical courses offered at the graduate level.
International students applying for admission must meet the same admission requirements as other students. Those students whose native language is not English must provide evidence that they are able to use the English language with sufficient facility to do college-level work in an English-speaking institution.
TUITION AND FEES
Strayer charges tuition by the credit hour. All courses offered are 4.5 credit hours. As of January 1, 1996, undergraduate, full-time students are charged at the rate of $160 per credit hour. Undergraduate, part-time students are charged at the rate of $170 per credit hour. Courses in graduate programs are charged at the rate of $230 per credit hour. Accordingly, a full-time student seeking to obtain a bachelor's degree in four years currently would pay approximately $7,200 per year in tuition. The College implemented tuition increases of 8.3%, 7.7% and 7.1% in 1993, 1994 and 1995, respectively.
Generally, tuition must be paid (or arrangements made therefor) prior to the beginning of a quarter. If a student withdraws from a course before completion, federal regulations permit the College to retain a specified percentage of the tuition, which varies with the percentage of the course completed.
Students finance their Strayer education in a variety of ways. A significant number of students utilize federal financial aid programs. In addition, many of Strayer's working adult students finance their own education or receive full or partial tuition reimbursement from their employers. Strayer offers grants, loans (including loans under the SEL Program), scholarships and work-study programs as financing options for its students. Strayer students are eligible to receive awards from the Strayer College Educational Foundation, a non-profit organization that provides scholarships and grants to college students, active duty military personnel and high school students in the greater Washington, D.C. area. Through March 31, 1996, the Foundation has awarded $42,000 in grants and scholarships.
SEL PROGRAM
In 1995, Strayer began the SEL Program of loans for eligible students as an alternative to government-sponsored student loans. In 1995 and the three months ended March 31, 1996, the College originated SEL loans of approximately $1.4 million and $650,000, respectively. The SEL Program enables the College to reduce the significant administrative costs incurred by it in processing loans under Title IV Programs and lessens the College's dependence on federal student financial aid programs. The College believes that the SEL Program also helps it to attract and retain qualified students.
The College designed the SEL Program for working adult students. The loans have maturities ranging from one to six years and bear interest at a fixed rate that is competitive with rates under Title IV Programs. Monthly loan payments begin the first month after the loan date and generally vary between $200 and $300, including loan principal as well as interest. Borrowers make principal payments while still enrolled, thereby reducing the debt they otherwise would assume upon completion of their studies. At March 31, 1996, there were a total of 739 loans outstanding with an aggregate loan balance of approximately $1.3 million and an average individual loan balance of approximately $1,700.
Loans under the SEL Program are unsecured. Strayer's underwriting involves a credit evaluation of each applicant. See "Risk Factors -- Risks of SEL Program."
All loans under the SEL Program are purchased from the College and serviced by an affiliated company, ELP. Upon completion of the Offering, the Company will acquire ELP, which thereafter will be operated as a wholly-owned subsidiary of the Company. See "Reorganization -- Acquisition of ELP" and "Certain Transactions -- Transactions with ELP." The College intends to expand the SEL Program after the Offering. A portion of the net proceeds of the Offering will be applied to fund ELP's operations. See "Use of Proceeds."
STUDENT RETENTION
Strayer dedicates significant resources to assisting students in overcoming the personal and academic obstacles that can interfere with completion of a course of study. Each campus provides students with scheduled tutoring sessions and with academic counseling centers that are staffed by full-time faculty members for eight hours each week day. In addition, the College assigns each student an academic adviser and offers developmental courses for students whose record indicates a need for academic support. Strayer considers factors relating to student retention in the performance evaluation of every full-time faculty member.
Notwithstanding Strayer's student retention programs, some students at the College, as in other higher education institutions, end their studies prior to program completion. In the last five award years, the College's student withdrawal rate ranged from approximately 23% to approximately 27%. The withdrawal rate for the 1994-95 federal award year was 23.7%. Student withdrawals have a negative regulatory, financial and marketing effect on the College. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation -- Administrative Capability." The College experiences some decline in student enrollment during each academic quarter from the enrollment level at the beginning of the quarter. The College is obligated to make refunds of unearned tuition with respect to students who withdraw during an academic quarter.
CAREER DEVELOPMENT SERVICES
The College actively assists its students and alumni with job placement and other career-related matters through career development offices located at all eight campuses. Strayer's career development personnel conduct workshops on employment-related topics (including resume preparation, interviewing techniques and job search strategies), maintain job listings, arrange campus interviews by employers and provide other placement assistance. The College sponsors career fairs in the Fall and Spring quarters for students and alumni to discuss career opportunities with companies and governmental agencies in the greater Washington, D.C. area. Over 50 employers attended the career fair held in the 1995 Fall quarter.
The College conducts annual alumni surveys to monitor the career progression of its graduates and to comply with Middle States and state requirements to perform outcome assessments. The reliability of the survey data largely depends on the information reported to the College. The 1995 alumni survey, which had an approximately 10% overall response rate, indicated that only 5% of those responding were unemployed. Approximately 77% of undergraduate alumni indicated that their Strayer education sufficiently prepared them for their present occupation and approximately 80% of graduate degree alumni credit Strayer for the achievement of their professional goals. According to the survey, Strayer's greatest assets, in order of importance, are campus locations, schedule variety, instructor knowledge and class sizes.
Strayer students and graduates are employed in a wide range of regional and local companies, many of whom are in the information technology industry. Federal governmental agencies also provide a significant source of employment.
COMPETITION
The postsecondary education market in Strayer's market area is highly competitive. The College competes with traditional public and private two-year and four-year colleges, other for-profit schools and
alternatives to higher education, such as employment and military service. Public colleges may offer programs similar to those of the College at a lower tuition level, due to government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to proprietary institutions. Tuition at private institutions is generally higher, and in some cases significantly higher, than the tuition at the College. Many of the College's competitors have greater financial and personnel resources than the College.
The College competes with other educational institutions primarily based on the quality of its business-oriented curriculum and instruction, its flexible schedules and convenient classroom locations, and its responsiveness to changing educational requirements of the workplace. Few of the College's competitors have modified their programs to meet the special needs of working adult students, although management believes that more may do so in the future.
EMPLOYEES
At March 31, 1996, the College employed 332 faculty members, of whom 70 were full-time and 262 part-time, and 269 non-faculty staff in information systems, financial aid, recruitment and admissions, payroll and human resources, corporate accounting and other administrative functions. Of the College's non-faculty staff, 190 were employed full-time and 79 part-time.
LEGAL PROCEEDINGS
By letter dated April 11, 1996, an attorney representing one former and three present employees of the College made demand upon the College for payment to preclude further action by the claimants with respect to certain allegations of various forms of discrimination. The claimants consist of one current administrator of the College, who has filed a discrimination claim with the Equal Employment Opportunity Commission (the "EEOC"), two faculty members who are former College administrators, one of whom has taken no administrative action and the other of whom has filed a discrimination claim with the EEOC and the Arlington County Office of Human Rights (the latter claim having been subsequently withdrawn), and one former clerical employee, who has filed a discrimination claim with the Alexandria Office of Human Rights. Each claim is based on a different set of facts and alleges different forms of discrimination, including gender, race and national origin. Although no suits have been filed, the attorney representing each of the claimants in the above noted letter sent on behalf of the four claimants has made demand for $500,000 and attorneys' fees for each claimant. The College has investigated each of the matters and believes it has meritorious defenses in each. Accordingly, the College intends to present its position strongly in the event of litigation. There can be no assurance that the College will be successful in these matters; however, the College does not believe that the ultimate resolution of these matters will have a material impact on the College's financial position or results of operations.
From time to time, the College is involved in litigation and other legal proceedings arising out of the ordinary course of its business. As of the date of this Prospectus, there were no pending material legal proceedings to which the Company was subject or to which the Company's property was subject.
NEW CAMPUSES
The College considers a number of factors in determining the location of a new campus. The site must be in an area where the College has (or can obtain) the necessary regulatory authorization to do business, where there is proximity to a large number of working adults and where there is a concentration of technology-oriented employers. The College normally avoids areas it believes are adequately served by competitive institutions. Within an appropriate area, specific site selection involves criteria such as convenience and accessibility.
The Company expects to incur operating losses at each new campus for at least the first year of operations. Initial enrollment is expected to include existing Strayer students for whom the new campus would be more convenient. This shift would have a negative effect on enrollment at other Strayer campuses. Approximately 20% of the current student body consists of Maryland residents, and a substantial portion of these students are expected to enroll at Strayer's first degree-granting Maryland campus when it opens. Over
time, enrollment at that campus is expected to come from other working adults in the area and from students attending other institutions.
PROPERTIES
The College leases its eight campuses, five of which are owned by corporations controlled by the College's President, Ron K. Bailey. The leases with these corporations all have ten-year terms expiring in 2006, with three five-year renewal terms. Of the remaining leases, two have terms that expire in 1999 and 2002, respectively, with one and two five-year renewal options, respectively, and the third lease has a term that expires in 1998, with a three-year renewal option. With the exception of the Arlington campus lease, the leases contain purchase options. See "Certain Transactions -- Lease of Campus Facilities" and Note 8 to the College's Financial Statements. The table below sets forth certain information regarding each of the College's properties at March 31, 1996:
NUMBER OF
NUMBER OF COMPUTER AREA IN
LOCATION CLASSROOMS WORKSTATIONS SQUARE FEET
------------------------------------------- ---------- ------------ -----------
Washington, D.C............................ 21 89 30,000
Alexandria, Virginia....................... 15 71 22,000
Arlington, Virginia........................ 12 80 26,000
Woodbridge, Virginia....................... 17 64 20,800
Manassas, Virginia......................... 17 52 20,800
Loudoun Campus (Ashburn), Virginia......... 13 76 21,000
Fredericksburg, Virginia................... 13 62 17,500
Takoma Park (Washington, D.C.)............. 15 48 21,800
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The campuses are easily accessible to major highways or urban thoroughfares or to the Washington, D.C. area metrorail subway system. The teaching facilities at each campus are housed in an air-conditioned building that includes spacious classrooms, a student lounge, faculty offices, a bookstore and a learning resources center. Seven of the campuses provide free parking.
The College actively monitors facility capacity in light of current utilization and projected enrollment growth. Since 1990, the College has relocated its downtown Washington, D.C., Alexandria, Woodbridge and Manassas campuses to newer and larger facilities and has completed extensive renovations to the Arlington campus. Management believes the College can accommodate a significant increase in student enrollment at most of its campuses and can acquire additional capacity for other campuses on acceptable terms.
LICENSING, ACCREDITATION AND FINANCIAL AID REGULATION
STATE LICENSURE
The College is dependent on the authorization of the applicable agency of each state within which the College offers educational programs to allow it to operate and to grant degrees or diplomas to students. The College is subject to extensive regulation in each of the two jurisdictions (the District of Columbia and Virginia) in which it currently operates. State laws and regulations affect the College's operations and may limit the ability of the College to introduce educational programs or obtain authorization to operate in certain states. State authorization is also required in order for an institution to become and remain eligible to participate in Title IV programs.
The College was granted a permanent license by the D.C. Education Licensure Commission (the "D.C. Commission") in 1990 following the purchase of the College by the Current Stockholders. If the D.C. Commission finds an accredited institution in full compliance with D.C. licensure requirements, the D.C. Commission grants a permanent license, which remains in effect indefinitely, subject to periodic review and amendment due to change in ownership, accreditation status, location, degrees or certificates offered, and other conditions.
After the opening of the Takoma Park campus in 1992, the D.C. Commission conducted a site visit and issued an evaluation report containing certain findings of deficiency with respect to advertising and publications, graduate programs, governance, administration, budgeting, library and computer facilities and resources, student outcomes assessment, student health and other services, and access for disabled students. The D.C. Commission is authorized to grant a provisional license based on its determination that an institution complies, or within a reasonable period of time can comply, with all applicable regulatory requirements. A provisional license is issued for a fixed period of time and may be subject to conditions which the D.C. Commission deems necessary to achieve full compliance. In March 1993, the D.C. Commission granted the College a provisional license for a period of three years on the conditions that, among others, the College submit a progress report by March 1994 and employ a compliance specialist to assist it in meeting licensure requirements. The College engaged a compliance specialist and submitted a progress report to the D.C. Commission in February 1994.
In March 1996, the D.C. Commission extended the College's provisional license through March 1997, with a site visit planned for the Fall of 1996. During that site visit the Commission is expected to review the College's progress in addressing past compliance concerns, the College's operations after the change in ownership resulting from the Offering and other matters. Because of these considerations and the likelihood that a permanent license would require amendment in the near future, the College intends to apply for renewal of its provisional license for the maximum five-year period.
The College began offering its educational programs in Virginia in 1981. The Virginia State Council of Higher Education approved the College's Northern Virginia site in 1982. On November 15, 1995, the State Council of Higher Education for Virginia granted the College a term of full approval ending November 30, 1998.
In 1995, the College applied to establish a branch campus in Prince George's County, Maryland, to offer degree-granting programs up to the master's degree level in accounting, business administration and computer information systems. On February 27, 1996, the Maryland Higher Education Commission ("MHEC") advised the College of the approval of its application to operate in Maryland as an out-of-state institution. After the College has identified a Maryland campus site in Prince George's County, the College expects to submit a renewal application to MHEC, as well as an application to Middle States for extension of the College's accreditation to the Maryland campus. The College plans to begin offering instruction at the Maryland campus in early 1997. MHEC has given the College permission to offer courses at the Computer Sciences Corporation facilities in Hanover, Maryland, beginning in July 1996.
ACCREDITATION
An institution must be accredited by an accrediting agency recognized by the Department of Education in order to be eligible to participate in Title IV Programs. The HEA requires accrediting agencies recognized by the Department of Education to review many aspects of an institution's operations in order to ensure that the education or training offered by the institution is of sufficient quality to achieve, for the duration of the accreditation period, the stated objective for which the education or training is offered. Under the Higher Education Amendments of 1992, a recognized accrediting agency must perform regular inspections and reviews of institutions of higher education, including unannounced site visits of institutions such as the College that provide vocational education and training. In accordance with that requirement, Middle States conducted an unannounced site visit to the College in April 1996 and in its report stated that Strayer had represented itself with honesty and integrity regarding its prebaccalaureate occupationally specific programs.
Middle States accredited the College in 1981 and reaffirmed the College's accreditation in November 1995. The College is required to submit an interim status report in 1997, which will address planning efforts as they relate to expansion of enrollments and additional off-campus sites and to facilities. Middle States' next scheduled evaluation visit to the College is currently set for the academic year 1999-2000. Middle States is scheduled to apply for continued recognition by the Department of Education in 1996 and has updated certain of its policies to conform to new HEA requirements. The College expects that its next accreditation review will be conducted under the new requirements.
IMMIGRATION
The College is authorized by the Immigration and Naturalization Service ("INS") of the U.S. Department of Justice to admit foreign students. The College also employs certain foreign faculty members and administrators in accordance with U.S. immigration laws. Foreign students, other than resident aliens, intending citizens, and residents of certain Pacific islands, are ineligible to participate in Title IV Programs. Immigration legislation pending in Congress may further restrict the availability of student financial aid to foreign students. The College has established procedures designed to comply with U.S. immigration laws. If the College fails to comply with these laws, the INS could take enforcement action, which could result in the withdrawal of foreign students enrolled at Strayer, loss of authorization to admit foreign students or loss of foreign faculty members and administrators.
FINANCING STUDENT EDUCATION
In 1995, approximately 42% of the College's students participated in one or a combination of several of the federally supported student financial aid programs. A substantial portion (approximately 46% in 1995) of the College's revenues are derived from tuition financed under Title IV Programs.
The College's financial aid programs are designed to assist eligible students whose financial resources are inadequate to meet the cost of education. Aid is awarded on the basis of financial need, generally defined under the HEA as the difference between the cost of attending a program of study and the amount a student can reasonably be expected to contribute to those expenses. All recipients of financial aid must maintain a satisfactory grade point average and progress in a timely manner toward completion of a program of study.
Title IV Programs
The College maintains eligibility for its students to participate in the following Title IV Programs:
Federal Family Education Loans. Pursuant to the Federal Family Education Loan Program (the "FFEL Program"), which includes the Federal Stafford Loan ("Stafford") program and the Federal PLUS program, students and their parents can obtain subsidized and unsubsidized student loans. Repayment of Stafford loans is deferred until six months after the student graduates or withdraws. Students who demonstrate financial need may qualify for a subsidized Stafford loan, and the federal government will pay the interest on the loan while the student is in school and for six months after the student's graduation or withdrawal. Unsubsidized Stafford loans are available to a student in an amount up to the difference between the student's estimated cost of attendance at the institution and the estimated financial assistance reasonably available to that student. The unsubsidized Stafford loan program now incorporates the former Federal Supplemental Loans for Students ("SLS") program. In 1995, approximately 36.8% of the College's revenues were derived from Stafford loans. PLUS Loans are made available to parents of dependent students and accounted for approximately 1.0% of the College's revenues in 1995. The maximum amount of any PLUS loan is the difference between the student's estimated cost of attendance at the institution and the estimated financial assistance reasonably available to that student.
Pell Grants. Grants under the Federal Pell Grant ("Pell") program, which are available to eligible students based on financial need and other factors, accounted for approximately 5.1% of the College's revenues in 1995.
Campus-Based Programs. The "campus-based" Title IV Programs include the Federal Supplemental Educational Opportunity Grant program, the Federal Work-Study program, and the Federal Perkins Loan ("Perkins") program. These programs are "campus-based" because the institution has significant responsibilities for program administration. Tuition received by the College under the campus-based programs accounted for less than 1.0% of the College's revenues in 1995.
Direct Student Loans. In 1993, Congress enacted the William D. Ford Direct Loan Program (the "Direct Loan Program"), under which the Department of Education makes loans directly to students, rather than guaranteeing loans made by lending institutions. The Direct Loan Program has been phased in, with 104 schools nationwide selected to participate in the first year of the program (1994-95) and over 1,350 schools
selected to participate in the second year (1995-96). The College has been selected to participate in this program beginning on July 1, 1996.
Other Financial Aid Programs
In addition to the College's own student loan and scholarship programs, eligible students at the College may participate in educational assistance programs administered by the U.S. Department of Veterans Affairs, the U.S. Department of Defense, the District of Columbia and private organizations.
FINANCIAL AID REGULATION
To be eligible to participate in Title IV Programs, the College must comply with specific standards and procedures set forth in the HEA and the regulations issued thereunder by the Department of Education. To participate in Title IV Programs, an institution must be an "eligible institution," which requires, among other things, that the institution be authorized by each state within which it operates to offer its educational programs and be accredited by a recognized accrediting agency. See "Business -- Accreditation and Approvals." The institution must also be certified by the Department of Education to participate in Title IV Programs, which requires, among other things, that the institution meet certain standards of administrative capability and financial responsibility. The College is currently certified to participate in Title IV Programs. The HEA requires the Department of Education to recertify every institution of higher education participating in Title IV Programs by July 23, 1997, on a schedule established by the Department. The College expects that the Department of Education will require it to apply for recertification in the near future.
The regulatory scheme applicable to the College has been subject to frequent revisions, many of which have increased the level of scrutiny to which higher education institutions are subjected and raised the applicable standards. In enacting the Higher Education Amendments of 1992 and the Higher Education Technical Amendments of 1993, Congress imposed significant new and more stringent standards governing institutions participating in Title IV Programs, including new standards for institutional eligibility and the timing, scope of and procedures for eligibility and certification reviews, accrediting agency approval and review by state review entities. The new standards are designed to limit institutional dependence on Title IV Program funds, prevent institutions with unacceptable student loan default rates from participating in Title IV Programs and, in general, require institutions to satisfy certain criteria intended to protect the integrity of the Title IV Programs, notably criteria regarding administrative capability and financial responsibility.
The new standards are consistent with the increased scrutiny and regulation to which providers of postsecondary education have been subjected as a result of increased concern over fraud and abuse in Title IV Programs. Congress and the Department of Education have recently focused in particular upon the operations of proprietary institutions, such as the College. Certain elements of the regulatory scheme applicable to the College are described below.
Increased Regulatory Scrutiny
The 1992 amendments to the HEA formalized, modified and strengthened the regulatory structure known as the "Program Integrity Triad," which consists of the Department of Education, recognized accrediting agencies, and state higher education regulatory bodies. Congress intended this initiative to increase the regulatory scrutiny of postsecondary educational institutions. In addition to the Program Integrity Triad, other participants in Title IV Programs, notably guarantee agencies, also have enforcement authority.
As a result of the implementation of the Program Integrity Triad, institutions of higher education are subject to greater scrutiny by the Department of Education, accrediting agencies and possibly state agencies. In February 1996, the Department of Education issued an advance notice of proposed rulemaking that proposes to provide regulatory relief to institutions that have records of outstanding performance in administering Title IV programs and strong financial responsibility, while focusing the Department of Education's monitoring and oversight activities on institutions that present a high risk to federal funds. The regulatory standards in effect at the time of reviews by regulatory authorities and the College's compliance
with those standards may affect the operations of the College and its ability to participate in Title IV Programs.
Administrative Capability
Recent Department of Education regulations specify extensive criteria by which an institution must establish that it has the requisite "administrative capability" to participate in Title IV Programs. As discussed below, the administrative capability standards include certain requirements relating to the institution's cohort default rates and its withdrawal rate for its undergraduate regular students. To meet the administrative capability standards, an institution must also not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension, and must not otherwise appear to lack administrative capability.
If the Department of Education determines that an institution is not administratively capable solely because it fails to comply with the cohort default rate standards of administrative capability, the Department will certify the institution's continuing eligibility to participate in Title IV Programs on a provisional basis for no more than three years. During the period of provisional certification, the institution must comply with any additional conditions included in its program participation agreement. If the Department of Education determines that a provisionally certified institution is unable to meet its responsibilities under its program participation agreement, it may revoke the institution's provisional certification and terminate its participation in Title IV programs.
The College measures its student withdrawal rate in accordance with Department of Education regulations, which until July 1, 1995, required institutions such as the College to calculate student withdrawal rates based on an eight-month period, and which currently require calculation based on the federal award year. In the last five award years, the College's student withdrawal rate ranged from approximately 23% to approximately 27%. The College's withdrawal rate for the applicable eight months of the 1994-95 award year was 23.7%.
Based on an inspection conducted by the Office of Inspector General of the Department of Education in mid-1992, the Department of Education concluded that there were serious deficiencies at that time in the College's administration of federal student financial aid programs. The Department of Education cited late and unpaid refunds, lack of refund notification, unpaid credit balances, a high student withdrawal rate, lack of exit counseling documentation, incorrect loan certifications and missing financial aid transcripts. Because of these deficiencies, the Department of Education transferred the College from the "advance" system of payment, under which the Department of Education accepts an institution's request for funds and transfers the amount requested (subject to annual audit), to the "reimbursement" system of payment, under which the institution must disburse funds to eligible students and document their eligibility for the aid requested before receiving funds from the Department of Education. The College disputed various of the Department of Education's findings but took steps to correct certain institutional weaknesses identified by the Department of Education, including creating new administrative positions dealing with Title IV Programs, hiring additional financial aid officers, increasing training for financial aid officers and other College officials, preparing a financial aid manual, and developing new computer systems. Further, following an internal audit, the College in 1993 and 1994 repaid to the government certain Title IV funds for which the College determined its documentation was inadequate. Following these remedial actions, the Department of Education returned the College to the advance system of payment, effective December 7, 1995.
Based on the Department of Education review, the College's principal guaranty agency, American Student Assistance Corporation ("ASA") imposed a temporary emergency suspension on the College in April 1993. After conducting a program review, ASA limited its guaranty to loans for students who had previous loans guaranteed by ASA. In December 1993, after conducting a followup review, ASA removed the limitation on the College's participation in the FFEL guaranteed student loan programs. In August 1994, ASA advised the College that its corrective measures and plan of action were satisfactory and the program review was closed.
Department of Education regulations permit an institution to enter into a written contract with a third-party servicer for the administration of any aspect of the institution's participation in Title IV Programs. The third-party servicer must, among other obligations, comply with Title IV requirements and be jointly and severally liable with the institution for any violation by the servicer of any Title IV provision. The College has written contracts with two third-party servicers, which it has, as required, reported to the Department of Education. Financial Aid Management for Education, Inc., which has served the College since 1983, certifies FFEL Program loan applications, prepares reports from the College to the Department of Education, issues checks for the Pell and campus-based programs, and issues and collects Perkins loans. ELP provides training for financial aid employees, development and support for automated systems for the administration of Title IV Programs, temporary financial aid staff as needed, consulting and regulatory support for financial aid staff, and compliance audits, storage, and responses to inquiries regarding inactive student files and administration of a default management plan. ELP also serves as liaison between the College and Unger and Associates, Inc., which provides certain default management services to the College in connection with the FFEL Programs, including notices to students of the commencement of their repayment obligations, skiptracing, and preclaims assistance.
Financial Responsibility
Recent amendments to the HEA and the Department of Education's regulations prescribe extensive standards of financial responsibility that institutions such as the College must satisfy to participate in Title IV Programs. Among these standards of financial responsibility are general standards requiring the institution to provide the services described in its official publications and statements; to provide the administrative resources necessary to comply with Title IV requirements; and to meet all of its financial obligations, including required refunds and any repayments to the Department of Education for debts and liabilities incurred in programs administered by the Department. A for-profit institution such as the College must: (i) demonstrate an "acid test" ratio (defined as the ratio of cash, cash equivalents and current accounts receivable to total current liabilities) of at least 1-to-1 at the end of its latest fiscal year; (ii) not have had operating losses in either or both of its two latest fiscal years that in sum result in a decrease in tangible net worth in excess of 10% of the tangible net worth at the beginning of the two-year period; and (iii) have had a positive tangible net worth for its latest fiscal year. For the fiscal year ended December 31, 1995, the College's "acid test" ratio was equal to 1.44 to 1. Unless the institution meets specific alternative criteria, it must submit an irrevocable letter of credit, payable to the Department of Education, in an amount equal to 25% of the total dollar amount of refunds that the institution paid on Title IV Programs in the previous fiscal year. The College has obtained such a letter of credit in the amount of $500,000. An institution will not be considered to be financially responsible if it or a person exercising substantial control over it meets certain detailed indicators of poor past performance, including unpaid liabilities for Title IV violations, recent limitation, suspension or termination actions, recent audit or program review findings resulting in repayment of more than 5% of Title IV funds received for the relevant year, failure to submit timely and acceptable audit reports, and failure to resolve satisfactorily program review or audit findings. Based on its audited financial statements for 1995, as submitted to the Department of Education, the College believes it satisfies each of the applicable financial responsibility standards.
Student Loan Defaults
Under the HEA, an educational institution may lose its eligibility to participate in some or all of the Title IV Programs if defaults on the repayment of federally guaranteed student loans by its students exceed certain rates. A rate of student defaults (known as a "cohort default rate") is calculated for each institution annually by determining the rate at which borrowers who become subject to their repayment obligation in one federal fiscal year default by the end of the following federal fiscal year. For certain purposes described below, the Department of Education calculates a weighted average cohort default rate for the institution's students who enter repayment and default on a FFEL Program or Direct Loan Program loan.
If the Department of Education notifies an institution that its cohort default rate for FFEL Program loans equals or exceeds 25% for each of the three most recent consecutive federal fiscal years, the institution's
participation in the FFEL Program ends 30 days after the notification, unless the institution timely appeals that determination on specified grounds and according to specified procedures. An institution's participation in the Direct Loan Program ends 30 days after notification that any combination of its FFEL Program cohort default rate, its Direct Loan Program cohort default rate, or its weighted average cohort default rate equals or exceeds 25% for each of the three most recent federal fiscal years, unless the institution timely appeals. An institution whose participation terminates under these provisions may not participate in the relevant program for a period of up to three federal fiscal years. An institution that is deemed ineligible to participate in a Title IV Program based on a final default rate determination under the FFEL or Direct Loan Programs after February 14, 1996 is also barred from receiving funds under the Pell Grant program. The Department of Education also may initiate a proceeding to limit, suspend or terminate an institution's participation the FFEL Program if it has any combination of a FFEL Program, Direct Loan Program or weighted average cohort default rate that is equal to or greater than 25% for each of the three most recent consecutive federal fiscal years. The Department of Education may initiate a proceeding to limit, suspend or terminate an institution's participation in all Title IV Programs if it has a FFEL Program, Direct Loan Program or weighted average cohort default rate that exceeds 40% for any federal fiscal year.
In addition, an institution is considered to lack administrative capability if its cohort default rate for the Stafford and SLS programs for any of the three most recent federal fiscal years equals or exceeds 25% or if its cohort default rate for the Perkins loan program equals or exceeds 15% in any federal award year (provided that if fewer than 30 students enter repayment during a given year, the default rate is calculated on a three-year basis). The College's cohort default rates on federally guaranteed student loans for the 1991, 1992 and 1993 federal fiscal years, the most recent years for which final information is available, were 14.1%, 10.6% and 16.6%, respectively. The average default rates for proprietary institutions nationally were 30.2% and 23.9% in fiscal years 1992 and 1993, respectively. The College's Perkins loan default rates in federal award years 1994 and 1995 were 4.0% and 11.6%, respectively.
The 85/15 Rule
Under what is commonly referred to as the "85/15 Rule," the HEA provides that proprietary institutions, such as the College, are eligible to participate in Title IV Programs only if they derive no more than 85% of their revenues from Title IV Programs, as determined in accordance with a formula in the regulations. A proprietary institution that violates the 85/15 Rule loses its eligibility to participate in Title IV Programs for at least one federal fiscal year. During the 1995 federal fiscal year, the College derived 46% of its revenues from tuition financed under Title IV Programs.
Incentive Compensation
As a part of an institution's program participation agreement with the Department of Education, the institution must certify that it will neither provide, nor contract with any entity that provides, any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruitment, admission or financial aid awarding activity. Although there can be no assurance that the Department of Education will not find deficiencies in the College's present or former compensation plans, the College believes that its compensation plan complies with the HEA.
Potential Effect of Regulatory Violations
If the College fails to comply with the regulatory standards governing Title IV Programs, the Department of Education could impose one or more sanctions, including transferring the College to the reimbursement system of payment, requiring repayment of certain Title IV funds, certifying the College's eligibility on a provisional basis, taking emergency action, referring the matter for criminal prosecution, or initiating proceedings to impose a fine or to limit, suspend or terminate the participation of the College in Title IV Programs. In addition, the College's guarantee agencies could limit, suspend or terminate its eligibility in the event of certain regulatory violations. Although there are no such sanctions currently in force, and the College does not believe any such sanctions are contemplated, if such sanctions were imposed against the College and
resulted in a substantial curtailment of the College's participation in Title IV Programs, the College would be materially and adversely affected.
If the College lost its eligibility to participate in Title IV Programs, or if the amount of available federal student financial aid were reduced, the College would seek to arrange or provide alternative sources of revenue or financial aid for students. A number of private organizations provide loans to students. Although the College believes that one or more private organizations would be willing to provide financial assistance to students attending the College, there is no assurance that this would be the case, and the interest rate and other terms of such student financial aid might not be as favorable as for Title IV Program funds. The College may be required to guarantee all or part of such alternative assistance or might incur other additional costs in connection with securing alternative sources of financial aid. Accordingly, the loss of eligibility of the College to participate in Title IV Programs would be expected to have a material adverse effect on the College even if it could arrange or provide alternative sources of revenue or student financial aid.
RESTRICTIONS ON ADDING LOCATIONS AND EDUCATIONAL PROGRAMS
State requirements and accrediting agency standards may in certain instances limit the ability of the College to establish additional locations and programs. District of Columbia regulations require institutions to submit an application for an amended license in order to add a new program or location. The Virginia State Council of Higher Education requires institutions to obtain approval prior to offering new educational programs at existing sites or instruction for degree credit at a new site located more than 25 miles or 30 minutes' travel time from a central location. Maryland law and regulations require institutions to obtain the approval of MHEC in order to offer an instructional program not specified in its certificate of approval or to offer more than one-third of the credit-bearing coursework leading toward a certificate or degree at a location not specified in its certificate of approval. Middle States requires institutions that it accredits to notify it in advance of implementing new programs or locations, and upon notification may undertake a review of the institution's accreditation. Based on its current understanding of how these standards will be applied, the College does not believe that these standards will have a material adverse effect on the College or its expansion plans.
The HEA requires proprietary institutions of higher education to be in full operation for two years before qualifying to participate in Title IV Programs. However, the applicable regulations permit an institution that is already qualified to participate in Title IV Programs to establish an additional location that may immediately qualify, unless the location was acquired from another institution that has ceased offering educational programs at that location and has unpaid Title IV liabilities. The new location must satisfy all other applicable requirements for institutional eligibility, including approval of the additional location by the relevant state authorizing agency and the institution's accrediting agency. In addition, a location that qualifies as a "branch campus" must meet extensive regulatory requirements, including the standards of administrative capability and financial responsibility discussed above. The College's expansion plans assume its continued ability to establish new campuses as additional locations of the College's main campus without incurring the two-year delay in participation in Title IV Programs. The loss of state authorization by the College or an existing campus, or the failure of the College or a new campus to obtain state authorization, would render the College ineligible to participate in Title IV programs in that state or location.
The Department of Education requires an institution to provide notice of an additional location that offers at least 50%, but less than 100%, of an educational program. The Department of Education may, in its discretion, require the institution to apply to include such a new location in its eligibility notification. The Department of Education bases its determination of whether to require such an application on the percentage of an educational program that is offered at the new location and on the financial and administrative capability of the institution. An institution must apply to the Department of Education to include in its eligibility designation a new branch campus or a new location at which it offers 100% of an educational program.
Generally, if an institution eligible to participate in Title IV Programs adds an educational program after it has been designated as an eligible institution, the institution must apply to the Department of Education to have the additional program designated as eligible. However, an institution is not obligated to obtain the
Department of Education's approval of an additional program that leads to an associate, baccalaureate, professional or graduate degree or which prepares students for gainful employment in the same or related recognized occupation as an educational program that has previously been designated as an eligible program at that institution and meets certain minimum length requirements. In the event that an institution erroneously determines that an educational program is eligible for Title IV funds without the Department of Education's express approval, the institution will be liable for repayment of Title IV aid provided to students in that program. The College does not believe that the Department of Education's regulations will create significant obstacles to its plans to add new programs.
DISTANCE LEARNING
State law and accrediting agency standards may regulate telecommunications
or correspondence courses offered by the College, which may include courses
offered through the Internet. The D.C. Commission requires that a course or
program offered by "correspondence, extension, or in summer session" be
consistent with the objectives and purposes of the institution and "consistent
with and comparable in quality" to courses offered to students regularly
enrolled on a full-time basis. If the College's courses offered through the
Internet failed to meet this standard, that failure could provide a basis for
adverse action by the D.C. Commission, including termination of the College's
license. Virginia requires out-of-state institutions such as the College to
obtain approval from the Virginia State Council of Higher Education before
offering any telecommunications activity at a site in Virginia.
Telecommunications activity includes any course for degree credit or program of
study where the primary mode of delivery to a site is television, video cassette
or disc, film, radio, computer, or other telecommunications devices. Middle
States has appointed a task force to develop guidelines for conducting distance
learning programs.
The HEA provides that an institution generally is not eligible to participate in Title IV Programs if it offers more than 50% of its courses by correspondence. The implementing regulations state that an institution is ineligible for Title IV Programs if for its latest complete award year more than 50% of the institution's courses were correspondence courses or 50% or more of the institution's students were enrolled in correspondence courses. Department of Education regulations define a "telecommunications course" as a "course offered in an award year principally through the use of television, audio, or computer transmission, including open broadcast, closed circuit, cable, microwave, or satellite, audio conferencing, computer conferencing, or video cassette or discs." Accordingly, the courses the College currently offers through the Internet constitute "telecommunications courses" under the Department of Education regulations. If the combined number of correspondence and telecommunications courses amount to greater than 50% of the institution's course offerings that year, telecommunications courses are included among correspondence courses for purposes of determining eligibility for participation in Title IV Programs.
The current levels of correspondence and telecommunications course offerings at the College are well within the regulatory guidelines for Title IV eligibility. The College intends to expand the availability of on-line course offerings in a manner consistent with applicable regulatory requirements. See "Business -- Business Strategy."
CHANGE IN OWNERSHIP RESULTING IN A CHANGE OF CONTROL
Many states and accrediting agencies require institutions of higher education to report or obtain approval of certain changes in ownership or other aspects of institutional status, but the types of and triggers for such reporting or approval vary among states and accrediting agencies. The D.C. Commission may require an institution licensed by it to apply to amend its license prior to a change in ownership. The applicable laws and regulations of Virginia and Maryland do not specifically address reporting of changes in ownership. The College's accrediting agency, Middle States, requires institutions that it accredits to inform it in advance of any substantive change, including a change that significantly alters the ownership or control of the institution. Examples of substantive changes requiring advance notice to Middle States include changes in the legal status, ownership or form of control of the institution, such as the sale of a proprietary institution or the beginning or ending of public sponsorship and control. Middle States must approve a substantive change in advance in order to include the change in the institution's accreditation status.
Upon a change in ownership resulting in a change of control of the College, as defined in the HEA and the Department of Education's regulations, the College would lose its eligibility to participate in Title IV programs for an indeterminate period of time while it applied to regain eligibility and would thus be ineligible to receive Title IV funding during the reapproval period. Department of Education regulations prevent an institution from avoiding a lapse in its Title IV eligibility by applying to reestablish its eligibility before the transfer of ownership and control is completed, although a transfer is considered complete if it is otherwise final but subject to the condition of subsequently obtaining approval from the Department of Education, the accrediting agency or state regulatory authorities.
Based in part on advisory letters that the Department of Education, Middle States and certain of the applicable state authorizing agencies issued in connection with the Offering, the Company does not believe that the Reorganization or the Offering will constitute a change in ownership resulting in a change of control under these standards. Nevertheless, upon completion, the Reorganization and the Offering must be reported to the Department of Education, Middle States and applicable state licensing agencies, and the reporting could subject the College to further review by any of those bodies.
The HEA and the Department of Education's regulations define a change in ownership resulting in a change in control to include the transfer of a controlling interest of common stock of an institution or its parent corporation. For a publicly-traded corporation, such as the Company will be after completion of the Offering, Department of Education regulations specify that a change in ownership and control arises when the Securities and Exchange Commission requires the corporation to report the change in control by filing a Form 8-K.
The HEA and Department of Education regulations allow a change in ownership upon the retirement or death of an owner to be treated as not resulting in a change of control if it involves the sale or transfer of the owner's ownership interest to a family member or to a person with an ownership interest who has been involved in the management of the institution for at least two years. District of Columbia, Virginia and Maryland law and Middle States policies do not specifically address changes in ownership resulting from the retirement or death of an owner. However, it is possible that one or more of these regulatory bodies would consider such a change in ownership to be a substantive change that must be reported by the institution and would require review or reauthorization of the institution. Ron K. Bailey currently owns all of the College's outstanding stock jointly with his wife, and after completion of the Offering will continue to own his shares of the Company's outstanding Common Stock jointly with his wife. If Mr. Bailey were to die, his wife would become the sole owner of those shares. Although under current law the death of one or both of Mr. and Mrs. Bailey may not be considered a change in ownership resulting in a change of control for Department of Education reporting purposes, it is possible that such a transfer would require reporting to, or review or reauthorization by, one or more state licensing agencies or Middle States.
Under INS regulations, if a school that is approved to admit foreign students changes ownership, approval will be automatically withdrawn 60 days after the change of ownership unless the school files a new petition for school approval within 60 days of that change of ownership. If, after conducting a review, the INS district director finds that the school's approval should not be continued, the district director must institute proceedings to withdraw the school's approval.
If the College underwent a change that required reapproval by any state authority, Middle States or any federal agency, and any required regulatory approval were significantly delayed, limited or denied, there could be a material adverse effect on the College's ability to offer certain educational programs, award certain degrees or diplomas, operate one or more of its locations, admit certain students or participate in Title IV programs, which in turn would materially adversely affect the College's operations. A change that required approval by a state regulatory authority, Middle States or a federal agency could also delay the College's ability to establish new campuses or educational programs and may have other adverse regulatory effects. Furthermore, the disadvantage of undergoing a change of control may materially limit the College's flexibility in future financings or acquisition transactions.
VETERANS BENEFITS
Pursuant to federal law providing benefits for veterans and reservists, the College is approved for education of veterans and members of the selective reserve and their dependents by the state approving agency in each state in which the College currently operates. The College is authorized to offer educational programs to veterans and other eligible persons in the District of Columbia and Virginia. The College expects to seek approval to offer educational programs to veterans and other eligible persons in Maryland at an appropriate time.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive officers, current director and persons nominated to become directors of the Company:
NAME AGE POSITION
- --------------------------------------------- --- ----------------------------------------------
Ron K. Bailey................................ 55 President, Treasurer and Director
Harry T. Wilkins............................. 39 Chief Financial Officer
Stanley G. Elmore............................ 55 Director Nominee
Todd A. Milano............................... 43 Director Nominee
Jennie D. Seaton............................. 66 Director Nominee
Roland Carey................................. 56 Director Nominee
Donald T. Benson............................. 53 Director Nominee
G. Thomas Waite, III......................... 45 Director Nominee
Donald Stoddard.............................. 59 Director Nominee
Charlotte Beason............................. 48 Director Nominee
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Ron K. Bailey is the President, Treasurer and a director of the Company. Mr. Bailey has been the President and a trustee of the College since 1989 and the President and a director of ELP since its formation in 1994. From 1980 to 1989, Mr. Bailey held a variety of administrative positions with the College, including the position of Vice President of the College. Before assuming his first full-time position with the College in 1980, Mr. Bailey was a part-time faculty member of the College and served as Director of Data Processing of the National Association of Home Builders.
Harry T. Wilkins is the Chief Financial Officer of the Company and has been the Director of Financial Affairs of the College since 1992. Prior to joining the College, Mr. Wilkins was a Director with the accounting firm of Wooden & Benson, Chartered from 1984 to 1992 and a member of the consulting practice of the accounting firm of Deloitte Touche (then Deloitte, Haskins and Sells) from 1979 to 1984. Mr. Wilkins is a Certified Public Accountant.
Stanley G. Elmore has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Mr. Elmore has been the Chairman of the Board of Trustees of the College since 1989. Mr. Elmore has served as Projects and Programs Manager, Citibank Mid-Atlantic, a position he has held for more than five years.
Todd A. Milano has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Mr. Milano has been the Vice Chairman of the Board of Trustees of the College since 1992. Mr. Milano has served as President and Chief Executive Officer of Central Pennsylvania Business School since 1989.
Dr. Jennie D. Seaton has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Dr. Seaton has been a member of the Board of Trustees of the College since 1990. Dr. Seaton is retired and was College Administrator of Virginia Commonwealth University from 1975 to 1994.
Roland Carey has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Mr. Carey has been a member of the Board of Trustees of the College since 1990. Mr. Carey is an Instructor with the Carl Sandburg School, a position he has held for more than five years.
Donald T. Benson has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Mr. Benson has been a member of the Board of Trustees of the College since 1992. Mr. Benson has served as Vice President, Human Resources, of Aetna Life Insurance Company since 1992. From 1976 to 1992, Mr. Benson was Senior Vice President, Human Resources, of Cigna Insurance Company.
G. Thomas Waite, III has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Mr. Waite has been a member of the Board of Trustees of the College since 1994. Mr. Waite has served as Treasurer for the Humane Society of the United States since 1993. In 1992, Mr. Waite was the Director of Commercial Management of The National Housing Partnership; from 1986 to 1991, he held the position of Senior Vice President of Hurst Property Company. As a result of the insolvency of a real estate partnership in which Mr. Waite served as a general partner, Mr. Waite filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code in 1993, which subsequently was converted to a Chapter 7 filing in 1993.
Dr. Donald Stoddard has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Dr. Stoddard has been a member of the Board of Trustees of the College since 1995. Dr. Stoddard is a Professor, Department of English, Anne Arundel Community College, a position he has held since 1990. From 1979 to 1990, Dr. Stoddard was the Coordinator, Collegiate Institutional Approval, of the Maryland Higher Education Commission.
Dr. Charlotte Beason has been nominated and has agreed to serve as a director of the Company upon the completion of the Offering. Dr. Beason has been a member of the Board of Trustees of the College since 1995. Dr. Beason is an Educational Consultant at the U.S. Department of Veterans Affairs/Health Care Reform Office, a position she has held for more than five years.
Upon completion of the Offering, the director nominees shown in the table above will begin service as directors of the Company, effective on that date.
Directors of the Company are elected at the annual meeting of stockholders and serve until their successors are duly elected and qualified or until their earlier resignation or removal. Executive officers serve at the discretion of the Board of Directors.
CERTAIN SIGNIFICANT EMPLOYEES OF THE COLLEGE
The following information is supplied with respect to certain other significant employees of the College:
Younes P. Benab, Ph.D., 59, is the Academic Dean of the College, a position he has held since 1986.
J. Chris Toe, Ph.D., 41, is the Director, Graduate Programs of the College, a position he has held since 1994. Dr. Toe joined the College in 1993 as an adjunct professor, becoming a full-time professor in 1994. Prior to joining the College, Dr. Toe was an independent consultant.
James F. McCoy, Jr., 37, is the Administrative Dean of the College, a position he has held since 1994. Mr. McCoy previously was Finance Team Leader, Phillips Colleges, in 1994; Vice President of Operations, Brenell Institute, from 1992 to 1994; and Operations Manager, Phillips Colleges, from 1983 to 1992.
Marla Boulter, 41, is the College's Director of College Relations, a position she has held since 1995. Ms. Boulter joined the College in 1990 as an accountant and was the College's Director of Marketing from 1991 to 1995.
Don R. Anderson, 53, is the Director of Facilities of the College, a position he has held since 1988.
Robert E. Farmer, 57, is the Director of Human Resources of the College, a position he has held since 1995. Mr. Farmer was the Campus Coordinator of the Arlington campus from 1992 until 1995, and was the Director of Admissions at that campus from 1990 to 1992.
Piroj Piroolnuruk, 42, is the College's Director of Information Management, a position he has held since 1992. Mr. Piroolnuruk was the College's coordinator of Administrative Services from 1986 to 1992.
COMMITTEES OF THE BOARD OF DIRECTORS
Promptly following completion of the Offering, the Board of Directors will establish an Audit Committee, an Executive Committee and a Compensation Committee.
Audit Committee. The Audit Committee will consist of non-management directors and will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants and review the adequacy of the Company's internal accounting controls.
Executive Committee. The Executive Committee will consist of Mr. Bailey and one or more non-management directors and will exercise such authority as is delegated to it.
Compensation Committee. The Compensation Committee will consist of Mr. Bailey and two non-management directors. The Compensation Committee will determine the compensation of the Company's executive officers, subject to the provisions of any employment agreements, and will administer the Company's 1996 Stock Option Plan. Mr. Bailey intends to abstain from participating in any actions of the Compensation Committee affecting his compensation.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors are reimbursed for expenses incurred in connection with their attendance at Board and Committee meetings, but currently receive no compensation for serving as directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last completed fiscal year paid to the College's Chief Executive Officer. No other executive officer of the College received salary and bonus exceeding $100,000 in that fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL ---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)
----------------------------------------- ------ -------- ---------- ---------------
Ron K. Bailey, President................. 1995 $150,000 $6,175,000 $ 3,181
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(2) Reflects (i) $3,043 in matching contributions made by the College to the College's 401(k) plan for Mr. Bailey and (ii) $138 in premiums paid by the College for life insurance for Mr. Bailey.
No stock options were granted during the year ended December 31, 1995.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Bailey and the College have entered into an Employment Agreement, effective as of the Offering closing date, which provides that Mr. Bailey will serve as President and Chief Executive Officer of the College. For his services, Mr. Bailey will receive an initial annual salary of $150,000. According to the terms of the Employment Agreement, Mr. Bailey's salary for successive years may be increased at the discretion of the College's Board of Trustees. The College does not currently contemplate payment of bonuses to Mr. Bailey. Future bonuses, if any, paid to Mr. Bailey will be awarded pursuant to guidelines approved by the Compensation Committee of the Company's Board of Directors and will be at levels commensurate with any bonuses paid to other executive officers. The Employment Agreement provides that in the event that Mr. Bailey's employment is terminated by the Board of Trustees, Mr. Bailey will be entitled to severance benefits equal to the amount of his most recent annual salary. The agreement contains a covenant restricting Mr. Bailey from competing with the College for three years after the termination of employment.
The College also has entered into an employment agreement with Mr. Harry T. Wilkins, Chief Financial Officer of the Company, effective as of the Offering closing date, which provides for a severance payment equal to one year's salary if Mr. Wilkins is terminated other than for cause (as defined in the agreement). The employment agreement also contains a covenant restricting Mr. Wilkins from competing with the College for three years after the termination of his employment.
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan") provides for the grant of options that are intended to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, and for grant of non-qualifying options to directors and employees of the Company. The Plan authorizes the issuance of up to 1,000,000 Shares pursuant to options granted under the Plan (subject to anti-dilution adjustments in the event of a stock split, recapitalization or similar transaction). The Compensation Committee of the Board of Directors will administer the Plan and will grant options to purchase Shares.
It is anticipated that options to purchase 700,000 Shares at the initial public offering price will be granted to employees eligible to participate in the 401(k) Plan and for all Directors, except for Mr. Bailey, who will not receive any options under the initial grant. Harry T. Wilkins, the Company's Chief Financial Officer, will receive options to acquire 200,000 Shares under the initial grant. All such options will be exercisable at a price equal to the initial public offering price. Options granted will vest with respect to one-third of the Shares subject to the option on each of the first, second and third anniversaries of the date of grant. The options will expire on the fifth anniversary of the date of grant.
The option exercise price for incentive stock options granted under the Plan may not be less than 100% of the fair market value of the Shares on the date of grant of the option (or 110% in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Shares). The option exercise price for non-incentive stock options granted under the Plan may not be less than 100% of the fair market value of the Shares on the date of grant of the option. The maximum option term is ten years (or five years in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Shares). Options may be exercised at any time after grant, except as otherwise provided in the particular option agreement. Options covering no more than 500,000 Shares may be granted to any officer or other employee during the term of the Plan. There is also a $100,000 limit on the value of Shares (determined at the time of grant) covered by incentive stock options that first become exercisable by an optionee in any calendar year.
Options granted under the Plan are not transferable and may be exercised only by the optionee during his or her lifetime. If any optionee's employment with the Company terminates by reason of death or permanent and total disability, the optionee's options, whether or not then exercisable, may be exercised within one year after such death or disability unless otherwise provided in the option agreement (but not later than the date the option would otherwise expire). If the optionee's employment terminates for any reason other than death or disability, options held by such optionee terminate upon such termination unless otherwise provided in the option agreement or approved by the Compensation Committee (but not later than the date the option would otherwise expire). The Compensation Committee may extend the period during which the option may be exercised (but not later than the date the option would otherwise expire) by so providing in the option agreement. The options will terminate within a specified time after the optionee's termination of employment with the Company.
The Plan provides for formula grants of options to non-employee directors (an "Eligible Director"). Each Eligible Director at the time of the initial public offering will be granted an initial option to purchase a number of shares of Common Stock equal to 1,000 times the number of years the Eligible Director has served as a director of the Company. Each Eligible Director will also be granted an additional option to purchase 1,000 shares of Common Stock immediately after each of the subsequent annual meetings of the Company's stockholders if the Eligible Director continues to be an Eligible Director. Options granted to Eligible Directors under the Plan may be exercised with respect to the shares subject to such option one year after the option is granted. All options expire five years after the date of grant.
Upon any dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation in which the Company is not the surviving corporation, or upon the sale of all or substantially all of the assets of the Company to another corporation, or upon any transaction approved by the Board of Directors which results in any person or entity owning 80% or more of the total combined voting power of all classes of stock of the Company, the Plan and the options issued thereunder will terminate, unless provision is made in connection with such transaction for the continuation of the Plan and/or the assumption of the options or for the substitution for such options of new options covering the stock of a successor corporation or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of Shares and the per Share exercise price. In the event of such termination, all outstanding options will be exercisable in full during such period immediately prior to the occurrence of such termination as the Board of Directors in its discretion will determine.
The Board of Directors may amend the Plan with respect to Shares as to which options have not been granted. However, the Company's stockholders must approve any amendment that would: (i) change the requirements as to eligibility to receive options; (ii) materially increase the benefits accruing to participants under the Plan; or (iii) materially increase the number of Shares that may be sold pursuant to options granted under the Plan (except for adjustments upon changes in capitalization).
401(k) PLAN
The College maintains a retirement plan (the "401(k) Plan") intended to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
The 401(k) Plan is a defined contribution plan that covers all full-time
employees of the College of at least 21 years of age, employed by the College
for at least one year. Employees may contribute up to 10% of their annual wages
(subject to an annual limit prescribed by the Code) as pretax, salary deferral
contributions. The College may, in its discretion, match employee contributions
up to a maximum of 15% of annual wages. The College's contributions to the
401(k) Plan for the year ended December 31, 1995 and the three months ended
March 31, 1996 were $94,000 and $0, respectively. As of March 31, 1996, 147 of
the College's current employees were participants in the 401(k) Plan.
CERTAIN TRANSACTIONS
LEASE OF CAMPUS FACILITIES
The College currently leases the facilities of five of its eight campuses from corporations of which Ron K. Bailey, President and a director of the Company, is the sole stockholder, a director and an executive officer. The College from time to time has made distributions to the Current Stockholders in amounts sufficient to provide the equity necessary for campus acquisitions by Mr. Bailey. See "Dividend Policy." Such distributions totaled $2.0 million in 1993, $2.8 million in 1994, $3.4 million in 1995 and $650,000 in the three months ended March 31, 1996. Prior to the Offering, Mr. Bailey pursued a strategy of purchasing campus facilities in order to avoid the incurrence of debt by the College. Generally, Mr. Bailey obtained mortgage financing for acquisition of the facilities and the College entered into long-term leases obligating it to make monthly rent payments approximately equal to the mortgage payments and other property-specific expenses. Each lease provided that the College would have the right to purchase the applicable campus, at the fair value of such facility as determined by an independent appraisal, in the event of Mr. Bailey's death. In contemplation of the Offering, and effective as of the Offering closing date, the parties amended the terms of the leases to reflect current market conditions. Management believes these terms are at least as favorable to the College as the
College could obtain from unaffiliated parties. The following table sets forth certain information regarding the leases as amended.
GROSS ANNUAL
LEASABLE BASE
CAMPUS LANDLORD AREA(1) RENT(2)
----------------------------------- --------------------------------- -------- --------
Fredericksburg..................... Fredericksburg Investments, Inc. 17,500 $297,840
Manassas........................... Battleview Investments, Inc. 20,800 353,600
Takoma Park........................ Beacon Investments, Inc. 21,800 370,900
Washington, D.C. .................. Central Investments, Inc. 30,000 750,000
Woodbridge......................... Potomac Investments, Inc. 20,800 353,600
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(2) Subject to annual adjustment based on increases in the Consumer Price Index.
Each of the foregoing leases as amended has a ten-year term expiring in 2006, with three five-year renewal terms. The College has the option under each lease to purchase the related campus facility at any time during the term of the lease at the fair market value of such facility as determined by an independent appraiser. No proceeds of the Offering will be used to purchase any such campus facility.
The following table sets forth information regarding total annual payments by the College under the foregoing leases during the periods indicated.
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------ ENDED
CAMPUS 1993 1994 1995 MARCH 31, 1996
-------------------------------------- -------- ---------- ---------- --------------
Fredericksburg........................ $336,000 $ 420,000 $ 474,000 $118,000
Manassas.............................. -- 49,000 396,000 99,000
Takoma Park........................... 160,000 240,000 240,000 60,000
Washington, D.C. ..................... -- 310,000 744,000 187,000
Woodbridge............................ -- -- 42,000 126,000
-------- ---------- ---------- -----------
Total....................... $496,000 $1,019,000 $1,896,000 $590,000
======== ========= ========= ===========
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Prior to entering into its current lease for the Washington, D.C. campus, the College leased that facility from 817 Fourteenth Street Associates Limited Partnership. Mr. Bailey owned a 10% limited partnership interest in such entity. The College made lease payments to such entity of $550,000 and $320,000 in 1993 and 1994, respectively.
The College may lease additional campus facilities from entities owned or controlled by Mr. Bailey. Any such leases will have market terms based on an independent appraisal and will be subject to approval by a majority of the Company's independent directors.
TRANSACTIONS WITH ELP
Educational loans under the SEL Program are purchased from the College and serviced by ELP. See "Business -- SEL Program." Ron K. Bailey, President and a director of the Company, has been the sole stockholder, a director and an executive officer of ELP. In the year ended December 31, 1995 and the three months ended March 31, 1996, ELP purchased loans from the College at a discount (reflecting ELP's future loan servicing costs) to their carrying amounts of approximately $1.4 million and $650,000, respectively. The College provided ELP office space on a rent-free basis in 1995 and the three months ended March 31, 1996. Upon completion of the Offering, ELP will become a wholly-owned subsidiary of the Company.
ELP carries its loan receivables at the stated amount of unpaid principal, reduced by unamortized purchase discount and an allowance for loan losses. The allowance, which approximated $80,000 as of March 31, 1996, is an amount that management believes will be adequate to absorb probable losses on existing loans that may become uncollectible, based on evaluation of the existing loan portfolio and prior experience.
The evaluation takes into account such factors as changes in nature and volume of the portfolio, overall portfolio quality, review of specific problem receivables, and current economic conditions that may affect the borrowers' ability to pay. ELP has not incurred significant losses from uncollectible loans receivable since it commenced operations.
At March 31, 1996, the outstanding principal amount of student loans receivable was $1.6 million.
A portion of the distributions made by the College to the Current Stockholders has been applied to fund ELP's operations. See "Dividend Policy." In March 1996, ELP paid Mr. Bailey $958,000 as a return of capital previously contributed by Mr. Bailey to fund ELP's purchase of loans under the SEL Program. This amount was not required by ELP because the volume of loan originations under the SEL Program was less than the College originally had budgeted.
In 1995, ELP made automobile loans to Mr. Bailey and his two children totalling $28,000. The loans bore interest at an annual rate of 7.5%. In the three months ended March 31, 1996, ELP sold the loans to an unrelated third party at a discount.
TRANSACTIONS WITH PRK INVESTMENTS, INC.
The College retained PRK Investments, Inc. ("PRK") to provide it with a variety of services, including services related to computer equipment purchasing and the College's compliance with the HEA and Department of Education regulations applicable to Title IV Programs. See "Licensing, Accreditation and Financial Aid Regulation -- Financial Aid Regulation -- Administrative Capacity." Two-thirds of the PRK common stock is owned by children of Ron K. Bailey, President and a director of the Company. The College paid PRK approximately $70,000 and $94,000 for computer equipment purchasing and related services in 1995 and the three months ended March 31, 1996, respectively. In addition, pursuant to a contract with PRK, the College made monthly payments of $20,000 to PRK for Title IV services from January 1, 1996 through May 15, 1996. Beginning May 16, 1996, the computer equipment purchasing and related services performed by PRK for the College are performed by employees of ELP, and the College entered into a contract with ELP for the provision of Title IV services for a monthly fee of approximately $28,000. The College provided PRK office space on a rent-free basis in 1995 and the three months ended March 31, 1996.
TRANSACTIONS WITH CAREER TRAINING INSTITUTE, INC.
College faculty and other employees have received computer-related instruction and training in other occupational skills from Career Training Institute, Inc. ("CTI"). Eighty percent of the CTI common stock is owned by children of Ron K. Bailey, President and a director of the Company. The College paid CTI approximately $8,000, $75,000 and $17,000 for its services in 1994, 1995 and the three months ended March 31, 1996, respectively. Management believes that CTI has provided such services to the College on terms at least as favorable to the College as the College could obtain from unaffiliated parties. The Company believes that the instruction provided by CTI is not competitive with the current programs of the College.
ELP purchased loans from CTI totalling approximately $76,000 and approximately $110,000 in 1995 and the three months ended March 31, 1996, respectively.
REORGANIZATION TRANSACTIONS
In connection with the Offering, the Company will effect the Reorganization pursuant to which, among other things, the Company will acquire the College and ELP. See "Reorganization" and "Use of Proceeds."
Prior to completion of the Offering, the Company will enter into a Tax Indemnification Agreement with the Current Stockholders in consideration of their consent to the termination of the College's election to be treated as an S Corporation and to the use of the closing of the books method. See "Reorganization -- Termination of S Corporation Status." Pursuant to the Tax Indemnification Agreement, the Company will agree to make additional payments to the Current Stockholders equal to approximately 43% of any amount by which the actual taxable income allocable to the Current Stockholders for the 1996 S Corporation period (as determined for federal income tax purposes) exceeds the amount previously estimated to be allocable to the
Current Stockholders for such period (and the Current Stockholders will agree to reimburse the Company if they receive payments in excess of approximately 43% of such actual taxable income). Management does not believe any payments which would likely be made under the Tax Indemnification Agreement would have a material effect on the Company's financial condition.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial ownership of Common Stock prior to and upon completion of the Offering of each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock. Except as set forth below, no director, director nominee or executive officer of the Company beneficially owns any of the outstanding Common Stock.
PERCENT OF CLASS
AMOUNT OF --------------------
NAME OF BENEFICIAL BEFORE AFTER
BENEFICIAL OWNERS OWNERSHIP OFFERING OFFERING
--------------------------------------------------------- ---------- -------- --------
Ron K. Bailey and Beverly W. Bailey(1)................... 6,000,000 100% 66.7%
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DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (the "Charter") authorizes the Company to issue 20,000,000 shares of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value. On the date of this Prospectus, the Company has 1,000 shares of Common Stock and no shares of Preferred Stock outstanding. Upon completion of the Offering and the Reorganization, there will be 9,000,000 shares of Common Stock outstanding, including an additional 5,999,000 Shares issued to the Current Stockholders, plus options to acquire up to 700,000 Shares.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all matters to be voted upon by the stockholders. Stockholders do not have cumulative voting rights in the election of directors. Subject to preferences that may be applicable to any outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. The Company presently intends to pay regular cash dividends on its Common Stock. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. All outstanding shares of Common Stock are, and the Shares of Common Stock offered hereby will be, when issued and paid for, duly authorized, validly issued, fully paid and non-assessable. As of the date of this Prospectus, the Current Stockholders hold all of the outstanding Common Stock.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of undesignated Preferred Stock. The Board of Directors has the authority to issue the undesignated Preferred Stock from time to time in one or more series and to establish the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the stockholders. Any future issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock. At present, the Company has no plans to issue any Preferred Stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by Maryland law, the Company's Charter and its bylaws. Certain provisions of the Charter and bylaws of the Company, which are summarized below, may make it more difficult to change the composition of the Company's Board of Directors and may discourage or make more difficult any attempt by a person or group to obtain control of the Company.
Voting Requirements. The Company's Charter may not be amended without the affirmative vote of a majority of the shares entitled to vote generally in the election of directors, voting as a single voting group. The Company's bylaws may be amended either by the affirmative vote of a majority of all shares outstanding and entitled to vote generally in the election of directors, voting as a single group, or by an affirmative vote of a majority of the Company's directors then holding office, unless the stockholders prescribe that any such bylaw may not be amended or repealed by the Board of Directors.
Special Meetings. Under the Company's bylaws, special meetings of the stockholders may be called by stockholders only if such stockholders hold outstanding shares representing at least 25% of all votes entitled to be cast on any issue proposed to be considered at any such special meeting.
LIMITATION OF LIABILITY
Under Maryland law a corporation formed in Maryland is permitted to limit, by provision in its charter, the liability of directors and officers so that no director or officer of the Company shall be liable to the Company or to any stockholder for money damages except to the extent that (i) the director or officer actually received an improper benefit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (ii) a judgment or other final adjudication adverse to the director or officer is entered in a proceeding based on a finding in a proceeding that the director's or officer's action was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The Company's Charter has incorporated the provisions of this law limiting the liability of directors and officers.
The Company's bylaws require it to indemnify (a) any present or former
director or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of his service in
that capacity, against reasonable expenses incurred by him in connection with
the proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful. In addition, the Company's
bylaws require it to pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a present or former director or
officer made a party to a proceeding by reason of his service as a director or
officer provided that the Company shall have received (1) a written affirmation
by the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification by the Company as authorized by the
bylaws and (2) a written understanding by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The Company's bylaws also (i) provide that any
indemnification or payment or reimbursement of the expenses permitted by the
bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment of expenses under Section 2-418 of the Maryland
General Corporation Law for directors of Maryland corporations and (ii) permit
the Company such other and further indemnification or payment or reimbursement
of expenses as may be permitted under Section 2-418 of the Maryland General
Corporation Law for directors of Maryland corporations.
CORPORATE ANTI-TAKEOVER PROVISIONS
The Company has elected to include in its Charter provisions exempting it from the application of the Maryland business combination statute and control share acquisition statute.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Securities Transfer, Incorporated.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock. Sales of substantial amounts of Common Stock in the public market after the Offering could adversely affect the market price of the Common Stock.
Upon completion of the Offering, the Company will have 9,000,000 shares of Common Stock outstanding (9,450,000 if the Underwriters' over-allotment option is exercised in full), excluding 700,000 shares issuable upon exercise of options held by employees of the Company. Of these shares, the 3,000,000 shares of Common Stock offered hereby will be freely transferable without restriction or further registration under the Securities Act, unless purchased by "affiliates" of the College as that term is defined in Rule 144 under the Securities Act. All the remaining shares of Common Stock, consisting of the 6,000,000 shares which will be held by the Current Stockholders upon completion of the Offering, are "restricted securities" within the meaning of Rule 144. The Company and the Current Stockholders have agreed with Legg Mason Wood Walker, Incorporated, the Representative of the Underwriters, not to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock (subject, in the case of the Company, to an exception for the grant of options under the Company's stock option plan), for a period of 180 days after the date of this Prospectus without the consent of the Representative. With the consent of the Representative, such shares may be sold before expiration of the 180-day period without prior notice to the Company's other stockholders or to any public market in which the Common Stock trades. Commencing 90 days after the date of this Prospectus, and subject to such consent, all but 1,000 of the 6,000,000 shares owned by the Current Stockholders will be immediately eligible for sale in the public market subject to compliance with the volume and other restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including persons deemed to be affiliates of the Company, who has beneficially owned shares for at least a two-year period (as computed under Rule 144) is entitled to sell within any three-month period commencing 90 days from the date of this Prospectus a number of shares that does not exceed the greater of (i) 1% of the then outstanding Common Stock (90,000 shares after giving effect to the Offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding filing of notice of such sale, and may only sell such shares through unsolicited brokers' transactions or transactions with a market maker. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. However, a person who is not an affiliate of the issuer for at least 90 days and who has beneficially owned such shares for at least three years is entitled under Rule 144(k) to sell such shares without regard to the volume or other resale requirements described above. In addition, Rule 144A under the Securities Act permits, subject to certain conditions, the sale by the current holders of restricted securities of all or a portion of their shares to certain "qualified institutional buyers" as defined in Rule 144A.
The Company is unable to estimate the number of shares of Common Stock that will be sold under Rule 144 or otherwise because this will depend in part on the market price for the Common Stock, the personal circumstances of the sellers and other factors.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part, the Underwriters named below have agreed, severally and not jointly, through Legg Mason Wood Walker, Incorporated, the Representative of the Underwriters, to purchase from the Company, and the Company has agreed to sell to the Underwriters, the numbers of Shares set forth opposite the name of the respective Underwriter at the Price to Public less the Underwriting Discount set forth on the cover page of this Prospectus:
NUMBER OF
UNDERWRITER SHARES
--------------------------------------------------------------- ------------
Legg Mason Wood Walker, Incorporated...........................
------------
Total.....................................................
==========
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The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all of the Shares offered hereby if any of the Shares are purchased.
The Underwriters have advised the Company that they propose to offer all or a part of the Shares offered hereby directly to the public at the Price to Public set forth on the cover page of this Prospectus, that they may offer Shares to certain dealers at a price which represents a concession of per Share, and that they may allow, and such dealers may reallow, a concession of not more than per Share to certain other dealers. After the commencement of the Offering, the Price to Public and the concessions may be changed.
The Company has granted the Underwriters a 30-day option to purchase up to 450,000 additional number of Shares at the Price to Public less the Underwriting Discount set forth on the cover page of this Prospectus. The Underwriters may exercise the option only to cover over-allotments, if any, in connection with the offering of the Shares made hereby. To the extent the Underwriters exercise the option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of additional Shares of Common Stock as the number of Shares set forth opposite that Underwriter's name in the preceding table bears to the total number of Shares listed in such table.
The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof.
The Current Stockholders and the Company each have agreed with the Representative of the Underwriters not to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock (subject, in the case of the Company, to an exception for the grant of options under the Company's stock option plan), for a period of 180 days after the date of this Prospectus without the written consent of the Representative. See "Shares Eligible for Future Sale."
The Representative of the Underwriters has advised the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined by negotiation between the Company and the Representative of the Underwriters. Among the factors to be considered in such negotiations are prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representative of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The anticipated initial public offering price set forth on the cover of this Prospectus is subject to change as a result of market conditions and other factors.
Legg Mason Wood Walker, Incorporated may perform financial services for the Company or the College from time to time.
LEGAL MATTERS
The legal validity of the shares of Common Stock offered hereby will be passed upon for the Company by Hogan & Hartson L.L.P., Baltimore, Maryland. Certain legal matters will be passed upon for the Underwriters by Shaw, Pittman, Potts & Trowbridge (a partnership including professional corporations), Washington, D.C.
EXPERTS
The balance sheet of Strayer Education, Inc. as of May 15, 1996, and the combined balance sheets of Strayer College, Inc. and Affiliate as of December 31, 1995 and 1994, and the related combined statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995, included in this Prospectus have been included herein in reliance upon the reports of Coopers & Lybrand L.L.P., independent public accountants, given upon the authority of that firm as experts in accounting and auditing. The report for Strayer College, Inc. and Affiliate includes an explanatory paragraph relating to the restatement of certain payments to the Current Stockholders.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission (the "Commission"). This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted pursuant to the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and the exhibits and schedules thereto. A copy of the Registration Statement may be inspected by anyone without charge and may be obtained at prescribed rates at the Commission at the Public Reference Section of the Commission, maintained by the Commission at its principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the Northeast Regional Office located at Seven World Trade Center, Suite 1300, New York, New York 10048, and the Midwest Regional Office located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants such as the Company that file electronically with the Commission.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
STRAYER EDUCATION, INC.
Report of Independent Accountants.................................................. F- 2
Balance Sheet as of May 15, 1996................................................... F- 3
Notes to Financial Statement....................................................... F- 4
STRAYER COLLEGE, INC. AND AFFILIATE
Report of Independent Accountants.................................................. F- 5
Combined Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)..................................................................... F- 6
Combined Statements of Income for each of the three years in the period ended
December 31, 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)..................................................................... F- 7
Combined Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1995 and for the three months ended March 31, 1996
(unaudited)..................................................................... F- 8
Combined Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)..................................................................... F- 9
Notes to Combined Financial Statements............................................. F-10
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders Strayer Education, Inc.
We have audited the accompanying balance sheet of Strayer Education, Inc. as of May 15, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Strayer Education, Inc. as of May 15, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
May 15, 1996
STRAYER EDUCATION, INC.
BALANCE SHEET
MAY 15, 1996
ASSETS
Cash................................................................................ $1,000
------
Total Assets.............................................................. $1,000
======
STOCKHOLDERS' EQUITY
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding..... $ --
Common stock, par value $.01, 20,000,000 shares authorized; 1,000 shares issued
and outstanding................................................................ 10
Additional paid-in capital.......................................................... 990
------
Total stockholders' equity................................................ $1,000
======
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The accompanying notes are an integral part of this statement.
STRAYER EDUCATION, INC.
NOTES TO FINANCIAL STATEMENT
MAY 15, 1996
1. ORGANIZATION
Strayer Education, Inc. (Company) was formed on May 10, 1996, as a Maryland corporation, and was capitalized on May 15, 1996 with cash of $1,000. The Company has not yet commenced operations.
2. INITIAL PUBLIC OFFERING AND PENDING ACQUISITION
The Company is currently undertaking an initial public offering of its common stock. Pursuant to the offering, the Company will offer 3,000,000 shares of its common stock for sale to the public. Prior to the closing of the offering, the Company will exchange 5,999,000 shares of its common stock for 100% of the outstanding common stock of Strayer College, Inc. (the College). The College is a proprietary accredited institution of higher education that provides undergraduate and graduate degrees in various fields of study through its eight campuses in the District of Columbia and Virginia. The Company will set aside an additional 1,000,000 shares of common stock for the establishment of a stock option plan.
3. SUBSEQUENT EVENT
Contemporaneously with the closing of the initial public offering, the Company intends to acquire Education Loan Processing Inc. (ELP) at a purchase price equal to ELP's net book value ($1,200,000 as of March 31, 1996) at the date of acquisition. ELP is wholly owned by a stockholder of the Company and was established to purchase and service student loans from the College. Under generally accepted accounting principles, ELP's basis in its assets and liabilities will be carried over to the Company and the operations of ELP and the Company will be retroactively combined in a manner similar to a pooling of interests, because this acquisition is a combination of entities under common control.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Stockholders Strayer College, Inc.
We have audited the accompanying combined balance sheets of Strayer College, Inc. and Affiliate as of December 31, 1994 and 1995, and the related combined statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Strayer College, Inc. and Affiliate as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 12 to the combined financial statements, the accompanying combined statements of income, stockholders' equity and cash flows for the years ended December 31, 1993 and 1994 have been restated.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
May 14, 1996
STRAYER COLLEGE, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, PRO FORMA
------------------ MARCH 31, MARCH 31,
1994 1995 1996 1996
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED
NOTE 3)
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 5,564 $ 8,992 $11,905 $ 9,806
Investments in marketable securities available for
sale, at market................................ 898 1,742 725 725
Short-term investments -- restricted.............. 403 720 778 778
Tuition receivable, net of allowances for doubtful
accounts of $135, $155, $189 and $189,
respectively................................... 8,813 7,873 7,861 7,861
Inventories....................................... 546 725 718 718
Other current assets.............................. 197 58 -- --
------ ------ ------ ------
Total current assets...................... 16,421 20,110 21,987 19,888
Student loans receivable, net of allowances for
losses......................................... -- 932 1,190 1,190
Property and equipment, net....................... 2,400 2,874 2,867 2,867
Investments in marketable securities available for
sale, at market................................ 925 1,890 3,491 3,491
Other assets...................................... 78 72 72 72
------ ------ ------ ------
Total assets.............................. $19,824 $25,878 $29,607 $27,508
====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable............................ $ 580 $ 360 $ 603 $ 603
Accrued expenses.................................. 458 542 710 710
Unearned tuition.................................. 9,391 9,504 9,423 9,423
Other current liabilities......................... 58 133 307 307
Distribution payable to stockholders.............. -- -- -- 14,042
------ ------ ------ ------
Total current liabilities................. 10,487 10,539 11,043 25,085
------ ------ ------ ------
Commitments and contingencies
Stockholders' Equity:
Common stock...................................... 4 4 4 60
Additional paid-in capital........................ -- 2,100 1,142 1,142
Retained earnings................................. 9,376 13,077 17,163 966
Net unrealized (losses) gains on investments...... (43) 158 255 255
------ ------ ------ ------
Total stockholders' equity................ 9,337 15,339 18,564 2,423
------ ------ ------ ------
Total liabilities and stockholders'
equity.................................. $19,824 $25,878 $29,607 $27,508
====== ====== ====== ======
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The accompanying notes to these combined financial statements are an integral part of these combined statements.
STRAYER COLLEGE, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE
FOR THE YEAR ENDED DECEMBER MONTHS ENDED MARCH
31, 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
Revenues:
Tuition...................................... $28,545 $33,238 $36,934 $ 9,989 $11,570
Fees and other............................... 823 1,019 1,262 646 845
------ ------ ------ ------ ------
29,368 34,257 38,196 10,635 12,415
------ ------ ------ ------ ------
Costs and Expenses:
Instruction and educational support,
including $1,046, $1,339, $1,966, $464 and
$744, respectively, for expenses pursuant
to transactions with related parties...... 14,185 14,740 16,168 4,042 4,577
Selling and promotion........................ 3,092 3,667 4,281 836 974
General and administration, including $0, $8,
$75, $0 and $77, respectively, for
expenses pursuant to transactions with
related parties........................... 7,847 10,648 11,522 2,810 2,205
Provisions for student loan losses........... -- -- 49 3 31
------ ------ ------ ------ ------
25,124 29,055 32,020 7,691 7,787
------ ------ ------ ------ ------
Income from operations....................... 4,244 5,202 6,176 2,944 4,628
Investment and other income.................... 180 350 875 148 108
------ ------ ------ ------ ------
Net income................................... $ 4,424 $ 5,552 $ 7,051 $ 3,092 $ 4,736
====== ====== ====== ====== ======
PRO FORMA INFORMATION (NOTE 3): (UNAUDITED)
Adjustment to compensation expense to
eliminate bonus paid to S Corporation
stockholder in respect to income taxes.... $ 6,175 $ --
------ ------
Income before income taxes after
adjustment................................ 13,226 4,736
Income taxes................................. 5,069 1,852
------ ------
Net income................................... $ 8,157 $ 2,884
====== ======
Net income per share......................... $ 1.08 $ .38
Weighted average shares outstanding.......... 7,548 7,548
|
The accompanying notes to these combined financial statements are an integral part of these combined statements.
STRAYER COLLEGE, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ELP ADDITIONAL COLLEGE UNREALIZED
COMMON STOCK PAID-IN COMMON STOCK GAINS
--------------- CAPITAL --------------- RETAINED (LOSSES) ON
SHARES AMOUNT OF ELP, INC. SHARES AMOUNT EARNINGS INVESTMENTS TOTAL
------ ------ ------------ ------ ------ -------- ----------- -----------
Balance, December 31, 1992..... -- $-- $-- 375.5 $4 $ 4,246 $ -- $ 4,250
Distributions to
stockholders............... -- -- -- -- -- (2,046) -- (2,046)
Net income................... -- -- -- -- -- 4,424 -- 4,424
--
------ ------ ------------ ------ -------- ----- -----------
Balance, December 31, 1993..... -- -- -- 375.5 4 6,624 -- 6,628
Distributions to
stockholders............... -- -- -- -- -- (2,800) -- (2,800)
Net unrealized losses on
investments................ -- -- -- -- -- -- (43) (43)
Net income................... -- -- -- -- -- 5,552 -- 5,552
--
------ ------ ------------ ------ -------- ----- -----------
Balance, December 31, 1994..... -- -- -- 375.5 4 9,376 (43) 9,337
Distributions to
stockholders............... -- -- -- -- -- (3,350) -- (3,350)
Issuance of common stock and
additional capital
contributions by ELP
stockholder................ 100 -- 2,100 -- -- -- -- 2,100
Net unrealized gains on
investments................ -- -- -- -- -- -- 201 201
Net income................... -- -- -- -- -- 7,051 -- 7,051
--
------ ------ ------------ ------ -------- ----- -----------
Balance, December 31, 1995..... 100 -- 2,100 375.5 4 13,077 158 15,339
Distributions to
stockholders............... -- -- (958) -- -- (650) -- (1,608)
Net unrealized gains on
investments................ -- -- -- -- -- -- 97 97
Net income................... -- -- -- -- -- 4,736 -- 4,736
--
------ ------ ------------ ------ -------- ----- -----------
Balance, March 31, 1996
(unaudited).................. 100 $-- $1,142 375.5 $4 $17,163 $ 255 $ 18,564
====== ======= =========== ====== ======= ======== ========= ========
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The accompanying notes to these combined financial statements are an integral part of these combined statements.
STRAYER COLLEGE, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE
FOR THE YEAR ENDED DECEMBER MONTHS ENDED MARCH
31, 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows from operating activities:
Net income................................... $ 4,424 $ 5,552 $ 7,051 $ 3,092 $ 4,736
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............. 369 448 688 151 195
Provision for student loan losses......... -- -- 49 3 31
Changes in assets and liabilities:
Short-term investments -- restricted...... -- -- (317) (50) (58)
Tuition receivable, net................... (2,943) 2,230 940 367 12
Inventories............................... (124) 13 (179) (159) 7
Other current assets...................... 31 (65) 167 37 30
Trade accounts payable.................... 419 (18) (220) (103) 243
Accrued expenses.......................... 25 153 83 1,444 169
Unearned tuition.......................... (733) 776 113 10 (81)
Other current liabilities................. (132) (14) 75 92 174
------- ------- ------- ------- -------
Net cash provided by operating
activities......................... 1,336 9,075 8,450 4,884 5,458
------- ------- ------- ------- -------
Cash flows used in investing activities:
Purchases of property and equipment.......... (532) (1,500) (1,162) (467) (188)
Purchases of marketable securities........... (4,386) (6,586) (7,993) (1,422) (1,313)
Sales of marketable securities............... 4,305 5,238 6,386 779 825
Student loans originated or acquired......... -- -- (1,481) (281) (795)
Collections on student loans receivable...... -- -- 500 71 322
Proceeds from sale of loans.................. -- -- -- -- 212
Other........................................ (21) 8 (22) -- --
------- ------- ------- ------- -------
Net cash used in investing
activities......................... (634) (2,840) (3,772) (1,320) (937)
------- ------- ------- ------- -------
Cash flows used in financing activities:
Distributions to stockholders................ (2,046) (2,800) (3,350) (725) (1,608)
Proceeds from issuance of common stock and
additional capital contributions by ELP
stockholder............................... -- -- 2,100 500 --
Other........................................ (74) (62) -- -- --
------- ------- ------- ------- -------
Net cash used in financing
activities......................... (2,120) (2,862) (1,250) (225) (1,608)
------- ------- ------- ------- -------
Net (decrease) increase in cash...... (1,418) 3,373 3,428 3,339 2,913
Cash and cash equivalents -- beginning of
period....................................... 3,609 2,191 5,564 5,564 8,992
------- ------- ------- ------- -------
Cash and cash equivalents -- end of period..... $ 2,191 $ 5,564 $ 8,992 $ 8,903 $11,905
======= ======= ======= ======= =======
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The accompanying notes to these combined financial statements are an integral part of these combined statements.
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of Strayer College, Inc. and Education Loan Processing, Inc. (collectively the Companies), both of which are under the common control of Mr. and Mrs. Ron K. Bailey. All significant intercompany accounts and transactions have been eliminated.
2. NATURE OF OPERATIONS
Strayer College, Inc. (the College) is a proprietary accredited institution of higher education that provides undergraduate and graduate degrees in various fields of study. The College has eight campuses located in the District of Columbia and Virginia.
Education Loan Processing, Inc. (ELP) is a finance company that purchases and services student loans, principally for the College. ELP was incorporated in December 1994 and began operations in January 1995.
The significant components of ELP's balance sheets at December 31, 1995 and March 31, 1996 were as follows (in thousands):
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Cash and cash equivalents............................. $ 909 $ 361
Investments in marketable securities.................. 498 --
Students loans receivable, net........................ 932 1,190
Due to Strayer College, Inc. ......................... 189 326
Stockholder's equity.................................. 2,126 1,150
|
For purposes of the Companies' combined balance sheets, all of ELP's assets and liabilities have been classified as current assets and liabilities with the exception of student loans receivable, which have been classified as noncurrent consistent with industry practice. See Note 5. ELP's revenues and expenses for the year ended December 31, 1995 and three months ended March 31, 1996 were not significant.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating cash and cash invested in short-term certificates of deposit, commercial paper, and U.S. government obligations. The Companies consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Companies place their cash and temporary cash investments with high credit quality institutions. At times cash and cash equivalent balances may be in excess of the FDIC insurance limit. The Companies have not experienced any losses on their cash and cash equivalents.
Tuition receivables are not collateralized, however, credit risk is minimized as a result of the diverse nature of the College's student base in the Washington, D.C. area. The College establishes an allowance for doubtful tuition accounts based upon factors surrounding historical trends and other information.
Student loans are receivable from the College's students. The Companies perform credit evaluations and require cosigners in some instances to minimize credit risk. Allowances for loan losses are established as discussed below.
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Student Loans Receivable
Student loans receivable are stated at the amount of unpaid principal, reduced by an allowance for loan losses. Interest income from student loans is recognized using the interest method.
Provisions for estimated losses on student loans are charged to income in amounts sufficient to maintain the allowance at a level considered adequate to cover the losses of principal and interest in the existing loan portfolio, based upon historical trends, economic conditions and other information. ELP's charge-off policy is based on a loan-by-loan review; however, any loan more than 120 days past due is written off against the allowance.
Investments
The Companies' investments are considered "available-for-sale," and, as such, are stated at market value. The net unrealized gains and losses are reported as a component of stockholders' equity. Realized gains or losses from the sale of marketable securities are based on the specific identification method.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives ranging from 3 to 10 years. Depreciation amounted to $369,000, $448,000 and $688,000 for the years ended December 31, 1993, 1994 and 1995, respectively and $151,000 and $195,000 for the three months ended March 31, 1995 and 1996, respectively.
Tuition Revenues
Tuition income is deferred at the time of registration and is recognized as income, net of any refunds or withdrawals, ratably throughout each respective quarter session. Advance registrations for the next quarter are shown as unearned tuition.
Inventories
Inventories, which consist of books and supplies held in campus bookstores, are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period reported. Actual results could differ from those estimates.
Income Taxes and Pro Forma Information (unaudited)
The financial statements of the Companies do not include a provision for income taxes because the taxable income of the Companies was included in the income tax returns of the stockholders under the S Corporation election.
In connection with the formation of Strayer Education, Inc. (Company), the initial public offering of the Company's common stock (Offering), and the proposed acquisition of the Companies by the Company, the Companies will no longer be treated as S Corporations for tax purposes. The Company will be subject to
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
federal and state income taxes and will recognize deferred taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires companies subject to income taxes to adjust their deferred tax assets and liabilities based on temporary differences between financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. Based upon temporary differences existing as of December 31, 1995 and March 31, 1996, the net deferred income tax assets are insignificant individually and in total.
The components of the pro forma income tax provisions are as follows (in thousands):
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
Current
Federal................................... $ 4,435 $1,574
State..................................... 605 221
------- -------
5,040 1,795
Deferred....................................... 29 57
------- -------
$ 5,069 $1,852
============= ===========
|
The effective pro forma income tax rate differs from the 34% statutory federal rate principally as a result of state income taxes.
For informational purposes, the combined statements of income for the year ended December 31, 1995 and the three-month period ended March 31, 1996 include pro forma information reflecting the following adjustments:
- Pro forma net income gives effect to the reduction of costs and expenses for the year ended December 31, 1995 by $6,175,000, which represents payments to a stockholder of the College who also serves as President of the College, for payment of 1995 income taxes on undistributed S Corporation income. This adjustment is made solely as a result of the change in the income tax status of the College that will become effective subsequent to the proposed acquisition of the College by the Company. As President and Chief Executive Officer of the College after the acquisition, the stockholder's duties and responsibilities will not diminish. However, the taxable income of the College will no longer be included in the income tax return of the stockholders, but will be paid directly by the College or the Company, as C Corporation tax payors. The College believes this adjustment is necessary for investors to realistically assess the impact of the acquisition and related change in income tax status on the results of operations of the College.
- Pro forma income taxes reflect the application of statutory corporate income tax rates to the net income of the Companies as if the termination of the S Corporation status of the Companies had occurred on January 1, 1995. The effective derived income tax rates for the year ended December 31, 1995 and for the three-month period ended March 31, 1996 were 38.3% and 39.1%, respectively.
- Pro forma net income per share and weighted average shares outstanding reflect the acquisition of the College by the Company in exchange for 5,999,000 shares of common stock, and the net proceeds from the issuance of 1,548,181 shares of common stock in connection with the Offering necessary to pay the $14,042,000 S Corporation distribution based on the estimated amount of previously recognized and
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
undistributed College S Corporation income through March 31, 1996, as if those events had occurred on January 1, 1995. Historical earnings per share of the Companies have not been presented because such amounts are not meaningful in light of the pending transactions described above.
The pro forma combined balance sheet as of March 31, 1996 reflects the following adjustments as if those adjustments occurred March 31, 1996:
- The April 1996 distributions by the College of $2,100,000 discussed in Note 11.
- The recognition of a liability for the estimated S Corporation distribution of $14,042,000 (which is subject to adjustment) to be paid from the proceeds of the Offering.
- The acquisition of the College by the Company in exchange for 5,999,000 shares of common stock.
The remaining retained earnings after the application of the pro forma adjustments consist of the following (in thousands):
College C Corporation retained earnings at the date of the
acquisition by Ron K. Bailey............................... $938
ELP retained earnings at March 31, 1996...................... 8
Adjustment of College retained earnings in connection with
acquisition of the College by the Company for 5,999,000
shares of common stock..................................... (56)
Common stock of the Company.................................. 1
Effect of combining entries.................................. 75
----
$966
====
|
Interim Financial Statements
The results of operations for the three months ended March 31, 1995 and 1996 are not necessarily indicative of the results to be expected for the full fiscal year. All information as of March 31, 1996 and for the three months ended March 31, 1995 and 1996 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the combined financial position, results of operations and cash flows of the Companies.
4. INVESTMENTS
Short-Term Investments -- Restricted
The U.S. Department of Education requires Title IV Program loan funds collected in excess of amounts due for tuition to be kept in a separate cash or cash equivalent account until such amounts can be remitted to students. These funds are invested in short-term U.S. Treasury Notes with maturities of three months or less.
Investments in Marketable Securities
Effective January 1, 1994, the Companies adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). The effect of adopting SFAS No. 115 was not material. Under SFAS 115, the marketable securities of the Companies have been classified as available for sale and are carried at market.
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. INVESTMENTS -- (CONTINUED)
The cost and market value for each class of investments at December 31, 1994 and 1995 are as follows (in thousands):
1994 1995
----------------------------------------- -----------------------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED MARKET UNREALIZED UNREALIZED MARKET
COST GAINS LOSS VALUE COST GAINS LOSS VALUE
------ ---------- ---------- ------ ------ ---------- ---------- ------
U.S. Government
obligations.............. $ 934 $-- $(10) $ 924 $2,499 $ 80 $-- $2,579
Equity securities.......... 932 -- (33) 899 975 78 -- 1,053
------ --- ----- ------ ------ ---- --- ------
Total................. $1,866 $-- $(43) $1,823 $3,474 $158 $-- $3,632
====== === ===== ====== ====== ==== === ======
|
The cost and market value for each class of investment at March 31, 1996 is as follows (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------ ---------- ---------- ------
U.S. Government obligations..................... $1,640 $ 31 $-- $1,671
Equity securities............................... 2,468 77 -- 2,545
------ ---- --- ------
Total...................................... $4,108 $108 $-- $4,216
====== ==== === ======
|
The contractual maturities of U.S. Government obligations at December 31, 1995 are as follows (in thousands):
MARKET
COST VALUE
------ ------
Due in one year or less..................................... $ 678 $ 689
Due after one year through five years....................... 1,351 1,402
Due after five years through 10 years....................... 470 488
------ ------
Total.................................................. $2,499 $2,579
====== ======
|
Included in investment income for the years ended December 31, 1994 and 1995 and for the three months ended March 31, 1995 and 1996, were the following proceeds from the sale of securities:
DECEMBER 31, MARCH 31,
---------------- ------------
1994 1995 1995 1996
------ ------ ---- ----
Gross realized gains................................... $ -- $ -- $ -- $ 14
Gross realized losses.................................. 29 -- -- --
Proceeds............................................... 5,238 6,386 779 825
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STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. STUDENT LOANS RECEIVABLE
Student loans receivable are as follows:
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Student loans receivable outstanding, including
accrued interest.................................... $981 $ 1,270
Allowance for loan losses............................. (49) (80)
------ ---------
Student loans receivable, net.................... $932 $ 1,190
========== =======
|
The interest rate on student loans is generally 7.5%.
The Companies believe the carrying value of the student loans approximates their fair value.
Annual principal payments due under the student loans outstanding at December 31, 1995 are as follows (in thousands):
1996................................................................. $641
1997................................................................. 222
1998................................................................. 64
1999 through 2001.................................................... 54
----
Total........................................................... $981
====
|
As of December 31, 1995 and for the three months ended March 31, 1996, the Companies do not have any student loans receivable which have been identified as impaired.
6. PROPERTY AND EQUIPMENT
The composition of property and equipment is as follows:
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
Furniture and equipment............... $ 2,965,000 $ 3,910,000 $ 4,097,000
Leasehold improvements................ 894,000 1,092,000 1,093,000
Vehicles.............................. 44,000 63,000 63,000
----------- ----------- -----------
3,903,000 5,065,000 5,253,000
Less -- accumulated depreciation.... (1,503,000) (2,191,000) (2,386,000)
----------- ----------- -----------
$ 2,400,000 $ 2,874,000 $ 2,867,000
========== ========== ==========
|
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY
The Companies' outstanding common stock at December 31, 1995 is summarized below:
NUMBER OF
NUMBER OF SHARES ISSUED
PAR VALUE SHARES AND
PER SHARE AUTHORIZED OUTSTANDING
--------- ---------- -------------
Strayer College, Inc. ...................... $ 10.00 500 375.5
Education Loan Processing, Inc. ............ $ 1.00 5,000 100
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The Companies' individual retained earnings as of December 31, 1995 and March 31, 1996 were as follows (in thousands):
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
Strayer College, Inc. ......................... $13,002 $ 17,080
Education Loan Processing, Inc. ............... 15 8
Effect of combining entries.................... 60 75
----------------- --------------
Total..................................... $13,077 $ 17,163
============= ===========
|
8. COMMITMENTS AND CONTINGENCIES
Federal Financial Assistance Programs
The College participates in various federal student financial assistance programs which are subject to audit. Management believes that the potential effects of audit adjustments, if any, for the periods currently under audit and for the periods not yet audited will not have a material adverse effect on the Companies' financial position, results of operations or cash flows.
Lease Commitments
The College has long-term noncancelable operating leases for its various campus locations. Rent expense was $2,406,000, $3,309,000 and $3,227,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $787,000 and $826,000 for the three months ended March 31, 1995 and 1996, respectively. The College has the option to buy certain of these campus properties at their fair market value as determined by independent appraisal. The Washington D.C. campuses and three of the Virginia campuses are leased from a stockholder of the College. Rent paid to the stockholder was $1,046,000, $1,339,000 and $1,896,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $464,000 and $590,000 for the three months ended March 31, 1995 and 1996, respectively.
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The rents on these leases are subject to an annual increase based on a stipulated price index. The minimum rental commitments for the College as of December 31, 1995 are as follows:
AMOUNT PAYABLE
TO STOCKHOLDER
TOTAL INCLUDED IN TOTAL
----------- -----------------
1996............................................. $ 3,328,000 $ 2,118,000
1997............................................. 3,312,000 2,118,000
1998............................................. 3,173,000 2,118,000
1999............................................. 2,904,000 2,118,000
2000............................................. 2,730,000 2,118,000
Thereafter....................................... 12,291,000 11,265,000
----------- -----------------
Total....................................... $27,738,000 $21,855,000
========== ============
|
In connection with the Offering, the College is negotiating with a stockholder to modify the terms of the leases beginning in 1996.
9. RETIREMENT BENEFIT PLANS
The College has a 401(k) profit sharing trust covering all eligible employees. Participants may defer a percentage of their salaries or make contributions up to 10% of their total compensation. Employee contributions are voluntary. Discretionary contributions are made by the College in the fourth quarter of each year, and were $44,000, $88,000 and $94,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
ELP sponsors a Salary Reduction Simplified Employee Pension Plan under
Section 408(k) of the Internal Revenue Code. Qualified employees may defer up to
$9,240 (for 1995) per year in earnings, subject to certain participation
requirements and limitations. ELP may not make contributions to an employee's
pension account.
10. RELATED PARTY TRANSACTIONS
Beginning in 1995, the College retained PRK Investments, Inc. ("PRK") to provide it with a variety of services including services related to computer equipment purchasing and the College's compliance with the HEA and Department of Education regulations applicable to Title IV Programs. Two thirds of the PRK common stock is owned by children of the stockholders of the College. The College paid PRK $70,000 and $94,000 for computer equipment purchasing and related services for the year ended December 31, 1995 and the three months ended March 31, 1996, respectively. In addition, pursuant to a contract with PRK, the College made monthly payments of $20,000 to PRK for Title IV services from January 1, 1996 through May 15, 1996. Beginning May 16, 1996, the computer equipment purchasing and related services performed by PRK for the College are performed by employees of ELP. The College provided PRK office space at its old Huntington Campus location at no cost in 1995 and the first quarter of 1996 at an estimated cost to the College of $18,000 and $5,000 for the year ended December 31, 1995 and the three months ended March 31, 1996, respectively.
Beginning in 1994, College faculty and other employees have received computer-related instruction and training in other occupational skills from Career Training Institute, Inc. ("CTI"). Eighty percent of the CTI common stock is owned by children of the stockholders of the College. The College paid CTI $8,000, $75,000
STRAYER COLLEGE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. RELATED PARTY TRANSACTIONS -- (CONTINUED)
and $17,000 for its services for the years ended December 31, 1994 and 1995 and for the three months ended March 31, 1996, respectively. ELP purchased loans from CTI totalling $76,000 and $110,000 in 1995 and the three months ended March 31, 1996, respectively.
ELP has made loans to Mr. Bailey and his two children aggregating $28,000 and $0 at December 31, 1995 and March 31, 1996, respectively. Such loans bear interest at 7.5%. Interest income and accrued interest on the loans was insignificant.
See Note 8 for additional related party transactions.
11. SUBSEQUENT EVENT
In April 1996, the College distributed $2.1 million to its stockholders for expected tax liabilities in respect to estimated income earned by the College during the period January 1, 1996 to May 31, 1996.
12. PRIOR PERIOD ADJUSTMENTS
Historically, the College has made distributions to the stockholders which the stockholders used to fund the acquisition of campus facilities later leased to the College (See Note 5). In 1995, the College's stockholders also used a portion of the distributions to establish and capitalize ELP. Total distributions during the years ended December 31, 1993, 1994 and 1995 were $2,046,000, $2,800,000 and $3,350,000, respectively.
Previously, the distributions for the years ended December 31, 1993 and 1994 were reported as general and administrative expenses, however these distributions were not paid and reported on Form W-2 as compensation to a stockholder. Such distributions have been reported as distributions to stockholders in the accompanying statements of income, stockholders equity and cash flows, so that the classification is consistent with the nature of the transactions.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary..................... 3
Risk Factors........................... 7
The Company............................ 12
Reorganization......................... 12
Use of Proceeds........................ 14
Capitalization......................... 15
Dividend Policy........................ 15
Dilution............................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 24
Licensing, Accreditation and Financial
Aid Regulation....................... 33
Management............................. 44
Certain Transactions................... 48
Principal Stockholders................. 51
Description of Capital Stock........... 52
Shares Eligible for Future Sale........ 54
Underwriting........................... 55
Legal Matters.......................... 56
Experts................................ 56
Additional Information................. 56
Index to Financial Statements.......... F-1
|
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,000,000 SHARES
[STRAYER LOGO]
STRAYER EDUCATION, INC.
PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered hereunder. Except for the SEC registration fee and NASD filing fee, all amounts are estimates.
SEC registration fee.............................................. $ 13,086
NASD filing fee................................................... 5,000
Nasdaq National Market Listing Fee................................ 40,000
Accounting fees and expenses...................................... 200,000
Legal fees and expenses........................................... 275,000
Blue Sky fees and expenses (including counsel fees)............... 20,000
Printing and Engraving expenses................................... 125,000
Transfer Agent and Registrar fees and expenses.................... 4,000
Miscellaneous Expenses............................................ 17,914
--------
Total................................................... $700,000
========
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Charter provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the College shall have any liability to the College or its stockholders for monetary damages. The Maryland General Corporation Law provides that a corporation's charter may include a provision which restricts or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The Company's Charter and By-laws provide that the Company shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the Maryland General Corporation Law and that the Company shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law.
The Charter and By-laws provide that the Company will indemnify its directors and officers and may indemnify employees or agents of the Company to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Company. In addition, the Company's Charter provides that its directors and officers will not be liable to stockholders for money damages, except in limited instances. However, nothing in the Charter or By-laws of the Company protects or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director has been successful in defense of any proceeding, the Maryland General Corporation Law provides that he shall be indemnified against reasonable expenses incurred in connection therewith.
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains provisions by which the Underwriters agree to indemnify the Registrant and each officer, director and controlling person of the Registrant against certain liabilities.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 15, 1996, the Company issued 1,000 shares of Common Stock to Mr. and Mrs. Ron K. Bailey, as joint tenants with a right of survivorship for $1,000 in cash. No underwriting discount or commission was paid in connection with the sale. The sale was effected without registration under the Securities Act in reliance on the exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------
1.01 ** -- Proposed form of Underwriting Agreement.
3.01 ** -- Certificate of Incorporation of the Company.
3.02 -- Amended and Restated Bylaws of the Company.
4.01 -- Specimen Stock Certificate.
5.01 -- Opinion of Hogan & Hartson L.L.P. as to the legality of the Common Stock
being registered.
10.01 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College, Inc.
and Fredericksburg Investments, Inc.
10.02 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College, Inc.
and Beacon Investments, Inc.
10.03 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College, Inc.
and Battleview Investments, Inc.
10.04 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College, Inc.
and Central Investments, Inc.
10.05 ** -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc.
and Potomac Investments, Inc.
10.06 -- Lease Agreement, dated as of April 22, 1991, between Strayer College,
Inc. and Cross Creek Associates Limited Partnership.
10.07 -- Lease Agreement, dated as of October 1, 1991, between Strayer College,
Inc. and GLM-Highland Building Limited Partnership.
10.08 -- Lease Agreement, dated as of June 15, 1993, between Strayer College, Inc.
and Alexandria Tech Center I.
10.09 ** -- Employment Agreement, dated as of June 1, 1996, between Strayer
Education, Inc. and Ron K. Bailey.
10.10 ** -- Employment Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Harry T. Wilkins.
10.11 ** -- 1996 Stock Option Plan
10.12 ** -- Form of Tax Indemnification Agreement
10.13 -- First Amendment to Agreement of Lease for Office Condominium Space, dated
July 25, 1994, between Strayer College, Inc. and Cross Creek Associates
Limited Partnership.
23.01 -- Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.01).
23.02 -- Consent of Coopers & Lybrand L.L.P.
24.01 -- Power of Attorney (contained in signature page).
27 **+ -- Financial Data Schedule.
99.01 ** -- Consents of Stanley G. Elmore, Todd A. Milano, Dr. Jennie D. Seaton,
Roland Carey, Donald T. Benson, G. Thomas Waite, III, Dr. Donald Stoddard
and Dr. Charlotte Beason.
|
** Previously filed.
+ Included in electronic filing via EDGAR.
II-2
(b)Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts and report thereon
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being, made, a post-effective amendment to this registration statement; (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Securities Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post effective amendment, financial statements required pursuant to this paragraph (a) (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.
The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on July 15, 1996.
STRAYER EDUCATION, INC.
By: /s/ RON K. BAILEY
----------------------------------
Ron K. Bailey
Chief Executive Officer and
President
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Chief Executive Officer, President July 15, 1996
/s/ RON K. BAILEY and Director (Principal Executive
- ------------------------------------- Officer)
Ron K. Bailey
/s/ HARRY T. WILKINS Chief Financial Officer (Principal July 15, 1996
- ------------------------------------- Financial Officer and Principal
Harry T. Wilkins Accounting Officer)
|
II-4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Stockholders
Strayer College, Inc.
In connection with our audits of the combined financial statements of Strayer College, Inc., and Affiliate as of December 31, 1994 and 1995, and for each of the three years in the period ended December 31, 1995, which financial statements are included in the Prospectus, we have also audited the combined financial statement schedule listed in Item 16 of Part II of the Registration Statement herein.
In our opinion, this combined financial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Washington, D.C.
May 14, 1996
STRAYER COLLEGE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
BALANCE ADDITIONS BALANCE
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------------------
Deduction from asset account:
Allowance for doubtful accounts:
Three months ended March 31, 1996 (unaudited)... $155 $101 $ (67) $ 189
Year ended December 31, 1995.................... 135 655 (635) 155
Year ended December 31, 1994.................... 453 665 (983) 135
Year ended December 31, 1993.................... 210 853 (610) 453
Allowance for loan loss:
Three months ended March 31, 1996 (unaudited)... 49 31 -- 80
Year ended December 31, 1995.................... -- 49 -- 49
|
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------- ------------
1.01 ** -- Proposed form of Underwriting Agreement...............................
3.01 ** -- Certificate of Incorporation of the Company...........................
3.02 -- Amended and Restated Bylaws of the Company............................
4.01 -- Specimen Stock Certificate............................................
5.01 -- Opinion of Hogan & Hartson L.L.P. as to the legality of the Common
Stock being registered................................................
10.01 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College,
Inc. and Fredericksburg Investments, Inc. ............................
10.02 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College,
Inc. and Beacon Investments, Inc. ....................................
10.03 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College,
Inc. and Battleview Investments, Inc. ................................
10.04 ** -- Lease Agreement, dated as of June 1, 1996 between Strayer College,
Inc. and Central Investments, Inc. ...................................
10.05 ** -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Potomac Investments, Inc. ...................................
10.06 -- Lease Agreement, dated as of April 22, 1991, between Strayer College,
Inc. and Cross Creek Associates Limited Partnership...................
10.07 -- Lease Agreement, dated as of October 1, 1991, between Strayer College,
Inc. and GLM-Highland Building Limited Partnership....................
10.08 -- Lease Agreement, dated as of June 15, 1993, between Strayer College,
Inc. and Alexandria Tech Center I.....................................
10.09 ** -- Employment Agreement, dated as of June 1, 1996, between Strayer
Education, Inc. and Ron K. Bailey.....................................
10.10 ** -- Employment Agreement, dated as of June 1, 1996, between Strayer
College, Inc. and Harry T. Wilkins....................................
10.11 ** -- 1996 Stock Option Plan................................................
10.12 ** -- Form of Tax Indemnification Agreement.................................
10.13 -- First Amendment to Agreement of Lease for Office Condominium Space,
dated July 25, 1994, between Strayer College, Inc. and Cross Creek
Associates Limited Partnership........................................
23.01 -- Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.01).........
23.02 -- Consent of Coopers & Lybrand L.L.P. ..................................
24.01 -- Power of Attorney (contained in signature page).......................
27 **+ -- Financial Data Schedule...............................................
99.01 ** -- Consents of Stanley G. Elmore, Todd A. Milano, Dr. Jennie D. Seaton,
Roland Carey, Donald T. Benson, G. Thomas Waite, III, Dr. Donald
Stoddard and Dr. Charlotte Beason.....................................
|
** Previously filed.
+ Included in electronic filing via EDGAR.
Exhibit 3.02
AMENDED AND RESTATED
BYLAWS
OF
STRAYER EDUCATION, INC.
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL OFFICE
The address of the principal office of the Corporation in the State of Maryland shall be 32 South Street, Baltimore, Maryland 21202, c/o the Corporation Trust Incorporated. The name of the resident agent of the Corporation in the State of Maryland is the Corporation Trust Incorporated, a resident of the State of Maryland whose address is 32 South Street, Baltimore, Maryland 21202.
SECTION 2. OTHER OFFICES
The Corporation may also have other offices at locations both within and without the State of Maryland as the Board of Directors may determine or as the business of the Corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS
All meetings of the stockholders of the Corporation shall be held at the principal office of the Corporation or at any other place in the United States as may be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS
The annual meeting of stockholders of the Corporation for the election of directors and the transaction of other business as may properly be brought before the meeting shall be held in the month of May commencing with the year 1997 on a day and beginning at a time as shall be set by the Board of Directors. Any business of the Corporation may be transacted at the annual meeting without being specified in the notice thereof, except as otherwise provided by law.
SECTION 3. SPECIAL MEETINGS
Special meetings of stockholders of the Corporation for any purpose or purposes may be called at any time by the President or the Board of Directors, and
shall be called by the Secretary upon the written request of stockholders entitled to cast at least 25 percent of all votes entitled to be cast at the meeting. The request shall state the purpose or purposes of the meeting and the matters proposed to be acted on thereat. Upon receipt of the request, the Secretary shall inform the stockholders of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of the costs to the Corporation, the Secretary shall give notice to each stockholder entitled to notice of the meeting. No special meeting need be called upon the request of stockholders entitled to cast less than a majority of all votes entitled to be cast at a meeting to consider any matter which is substantially the same as a matter voted on at any special meeting of stockholders held during the preceding 12 months.
SECTION 4. CONDUCT OF MEETINGS
All meetings of stockholders shall be conducted in accordance with the most current edition of Robert's Rules of Order, unless otherwise provided by law or these Bylaws.
SECTION 5. NOTICE OF MEETINGS; WAIVER OF NOTICE
Written notice of the time and place of each meeting of stockholders, and the purpose of any special meeting, shall be given to each stockholder entitled to vote at or to notice of the meeting not less than 10 nor more than 90 days before the date of the meeting, either personally delivered to him, left at his residence or usual place of business, or mailed to him, postage prepaid, at his address as it appears on the records of the Corporation. No notice of the time, place, or purpose of any meeting of stockholders need be given to any stockholder entitled to the notice who is present in person or is represented by proxy at the meeting, or who, either before or after the meeting, executes a written waiver of notice which shall be filed by the Secretary with the records of meetings of stockholders, as provided by these Bylaws.
SECTION 6. RECORD DATE AND CLOSING OF TRANSFER BOOKS
For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive dividends or be allotted any other right, or for any other proper purpose, the Board of Directors may fix, in advance, a record date, which shall be not more than 90 days before the date on which the action requiring the determination will be taken, or the Board of Directors may direct that the stock transfer books be closed for a stated period, not to exceed 20 days. In the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least 10 days before the date of the meeting. Except as otherwise provided by law, the record date may not be prior to the close of business on the day the record date is fixed.
SECTION 7. QUORUM
Unless otherwise provided by law or the Articles of Incorporation of the Corporation, the presence in person or by proxy of stockholders entitled to cast a majority of all votes entitled to be cast at a meeting shall constitute a quorum at all meetings of stockholders. The stockholders entitled to cast a majority of the votes so represented may adjourn the meeting from time to time without further notice other than announcement at the meeting to a date not more than 120 days after the original record date. At the adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding any absence or withdrawal of any stockholder or stockholders during the meeting that has or have the effect of reducing the number of stockholders remaining in attendance at the meeting to less than a quorum.
SECTION 8. PROXIES
At all meetings of stockholders of the corporation, a stockholder may vote either in person or by written proxy signed by the stockholder or by his duly authorized attorney in fact. No proxy shall be valid for more than eleven (11) months after its date, unless the proxy otherwise provides.
SECTION 9. VOTING
At all meetings of stockholders of the Corporation, each outstanding share of Common Stock as of the record date of the meeting shall be entitled to one vote on each matter submitted to a vote. A majority of all the votes cast at a meeting at which a quorum is present is sufficient to approve any matter which properly comes before the meeting unless otherwise provided by law or the Articles of Incorporation of the Corporation. Candidates for election as members of the Board of Directors who receive the highest number of votes at a meeting at which a quorum is present, up to the number of directors to be chosen, shall stand elected, and an absolute majority of the votes cast shall not be a prerequisite to the election of any candidate to the Board of Directors.
SECTION 10. LIST OF STOCKHOLDERS
The Secretary of the Corporation shall prepare a list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order, and indicating the number of shares of stock held by each stockholder as of the record date for the meeting. The list of stockholders shall be kept at the place of the meeting of stockholders during the meeting.
SECTION 11. INFORMAL ACTION
Any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if the following documents are filed with the records of stockholder meetings: (a) a written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter, and (b) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting, but not entitled to vote at the meeting.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS
The business and affairs of the Corporation shall be managed under the direction of the Board of Directors, which shall have and exercise all powers of the Corporation, except as conferred upon or reserved to the stockholders by law, the Articles of Incorporation of the Corporation or these Bylaws.
SECTION 2. NUMBER AND TERM
The Board of Directors of the Corporation shall consist of nine (9) directors, or any other number as a majority of the entire Board of Directors shall determine from time to time; provided, however, that so long as the Corporation has less than three stockholders, the number of directors may be less than three but, in that case, shall not be less than the number of stockholders. Directors shall be elected at the annual meeting of stockholders and shall hold office until the next annual meeting of stockholders and until their respective successors are elected and qualify.
SECTION 3. QUALIFICATIONS
Unless otherwise provided by law, the Articles of Incorporation of the Corporation, or these Bylaws, directors need not be stockholders of the Corporation.
SECTION 4. REGULAR MEETINGS
The regular annual meeting of the Board of Directors shall be held without notice immediately after and at the same place as the annual meeting of stockholders. Other regular meetings of the Board of Directors may be held without notice at a time and place as shall from time to time be determined by resolution of Directors.
SECTION 5. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the President and shall be called by the Secretary upon the written request of the
directors. Special meetings of the Board of Directors shall be held at any place in or out of the State of Maryland as the Board may from time to time determine by resolution or as shall be specified in any notice or waiver of notice of the meeting.
SECTION 6. NOTICE; WAIVER OF NOTICE
Written notice of any special meeting of the Board of Directors shall be given to each director at least one day prior thereto either personally or by telegram, or at least five days prior thereto by mail, addressed to the director at his address as it appears in the records of the Corporation. The notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid, or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting, either before or after the meeting, by signing a waiver of notice which is filed with the records of the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of the meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any meeting of the Board of Directors need be specified in the notice or waiver of notice of the meeting.
SECTION 7. QUORUM; MANNER OF ACTING
A majority of the entire Board of Directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors. If a quorum is not present at any meeting, the directors present may adjourn the meeting. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. Unless a greater proportion is required by law, the Articles of Incorporation of the Corporation or these Bylaws, the action of a majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors.
SECTION 8. ACTION WITHOUT A MEETING; TELEPHONE MEETING
Any action required or permitted to be taken at a meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by each member of the Board or committee and filed with the minutes of proceedings of the Board or committee. Members of the Board of Directors, or any committee thereof, may participate in meetings by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other at the same time. The participation shall constitute presence in person at the meeting.
SECTION 9. RESIGNATION AND REMOVAL
Any director may resign at any time by giving written notice of the resignation to the President or the Secretary at the principal office of the Corporation. Unless otherwise specified therein, the resignation shall take effect upon receipt thereof. The stockholders of the Corporation may remove any director, with or without cause, by the affirmative vote of a majority of all votes entitled to be cast for the election of directors.
SECTION 10. VACANCIES
The stockholders may elect a successor to fill a vacancy on the Board of Directors which results from the removal of a director. A vacancy occurring on the Board of Directors other than by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum. Any directorship to be filled by reason of an increase in the number of directors may be filled by a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall serve until the next annual meeting of stockholders and until his successor is elected and qualifies. A director elected by the stockholders to fill a vacancy which results from the removal of a director shall serve for the balance of the term of the removed director.
SECTION 11. PRESUMPTION OF ASSENT
A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be assumed to have assented to the action unless he announces his dissent at the meeting and (a) his dissent is entered in the minutes of the meeting, (b) he files his written dissent to the action with the secretary of the meeting before the adjournment thereof, or (c) he forwards his written dissent, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation within 24 hours after the meeting is adjourned. The right to dissent shall not apply to a director who voted in favor of the action or failed to make his dissent known at the meeting.
SECTION 12. COMPENSATION OF DIRECTORS
The directors may be paid their expenses of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be paid like compensation for attending committee meetings.
ARTICLE IV. COMMITTEES
SECTION 1. APPOINTMENT
The Board of Directors may appoint from among its members an Executive Committee and other committees composed of two or more directors for those purposes and with powers as the Board may determine, subject to Section 2 of this Article IV. The members of any committee present at any meeting of the committee, whether or not they constitute a quorum, may appoint another director to act in the place of an absent member of the committee. The Board of Directors shall by majority vote appoint a chairman of each committee. The appointment of any committee pursuant to this Article IV, the delegation of authority thereto, or any action by a committee pursuant to this Article IV shall not constitute, of itself, compliance by any director, not a member of the committee, with the standard of care established by law for the performance of duties of directors.
SECTION 2. EXECUTIVE COMMITTEE; AUTHORITY
The Board of Directors may, by resolution adopted by a majority of the directors present at any meeting, establish an Executive Committee to consist of two or more directors. When the Board of Directors is not in session, the Executive Committee shall have and may exercise all of the powers of the Board of Directors, except to the extent, if any, that the authority shall be limited by resolution of the entire Board of Directors; provided, however, that neither the Executive Committee nor any other committee shall have the power to amend the Bylaws of the Corporation, to declare dividends or distributions on stock, to issue stock (except as permitted by law pursuant to a duly authorized stock option or similar plan), to recommend to the stockholders any action which requires stockholder approval, or to approve any merger or share exchange which does not require stockholder approval.
SECTION 3. TENURE
Subject to the provisions of Section 8 of this Article IV, each member of the Executive Committee or any other committee shall hold office until the next regular annual meeting of the Board of Directors following his appointment and until his successor is designated by the Board of Directors.
SECTION 4. MEETINGS AND NOTICES
Regular meetings of committees of the Board of Directors may be held without notice at times and places as the committees may determine from time to time by resolution. Special meetings of committees may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or by telephone or telegram. The notice of a meeting of a committee need not state the business proposed to be transacted at the
meeting. Any member of a committee may waive notice of any meeting thereof, either before or after the meeting, by signing a waiver of notice which shall be filed with the records of the meeting, or by attendance at the meeting.
SECTION 5. QUORUM
Except as provided otherwise in Section 1 of this Article IV, a majority of the members of a committee shall constitute a quorum for the transaction of business at any meeting thereof. The vote of a majority of the members of a committee present at a meeting at which a quorum is present shall constitute action of the committee.
SECTION 6. ACTION WITHOUT A MEETING; TELEPHONE MEETINGS
Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all of the members of the committee and filed with the minutes of proceedings of the committee. Members of committees may participate in meetings by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other at the same time. The participation shall constitute presence in person at the meeting.
SECTION 7. VACANCIES
Any vacancy on a committee may be filled by a resolution adopted by a majority of the Board of Directors.
SECTION 8. REMOVAL AND RESIGNATIONS
Any member of a committee may be removed at any time, with or without cause, by resolution of the Board of Directors. Any member of a committee may resign from the committee at any time by giving written notice to the President or Secretary of the Corporation otherwise specified therein, the resignation shall take effect upon receipt thereof.
SECTION 9. PROCEDURE
All committees established by the Board of Directors shall keep correct and complete minutes of their proceedings which minutes shall be recorded in written form but may be maintained in the form of a reproduction, and the Chairman of each committee shall report any actions taken to the Board of Directors at the next meeting thereof held after the committee meeting. The minutes of committee meetings shall be distributed to all members of the Board of Directors.
ARTICLE V. OFFICERS
SECTION 1. POSITIONS
The officers of the Corporation shall be the President, the
Secretary, and the Treasurer, and other officers as the Board of Directors may
appoint, including a Chairman of the Board, and one or more Vice Presidents,
who shall exercise the powers and perform the duties as are provided in these
Bylaws and as may be determined from time to time by resolution of the Board of
Directors. Any two or more offices may be held by the same person, except that
(a) one person may not serve concurrently as both President and Vice President,
and (b) any person who holds more than one office may not act in more than one
capacity to execute, acknowledge, or verify any instrument required by law to
be executed, acknowledged or verified by more than one officer.
SECTION 2. PRESIDENT
The President shall be the chief executive officer of the Corporation, shall have general and active supervision over the business and affairs of the Corporation, shall insure that all lawful orders and resolutions of the Board of Directors are carried into effect, and, unless otherwise provided by the Board of Directors, shall preside at all meetings of the Board of Directors and of the stockholders. The President shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed, and except where the execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
SECTION 3. VICE PRESIDENT
In the absence of the President or in the event of the President's inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice President shall perform other duties and have other powers as the Board of Directors may from time to time prescribe.
SECTION 4. CHAIRMAN OF THE BOARD
If the directors shall appoint a Chairman of the Board, the Chairman shall, when present, preside at all meetings of the Board of Directors and shall perform other duties and have other powers as may be vested in the Chairman by the Board of Directors.
SECTION 5. SECRETARY
The Secretary shall attend all meetings of the stockholders and the Board of Directors, shall record or cause to be recorded all the proceedings of the meetings of the stockholders and of the Board of Directors in a book or books to be kept for that purpose, and shall perform like duties for the Executive Committee or other committees, when required. The Secretary shall give, or cause to be given, notices as are required to be given in accordance with the provisions of these Bylaws or as required by law or the Articles of Incorporation of the Corporation. The Secretary shall have custody of the seal of the Corporation, and shall have the authority to affix the same to any instrument or document the execution of which in the name or on behalf of the Corporation is duly authorized, and when so affixed it may be attested by the signature of the Secretary. The Secretary shall see that the books, records, and other documents required by law (including the stock ledger and the records of the issue, transfer and registration of certificates for shares of Common Stock) are properly kept and filed. The Secretary shall perform all other duties incident to the office of Secretary and other duties as from time to time may be prescribed by these Bylaws or may be assigned to him or her by the Board of Directors or the President.
SECTION 6. ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and have other powers as the Board of Directors may from time to time prescribe.
SECTION 7. TREASURER
The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit all monies and valuable effects in the name and to the credit of the Corporation in depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as directed by the Board of Directors, taking proper vouchers for the disbursements, and shall render to the President, and to the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account as to all transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall also perform all other duties incident to the office of Treasurer and other duties as from time to time may be assigned to him or her by the Board of Directors or the President, or as may be prescribed by these Bylaws. If required by the Board of Directors, the Treasurer shall give the Corporation a bond and with surety or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of the Treasurer's office and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in the Treasurer's possession or under the Treasurer's control and belonging to the Corporation.
SECTION 8. ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer, and shall perform other duties and have other powers as the Board of Directors may from time to time prescribe.
SECTION 9. ELECTION AND TERM OF OFFICE
The officers of the Corporation shall be elected at the regular annual meeting of the Board of Directors, or as soon thereafter as possible, to hold office until the next regular annual meeting of the Board and until their respective successors are elected and qualified, or until their earlier death, resignation, or removal.
SECTION 10. COMPENSATION
The compensation of all officers of the Corporation shall be fixed from time to time by the Board of Directors.
SECTION 11. RESIGNATION AND REMOVAL
Any officer may at any time resign in the same manner provided for directors in Section 9 of Article III of these Bylaws. Any officer may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but the removal shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION 12. VACANCIES
A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the Board of Directors for the unexpired portion of the term of the office and until a successor is elected and qualifies.
SECTION 13. FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.
ARTICLE VI. INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time to time, the Company, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify (a) any Director or officer or any former Director or officer (including among the foregoing, for all purposes of this Article VI and without limitation, any individual who, while a Director and at the request of the Company, serves or has served another corporation, partnership, joint venture, Company, employee benefit plan or any other enterprise as a director, officer, partner or Director of such corporation, partnership, joint venture, Company, employee benefit plan or other enterprise), who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of such status, against reasonable expenses incurred by him in connection with the proceeding, and (b) any Director or officer or any former Director or officer against any claim or liability to which he may become subject by reason of such status unless it is established that (i) his act or omission was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful. In addition, the Company shall pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a Director or officer or former Director or officer made a party to a proceeding by reason of his status as a Director or officer; provided, that the Company shall have received (i) a written affirmation by the Director or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Company as authorized by these Bylaws and (ii) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the applicable standard of conduct was not met. The Company may, with the approval of its Directors, provide such indemnification and payment or reimbursement of expenses to any employee or agent of the Company. Neither the amendment nor repeal of this Article VI, nor the adoption or amendment of any other provision of the Articles of Incorporation or these Bylaws inconsistent with this Article VI, shall apply to or affect in any respect the applicability of this paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. Any indemnification or payment or reimbursement
of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the Maryland General Corporation Law (the "MGCL") for directors of Maryland corporations. The Company may provide to Directors, officers and stockholders such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL, as in effect from time to time, for directors of Maryland corporations.
ARTICLE VII. CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES
Each stockholder is entitled to a certificate which represents and certifies the shares of Common Stock he holds in the Corporation. A certificate may not be issued until the stock represented by it is fully paid. Certificates representing shares of Common Stock of the Corporation shall be signed by the President, Vice President or the Chairman of the Board, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer, and sealed with the corporate seal or a facsimile thereof. The signatures of the officers upon a stock certificate may be either manual or facsimile. Any stock certificate so signed shall be valid and may be issued whether or not the officer who signed it is still an officer when it is issued. Stock certificates shall be consecutively numbered or otherwise identified, and each certificate shall state on its face the name of the Corporation, the class of stock and the number of shares it represents, and the name of the stockholder or other person to whom it is issued. The name and address of each stockholder, with the number of shares held and the date of issue, shall be entered on the stock ledger of the Corporation.
SECTION 2. TRANSFER OF SHARES
Transfer of shares of Common Stock of the Corporation shall be made only on its stock ledger, and only upon surrender for cancellation of the certificate for the shares, properly endorsed. Authority for the transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of the authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. In case of a lost, stolen, or destroyed certificate, a new certificate may be issued upon those conditions and indemnity to the Corporation as the Board of Directors in its discretion may prescribe.
SECTION 3. ISSUANCE OF SHARES
The Board of Directors may from time to time authorize the issuance of additional shares of Common Stock or securities convertible into Common Stock. Prior to each issuance the Board of Directors shall adopt a resolution which authorizes the issuance and sets the minimum price or value of consideration for
which the shares of stock or convertible securities are to be issued, or a formula or method pursuant to which the same is to be determined, including a fair description of any consideration other than money and a statement of the actual value of the consideration as then determined by the Board of Directors or a statement that the Board of Directors has determined that the actual value is or will not be less than a certain sum. In the absence of actual fraud in the transaction, any valuation so fixed by the Board of Directors shall be conclusive for all purposes. The actual value of consideration to be received by the Corporation, as determined by the Board of Directors, upon the issuance of additional shares of Common Stock shall be not less than the par value thereof. For the purposes of this Section, the consideration for which Common Stock is issued as a stock dividend shall be deemed to be the par value thereof, and, at the time the dividend is paid, the Corporation shall transfer from surplus to stated capital an amount at least equal to the aggregate par value of the shares to be issued. Unless otherwise required by law, no vote of the stockholders of the Corporation shall be required for the issuance of additional shares of Common Stock or securities convertible into Common Stock.
SECTION 4. BOOKS AND RECORDS; STOCK LEDGERS
The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any executive or other committee when exercising any of the powers of the Board of Directors. The Corporation shall maintain a stock ledger, containing the names and addresses of the stockholders of the Corporation and the number of shares of stock of each class held by each stockholder, which shall be kept at the principal office of the Corporation, or at another place as the Board of Directors may determine.
SECTION 5. DIVIDENDS
The Board of Directors may declare dividends on the stock of the Corporation, which may be paid in cash, property, or the Corporation's stock in accordance with applicable law. No dividends may be declared or paid if the Corporation is insolvent or the payment would cause the Corporation to become insolvent, or if the Corporation's stated capital is impaired or the payment would impair its stated capital. If a dividend is paid from any source other than earned surplus, the source of the dividend shall be disclosed to the stockholders receiving the dividend not later than the time of payment.
SECTION 6. REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as the owner, and to exercise the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in the share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as expressly provided by the laws of the State of Maryland.
ARTICLE VIII. MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
SECTION 2. FINANCIAL STATEMENTS
The President, Treasurer, or any other officer as may be designated by the Board of Directors of the Corporation, shall prepare or cause to be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of stockholders of the Corporation and filed within 20 days thereafter at the principal office of the Corporation.
SECTION 3. SEAL
The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal" and "Maryland," and shall be in the form as shall be approved from time to time by the Board of Directors. The seal may be used by causing it, or a facsimile thereof, to be impressed, affixed, or otherwise reproduced.
SECTION 4. AMENDMENTS
These Bylaws may be amended or repealed by either the affirmative vote of a majority of all shares outstanding and entitled to vote generally in the election of Directors, voting as a single group, or by an affirmative vote of a majority of the Board of Directors, unless the stockholders prescribe that any such Bylaw may not be amended or repealed by the Board of Directors.
* * * * *
EXHIBIT 4.01
NUMBER SHARES
SE
STRAYER EDUCATION, INC.
INCORPORATED UNDER THE LAWS OF MARYLAND
COMMON STOCK CUSIP
(Par Value $.01 Per Share) SEE REVERSE FOR CERTAIN DEFINITIONS
-----------------------------------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the registered holder of
-----------------------------------------------------------------------------------------------------------
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FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF STRAYER EDUCATION, INC.
Transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
GLENDA HARDISON RON K. BAILEY
Secretary President and Chief Executive Officer
Countersigned and Registered:
American Stock Transfer & Trust Corp.
Tranfer Agent
and Registrar
Authorized Signature
|
The corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
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UNIF GIFT MIN ACT - _______________Custodian_______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act___________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________________________hereby sell, assign and transfer unto
Exhibit 5.01
[HOGAN & HARTSON L.L.P. LETTERHEAD]
July 15, 1996
Board of Directors
Strayer Education, Inc.
1025 15th Street, N.W.
Washington, D.C. 20005
Ladies and Gentlemen:
We are acting as special counsel to Strayer Education, Inc., a Maryland corporation (the "COMPANY"), in connection with its registration statement on Form S-1, as amended (the "REGISTRATION STATEMENT") filed with the Securities and Exchange Commission relating to the proposed public offering of up to 3,450,000 shares of the Company's common stock, par value $.01 per share, all of which shares (the "SHARES") are to be sold by the Company. This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. Section 229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the following documents:
1. An executed copy of the Registration Statement.
2. The Articles of Incorporation of the Company, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect.
3. The Bylaws of the Company, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect.
HOGAN & HARTSON L.L.P.
4. The proposed form of Underwriting Agreement among the Company and the several Underwriters to be named therein, for whom Legg Mason Wood Walker Incorporated will act as representative, filed as Exhibit 1.01 to the Registration Statement (the "UNDERWRITING AGREEMENT").
5. Resolutions of the Sole Director of the Company adopted on May 10, 1996, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect, relating to the issuance and sale of the Shares and arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity, accuracy and completeness of all documents submitted to us, and the conformity with the original documents of all documents submitted to us as certified, telecopied, photostatic, or reproduced copies. This opinion letter is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the General Corporation Law of the State of Maryland. We express no opinion herein as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the opinion that following (i) final action of the Sole Director of the Company approving the price of the Shares, (ii) execution and delivery by the Company of the Underwriting Agreement, (iii) effectiveness of the Registration Statement, (iv) issuance of the Shares pursuant to the terms of the Underwriting Agreement and (v) receipt by the Company of the consideration for the Shares specified in the resolutions of the Sole Director referred to above, the Shares will be validly issued, fully paid and nonassessable under the General Corporation Law of the State of Maryland.
We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement on the date of this opinion letter and should not be quoted in whole or in part or otherwise be referred to, nor filed with or furnished to any governmental agency or other person or entity, without the prior written consent of this firm.
HOGAN & HARTSON L.L.P.
We hereby consent to the filing of this opinion letter as Exhibit 5.01 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that we are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P. -------------------------- HOGAN & HARTSON L.L.P. |
Exhibit 10.06
AGREEMENT OF LEASE
FOR
OFFICE CONDOMINIUM SPACE
TABLE OF CONTENTS
ARTICLE PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. WORK AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . 8
6. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. CARE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . 10
8. ALTERATIONS BY TENANT . . . . . . . . . . . . . . . . . . . . . 10
9. EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10. OWNERSHIP AND REMOVAL OF PROPERTY . . . . . . . . . . . . . . . 13
11. ACCESS TO PREMISES . . . . . . . . . . . . . . . . . . . . . . . 13
12. SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . . . . . 14
13. INFECTIOUS WASTE . . . . . . . . . . . . . . . . . . . . . . . . 15
14. REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION . . . . . . . 15
15. LIMITATION ON LANDLORD LIABILITY . . . . . . . . . . . . . . . . 16
16. FIRE AND OTHER CASUALTY . . . . . . . . . . . . . . . . . . . . 17
17. TENANT INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 18
18. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . 25
April 15, 1991
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OFFICE CONDOMINIUM LEASE
THIS LEASE AGREEMENT ("Lease") is made and entered into this 22nd day of April, 1991 by and between CROSS CREEK ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited partnership ("Landlord"), and STRAYER COLLEGE, a Maryland corporation ("Tenant").
In consideration of the Rent hereinafter reserved and the agreements hereinafter set forth, Landlord and Tenant mutually agree as follows:
1. DEFINITIONS.
Except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the meanings assigned to them in this Section:
A. Alterations: Any improvements, alterations, fixed decorations or modifications, structural or otherwise, to the Premises or any portion of the Condominium, including but not limited to the installation or modification of carpeting, partitions, counters, doors, air conditioning ducts, plumbing, piping, lighting fixtures, wiring, hardware, locks, ceilings and window and wall coverings.
B. Association: The unit owners association of the Condominium.
C. Building: The Building in which the Premises are located, which Building is located at 45150 Russell Branch Parkway in Loudoun County, Virginia.
D. Condominium: Cross Creek Office Condominium, located on Russell Branch Parkway, in Ashburn, Virginia 22011, as established by the Condominium Instruments.
E. Condominium Assessment: All assessments, including, without
limitation, special assessments, against the Premises due and payable to the
Association during the course of a Fiscal Year for payment of any expenses
incurred by the Association pursuant to the Condominium Instruments.
Condominium Assessments shall not include (i) interest or penalties arising
by reason of Landlord's failure to pay any Condominium Assessments or (ii)
assessments levied against the Premises pursuant to the Association's power to
assess expenses benefitting less than all the units against specific units if
(a) such expenses are due to the request of the Landlord and are incurred
despite the Tenant's objection or (b) such expenses are the result of the
willful misconduct or gross negligence of the Landlord, its agents or
employees. The
April 15, 1991 1
Condominium Assessment shall not include any costs associated with or included in Management and Operating Expenses.
F. Common Expenses: The amount by which the Condominium Assessment and the Management and Operating Expenses for each Fiscal Year exceed Twenty Nine Thousand Forty Dollars ($29,040) per Fiscal Year.
G. Condominium Instruments: The Declaration for Cross Creek Office Condominium, and exhibits attached thereto, recorded on July 19, 1990 in Deed Book 1094, at page 553, among the land records of Loudoun County, Virginia, as amended from time to time, including the Rules and Regulations of Cross Creek Office Condominium as the same may be amended from time to time. A copy of the Condominium Instruments has previously been provided to Tenant.
H. Consumer Price Index (Regular and Base): The revised monthly Consumer Price Index for Wage Earners and Clerical Workers for the Metropolitan Washington, D.C. Area (All items, 1982-1984 = 100) promulgated by the Bureau of Labor Statistics of the United States Department of Labor. If said Index is discontinued, the Consumer Price Index shall be the successor index adopted by the Bureau of Labor Statistics or, if none, any similar index adopted by Landlord. The "Base Consumer Price Index" shall be the Consumer Price Index most recently published prior to the Lease Commencement Date.
I. Declarant: The Declarant of the Condominium as defined in the Condominium Instruments.
J. Default Rate: That rate of interest which is three (3) percentage points above the base or prime rate of interest announced from time to time by Citibank, N.A. of New York, New York. In the event that Citibank, N.A. ceases to announce a base rate of interest, Landlord, at Landlord's reasonable discretion, shall designate the base or prime rate of interest announced by another bank located in the Washington, D.C. metropolitan area, which shall be the base or prime rate of interest used to calculate the Default Rate.
K. Effective Date: The rights and obligations set forth in this Lease, except for the obligation to pay Rent and as otherwise specifically provided herein to the contrary, shall become effective on the date of the final execution of this Lease.
L. Fiscal Year: Each consecutive twelve (12) month period or portion thereof during the Term of this Lease that falls between January 1 and December 31, inclusive.
M. Ground Leases: All ground and other underlying leases from which Landlord's title to the Land and/or the Building is or
April 15, 1991 2
may in the future be derived. "Ground Lessors" shall denote those persons and entities holding such ground or underlying leases.
N. Land: The real estate that supports the Building, and all associated easements.
0. Landlord's Work: All work to be performed by Landlord under the Work Agreement.
P. Lease Commencement Date: The date this Lease commences, as determined pursuant to Subsection 2A below.
Q. Lease Year: That period of twelve (12) consecutive calendar months that commences on the first day of the calendar month in which the Lease Commencement Date occurs, and each consecutive twelve (12) month period, or portion thereof, thereafter. The earliest such twelve (12) month period shall be referred to as the "first Lease Year," and each of the following Lease Years shall similarly be numbered for identification purposes.
R. Management and Operating Expenses: All costs and expenses incurred by Landlord each Fiscal Year in connection with ownership and operation of the Premises, including, without limitation: (a) wages, salaries and other labor costs, including taxes, insurance, retirement, medical and other employee benefits; (b) rent loss and such other insurance as Landlord may elect to carry; (c) fees, charges, and other costs, including management fees, consulting fees, legal fees, accounting fees and fees of all independent contractors engaged by Landlord or reasonably charged by Landlord if Landlord performs management services in connection with the Premises; and (d) any other expenses of any kind whatsoever reasonably incurred by Landlord in managing, operating, maintaining and repairing the Premises. If these amounts are not separately charged against the Premises, then the term "Management and Operating Expenses" shall mean and refer to Tenant's Share (as defined below) of the Management and Operating Expenses for all condominium units, convertible space or convertible land in the Building for which Landlord is incurring such costs and expenses. Tenant's Share shall be determined by dividing the net rentable square feet of the Premises by the net rentable square feet of all condominium units, convertible space or convertible land in the Building for which Landlord is incurring the costs and expenses described in this Subsection. Management and Operating Expenses shall not include: (i) Real Estate Taxes, (ii) payments of principal and interest on any mortgages and any other costs associated with any mortgages, (iii) costs of preparing, improving or altering any space in preparation for occupancy of any new or renewal tenant, (iv) expenses for which Landlord is reimbursed or indemnified (either by an insurer, condemnor, tenant, warrantor or otherwise) to the extent of funds received by Landlord, (v) expenses incurred in leasing or procuring tenants (including lease commissions, advertising expenses and expenses of renovating space
April 15, 1991 3
for tenants), (vi) costs representing an amount paid to an affiliate of
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship, (vii) amounts paid to any partner, shareholder,
officer, director or executive of Landlord for salary or other compensation,
(viii) costs of services furnished to other tenants in the Building but not
made available to Tenant, (ix) costs or expenses relating to any Ground Lease,
(x) costs or expenses incurred in connection with a transfer of any interest
in Landlord or the Condominium, or (xi) attorneys' fees relating to any
leasing or sale of the Building, financing of the Building or enforcement of
any lease in the Building except as otherwise provided herein with respect to
defaults by Tenant under this Lease. There shall be no duplication of costs
or reimbursement. It is understood that other buildings may be developed in
the Condominium and such other buildings may share facilities and services
with the Building. Management and Operating Costs shall include that portion
of all costs, expenses and disbursements relating to such shared facilities
and services which is allocated to the Building by Landlord. Management and
Operating Expenses shall not include any costs associated with or included in
the Condominium Assessment.
S. Mortgages: All mortgages, deeds of trust and similar security instruments which may now or in the future encumber or otherwise affect the Premises (regardless of whether such instrument affects other real property), including mortgages related to both construction and permanent financing. "Mortgagees" shall denote those persons and entities holding such mortgages, deeds of trust and similar security instruments.
T. Premises: Condominium Unit Nos. 200, 201, 202, 203, 204 and 205 located in the Condominium, consisting of 12,000 square feet of rentable area, as shown on the floor plan attached hereto as Exhibit A.
U. Premises' Standard Electrical Capacity: The electrical capacity sufficient to support Tenant's balanced consumption of two and one half (2.5) watts per square foot of rentable area. Landlord hereby acknowledges that Tenant's electrical requirements as depicted on Exhibit A-2 do not exceed the Premises' Standard Electrical Capacity.
V. Real Estate Taxes: All real estate taxes and assessments, general or special, ordinary or extraordinary, foreseen or unforeseen, that are assessed, levied or imposed upon the Premises (regardless of whether such tax or assessment affects other real property) under any current or future taxation or assessment system or modification of, supplement to, or substitute for such system, whether or not based on or measured by the receipts or revenues from the Premises, including, without limitation, all taxes and assessments for public improvements or any other purpose, any gross receipts or similar taxes, any sales taxes, use taxes, business
April 15, 1991 4
taxes and license fees imposed upon the Landlord as owner of the Premises (regardless of whether the same affects other real property) or upon the rents payable hereunder, and all reasonable expenses incurred by Landlord in obtaining or attempting to obtain a reduction of any taxes, rates or assessments described above, including but not limited to legal fees. Real Estate Taxes shall not include: (i) any taxes on Tenant's Personal Property or other tenants' personal property, which taxes are the sole obligation of each tenant, (ii) franchise, corporation, income or net profits tax, unless substituted for real estate taxes or imposed as additional charges in connection with the ownership of the Premises, which may be assessed against Landlord or the Premises or both, (iii) transfer taxes assessed against Landlord or the Premises, or both, and (iv) penalties or interest on any late payments of Landlord. If the Premises are not separately assessed from the rest of the Condominium, then the Real Estate Taxes shall mean and refer to 34.37734 percent of the Real Estate Taxes for Phase One of the Condominium (as described in the Condominium Instruments) for each Fiscal Year.
W. Tax Expenses: The amount by which the Real Estate Taxes for each Fiscal Year exceed Eleven Thousand One Hundred Sixty Dollars ($11,160) per Fiscal Year.
X. Rent: All Base Rent and Additional Rent.
(1) Base Rent: The amount payable by Tenant pursuant to Subsection 4A below.
(2) Additional Rent: All sums of money payable by Tenant pursuant to this Lease other than Base Rent.
(3) Monthly Rent: A monthly installment of Base Rent and Additional Rent, if any, which shall equal one-twelfth (1/12th) of Base Rent and Additional Rent then in effect.
Y. Tenant's Personal Property: All equipment, improvements, furnishings and/or other property now or hereafter installed or placed in or on the Premises by and at the sole expense of Tenant or with Tenant's permission (other than any property of Landlord), with respect to which Tenant has not been granted any credit or allowance by Landlord, and which: (i) is removable without damage to the Premises or the Condominium, the Building, and (ii) is not a replacement of any property of Landlord, whether such replacement is made at Tenant's expense or otherwise. Notwithstanding any other provision of this Lease, Tenant's Personal Property shall not include any improvements or other property installed or placed in or on the Premises as part of Landlord's Work, whether or not any such property was purchased or installed at Tenant's expense.
Z. Unavoidable Delay: Any delays due to strikes, labor disputes, shortages of material, labor or energy, acts of God,
April 15, 1991 5
governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or any other causes beyond the control of Landlord.
AA. Virginia Condominium Act: Chapter 4.2 of Title 55 of the Code of Virginia, as amended. Terms regarding the condominium form of ownership which are used herein but not defined shall have the meanings set forth in the Virginia Condominium Act.
BB. Work Agreement: Exhibit C, which terms are hereby expressly incorporated into this Lease.
2. TERM.
A. Term of Lease: The term of this Lease ("Term") shall commence on a date ("Lease Commencement Date"), as defined below, and shall terminate on the date which is five (5) full years after the Lease Commencement Date, or such earlier date on which this Lease is terminated pursuant to the provisions hereof ("Lease Expiration Date"). The Lease Commencement Date shall be the earliest of (i) the date Tenant commences occupancy of any part of the Premises or (ii) that date which is five (5) days after Landlord notifies Tenant that Landlord's Work is "substantially complete," as defined in Section 6 of the Work Agreement, or (iii) one hundred twenty (120) days after receipt by Landlord of a Building permit from the local governing authority authorizing Landlord to commence Landlord's Work, the application of which shall be subject to receiving a special exception from the local governing authority for the use of the Premises for a college, but in no event more than one hundred eighty (180) days from receipt of a building permit as aforesaid, subject to Unavoidable Delays. In the event Landlord's Work is not completed within one hundred eighty (180) days as aforesaid and subject to the conditions stated hereinbefore for reasons not due to an Unavoidable Delay, Tenant may terminate this Lease by providing Landlord with written notice no later than the one hundred eighty-first (181st) day. Notwithstanding the foregoing, Landlord shall use best efforts to give Tenant thirty (30) days prior written notice of the date on which the Premises will be substantially complete. Landlord hereby leases and demises the Premises to Tenant and Tenant hereby leases the Premises from Landlord for the Term, subject to the terms and conditions of this Lease.
B. Declarations: If requested by Landlord at any time during the Term, Tenant promptly will execute a declaration in the form attached hereto as Exhibit B.
3. WORK AGREEMENT.
Landlord agrees to improve the Premises in accordance with the Work Agreement, but shall have no other obligation to make any improvements or alterations to the Premises.
April 15, 1991 6
4. RENT
From and after the Lease Commencement Date and throughout the entire Term of this Lease, Tenant shall pay to Landlord such Base Rent and Additional Rent as are set forth in this Section 4 and in Section 5 below.
A. Base Rent: Base Rent shall equal One Hundred Ninety-Five Thousand Dollars ($195,000) per annum. Tenant shall pay Base Rent to Landlord in equal monthly installments of Sixteen Thousand Two Hundred Fifty Dollars ($16,250) ("Monthly Base Rent") in advance on the first day of each calendar month during the Term, without notice, except that the first monthly installment of Base Rent shall be paid upon execution of this Lease, and shall accrue interest to the benefit of Tenant at the standard money market rate then in effect until the expiration of the abatement period as defined in Section 1 of the Rider attached hereto and made a part hereof. If the Lease Commencement Date occurs on a date other than the first day of a calendar month, Tenant shall receive a credit equal to the Monthly Base Rent multiplied by the number of days in said calendar month prior to the Lease Commencement Date and divided by the number of days in such month, which credit shall be applied toward the installment of Monthly Base Rent next due hereunder.
B. Payment: All Base Rent and Additional Rent due and payable to
Landlord under this Lease shall be made payable to JBG Properties, Inc. and
delivered in care of JBG Properties, Inc., at the address set forth in Section
31. Payments of Rent, if initially dishonored, shall not be considered
rendered until ultimately honored as cash by Landlord's depository. Except as
expressly set forth otherwise in this Lease, Tenant will pay all Rent to
Landlord without demand, deduction, set-off or counterclaim.
C. Late Fee: If Tenant fails to make any payment of Rent when due and such failure shall continue for five (5) days after written notice from Landlord, then Tenant also shall pay to Landlord a late fee equal to five percent (5%) of the amount that is past due for each month or part thereof until such Rent is fully paid. Said late fee shall be deemed reimbursement to Landlord for its costs of carrying and processing Tenant's delinquent account. Acceptance by Landlord of said late fee shall not waive or release any other rights or remedies to which Landlord may be entitled on account of such late payment.
D. Arbitration: Any statement provided to Tenant by Landlord pursuant to Section 5 below shall be conclusive and binding upon Tenant unless, within thirty (30) days after receipt thereof, Tenant notifies Landlord of the respects in which the statement is claimed to be incorrect. Unless otherwise mutually agreed, any such dispute shall be determined by arbitration in the
April 15, 1991 7
jurisdiction in which the Premises are located, in accordance with the then current commercial rules of the American Arbitration Association. The costs of the arbitration shall be paid as follows: (i) if the arbitration results in a determination that Landlord's statement contained a discrepancy of three percent (3%) or less in Landlord's favor, then Tenant shall bear all costs incurred in connection with such arbitration, including, without limitation, legal fees or (ii) if the arbitration results in a determination that Landlord's statement contained a discrepancy of greater than three percent (3%) in Landlord's favor, then Landlord shall bear all costs incurred in connection with such arbitration, including, without limitation, legal fees. Pending determination of any dispute, Tenant shall pay all amounts due pursuant to the disputed statement, but such payments shall be without prejudice to Tenant's position. Upon at least fifteen (15) days notice to Landlord, Tenant shall have reasonable access, during normal business hours and at Tenant's expense, to appropriate books and records of Landlord relating to the amount of expenses covered by the disputed statement, for the purpose of verifying the statement.
5. ADDITIONAL RENT.
A. Base Rent Increases: For the second Lease Year and for each Lease Year or portion thereof thereafter (each such Lease Year being referred to herein as the "Adjustment Year"), in addition to all other Rent set forth herein, Tenant shall pay an amount equal to the greater of (i) two percent (2%) of the Base Rent for the preceding Lease Year as escalated pursuant to this Section 5A, or (ii) thirty percent (30%) of the product obtained by multiplying Base Rent by a fraction whose numerator shall be the difference between the Consumer Price Index most recently published prior to the first day of the Adjustment Year and the Base Consumer Price Index, and whose denominator shall be the Base Consumer Price Index.
B. Payment of Common Expenses and Tax Expenses: In addition to all other Rent set forth herein, for each Fiscal Year or portion thereof during the Term, Tenant shall pay to Landlord as Additional Rent an amount equal to the sum of the Common Expenses and Tax Expenses; provided, however, that for the Fiscal Years during which the Term begins and ends, the annual sum shall be prorated based upon the greater of: (i) the number of days during such Fiscal Year that this Lease is in effect, or (ii) the number of days during such Fiscal Year that Tenant actually occupies the Premises or any portion thereof.
C. Statements:
(1) Beginning with the second Lease Year and for every Lease Year and portion thereof thereafter, Landlord shall deliver to Tenant a statement setting forth the Additional Rent described in Subsection A above. Said Additional Rent
April 15, 1991 8
shall be payable by Tenant in equal monthly installments in advance on
the first day of each calendar month during the Term ("Monthly Additional
Rent"). Tenant shall pay the Monthly Additional Rent specified in
Landlord's most recent statement until the first payment of Monthly Base
Rent due at least fifteen (15) days after Tenant receives the next such
statement from Landlord, at which time Tenant shall commence making
Monthly Additional Rent payments pursuant to Landlord's new statement.
With the first payment of Monthly Base Rent which is due at least fifteen
(15) days after Tenant's receipt of a statement from Landlord specifying
Additional Rent payable during the Lease Year, Tenant shall pay the
difference between the Monthly Additional Rent so specified for the
preceding months of the Lease Year and the amount which Tenant has
actually paid for said preceding months.
(2) For each Fiscal Year or portion thereof during the Term, Landlord shall deliver to Tenant a statement estimating the Common Expenses and Tax Expenses for such Fiscal Year, which Tenant shall pay in equal monthly installments in advance on the first day of each calendar month during each Fiscal Year. Tenant shall continue to pay such estimated Common Expenses and Tax Expenses until Tenant receives the next such statement from Landlord, at which time Tenant shall commence making monthly payments pursuant to Landlord's new statement. With the first payment of such Additional Rent herein which is due at least fifteen (15) days after Tenant's receipt of a statement from Landlord specifying the Common Expenses and Tax Expenses payable during the Fiscal Year, Tenant shall pay the difference between its monthly share of such sums for the preceding months of the Fiscal Year and the monthly installments which Tenant has actually paid for said preceding months.
D. Retroactive Adjustments: Within one hundred twenty (120) days after the end of each Fiscal Year, Landlord shall determine the actual Common Expenses and Tax Expenses for such Fiscal Year and shall provide to Tenant a statement of the Common Expenses and Tax Expenses for the Fiscal Year. Within thirty (30) days after delivery of any such statement, Tenant shall pay to Landlord any deficiency between the amount shown as actual Common Expenses and Tax Expenses for the Fiscal Year and the estimated payments made by Tenant. Tenant shall be credited with any excess estimated payments toward subsequent Rent payments by Tenant, except that if the Term has expired, then so long as Tenant is not in default hereunder, the excess estimated payments shall be refunded to Tenant within thirty (30) days after Landlord delivers such statement to Tenant. The provisions of this Subsection D shall survive termination and expiration of the Lease.
E. Change In or Contest of Taxes: In the event of any change by any taxing body in the period or manner in which any of
April 15, 1991 9
the Real Estate Taxes are levied, assessed or imposed, Landlord shall have the right, in its sole discretion, to make equitable adjustments with respect to computing increases in Tax Expenses. Any such Real Estate Taxes being contested by Landlord shall be included in computing the Tax Expenses under this Section, but if Tenant shall have paid Rent on account of the contested Real Estate Taxes and Landlord thereafter receives a refund of such Real Estate Taxes, Tenant shall receive a credit toward subsequent Rent payments in an amount equal to Tenant's pro rata share of such refund.
6. USE.
A. Permitted Use: Tenant shall use and occupy the Premises solely for classroom instruction on a college level and for office and administrative activities directly related thereto and for no other purpose.
B. Legal and Other Restrictions of Tenant's Use: In its use of the Premises and the Condominium, Tenant shall comply with all present and future laws, regulations (including but not limited to fire and zoning regulations) and ordinances of all public and quasi-public agencies having jurisdiction over the Condominium. Tenant shall not use any portion of the Condominium or use or occupy the Premises for any unlawful, disorderly or hazardous purposes or in a manner which will interfere with the rights of Landlord, other tenants or occupants or their invitees, or which will in any way injure or annoy any of them.
C. Bookstore: Tenant may use a portion of the Premises as a bookstore provided said use does not conflict with any present or future laws, regulations or ordinances of all public and quasi-public agencies having jurisdiction over the Condominium. In the event the bookstore requires additional floor load, Landlord shall bear one-third (1/3) of the costs associated with creating and/or constructing the floor load necessitated by such use.
7. CARE OF PREMISES.
Tenant shall at its expense keep the Premises (including all improvements, fixtures and other property located therein) in a neat and clean condition and in good order and repair, and will suffer no waste or injury thereto. Tenant shall surrender the Premises at the end of the Term in as good order and condition as they were in on the Lease Commencement Date, ordinary wear and tear excepted, as well as casualty which was not caused by the negligence of Tenant.
8. ALTERATIONS BY TENANT.
A. Making of Alterations; Landlord's Consent: Tenant shall not make or permit to be made any Alterations without the prior
April 15, 1991 10
written consent of Landlord both as to whether the Alterations may be made and as to how and when they will be made. Landlord's consent to Tenant's Alterations shall not be unreasonably withheld; provided, however, that Landlord shall not be deemed unreasonable by refusing to consent to any Alterations which are visible from the exterior of the Building, which will or are likely to cause any weakening of any part of the structure of the Premises or the Building, which will or are likely to cause damage or disruption to the central Building systems, or which are prohibited by any underlying Ground Lease or Mortgage or by the Condominium Instruments. Any Alterations shall be made at Tenant's expense, by its contractors and subcontractors and in accordance with complete plans and specifications approved in advance in writing by Landlord, and only after Tenant: (i) has obtained all necessary permits from the appropriate governmental authorities and has furnished copies thereof to Landlord, (ii) has submitted to Landlord a copy of the document evidencing the Association's consent to the Alterations (if such consent is required under the Condominium Instruments), (iii) has submitted to Landlord an architect's certificate that the Alterations will conform to all applicable laws and regulations, and (iv) has complied with all other requirements reasonably imposed by Landlord, including without limitation any requirements due to the underwriting guidelines of Landlord's insurance carriers. Landlord's consent to any Alterations and approval of any plans and specifications constitutes approval of no more than the concept of these Alterations and does not constitute a representation or warranty with respect to the quality or functioning of such Alterations, plans and specifications. Tenant shall be and is solely responsible for the Alterations and for the proper integration thereof with the Building, the Building's systems and existing conditions. Landlord shall have the right, but not the obligation, to supervise the making of any Alterations. If any Alterations are made without the prior written consent of Landlord, or which do not conform to plans and specifications approved by Landlord or to other conditions imposed by Landlord pursuant to this Section or any other provision of this Lease, Landlord may, in its sole discretion, correct or remove such Alterations at Tenant's expense. Following completion of any Alterations, at Landlord's request, Tenant either shall deliver to Landlord a complete set of "as built" plans showing the Alterations or shall reimburse Landlord for any expense incurred by Landlord in causing the Building plans to be modified to reflect the Alterations. Except as set forth in Section 6.C., any structural Alterations required to be made to the Building shall be performed by Landlord at its expense.
B. No Liens: Tenant shall take all necessary steps to ensure that no mechanic's or materialmen's liens are filed against the Premises or the Condominium as a result of any Alterations made by the Tenant. If any mechanic's or materialmen's lien is filed, Tenant shall discharge the lien within ten (10) days thereafter, at Tenant's expense, by paying off or bonding the lien.
April 15, 1991 11
C. Removal of Alterations: At the time that Tenant requests Landlord to approve any Alterations, Tenant may also request that Landlord notify Tenant as to whether Landlord will require Tenant to remove such Alterations, pursuant to Section 10A; otherwise, Landlord shall have no duty to so notify Tenant.
9. EQUIPMENT.
A. Permitted Equipment: Tenant shall not install or operate in the
Premises any equipment or other machinery that, in the aggregate, will cause
Tenant to use more than the Premises' Standard Electrical Capacity, without:
(i) obtaining the prior written consent of Landlord, who may condition its
consent upon the payment by Tenant of Additional Rent for additional wiring or
other expenses resulting therefrom, including, without limitation, any charges
by the Association, (ii) obtaining prior written consent of the Association
(if required under the Condominium Instruments) and submitting a copy of the
document evidencing the Association's consent to Landlord, (iii) securing all
necessary permits from governmental authorities and utility companies and
furnishing copies thereof to Landlord, and (iv) complying with all other
requirements reasonably imposed by Landlord. Prior to the Lease Commencement
Date, Tenant shall provide Landlord with a list of all equipment that Tenant
intends to install or operate in the Premises which operate on more than one
hundred twenty (120) volts, and Tenant shall provide Landlord with an updated
list of such equipment prior to the installation or use of any additional
equipment which operates on more than one hundred twenty (120) volts. Tenant
shall not install any equipment or machinery which may necessitate any
changes, replacements or additions to or material changes in the use of water,
heating, plumbing, air conditioning or electrical systems of the Building
without obtaining the prior written consent of Landlord and (if required by
the Condominium Instruments) the Association, either of whom may withhold
their consent in their absolute discretion.
B. Payment For Excess Utility Usage: If Tenant's equipment shall result in electrical demand in excess of the Premises' Standard Electrical Capacity, Landlord shall have the right, but not the obligation, to install or have installed additional transformers, distribution panels, wiring and other applicable equipment at the expense of Tenant. None of the equipment so installed shall be deemed to be Tenant's Personal Property. Tenant shall reimburse Landlord for the cost of the installation of such equipment within ten (10) days after receipt of any bill therefor from Landlord.
C. Noise; Vibration; Floor Load: Business machines and equipment belonging to Tenant, which cause noise or vibration that may be transmitted to any part of the Building to such a degree as to be objectionable to Landlord or to any tenant or occupant of the Building, shall be installed and maintained by Tenant at Tenant's expense on devices that eliminate the noise and vibration. Tenant
April 15, 1991 12
shall not place any load upon the floor of the Premises which exceeds the per square foot load the floor was designed to carry (i.e., sixty (60) pounds live and twenty (20) pounds dead per square foot).
10. OWNERSHIP AND REMOVAL OF PROPERTY.
A. Landlord's Property. Any Alterations and other improvements and any equipment, machinery, furnishings and other property, installed or located in the Premises or the Condominium by or on behalf of Landlord or Tenant, except for Tenant's Personal Property: (i) shall immediately become the property of Landlord, and (ii) shall be surrendered to Landlord with the Premises as a part thereof at the end of the Term; provided, however, that if Landlord requests Tenant to remove any Alterations (including, without limitation, any signage) installed by or on behalf of Tenant, Tenant shall cause the same to be removed at Tenant's expense on or before the Lease Expiration Date, or shall reimburse Landlord for the cost of such removal, as elected by Landlord (unless Landlord expressly waives in writing the right to require such removal at the time Landlord makes or gives its consent to the making of such Alterations, pursuant to Section 8C).
B. Removal of Property At End of Term: Tenant shall remove all of Tenant's Personal Property from the Premises on or before the Lease Expiration Date. Any personal property belonging to Tenant or to any other person or entity which is left in the Premises after the date this Lease is terminated for any reason shall be deemed to have been abandoned. In such event, Landlord shall have the right to store such property at Tenant's sole cost and/or to dispose of it in whatever manner Landlord considers appropriate, without waiving its right to claim from Tenant all expenses and damages caused by Tenant's failure to remove such property, and Tenant and any other person or entity shall have no right to compensation from or any other claim against Landlord as a result.
11. ACCESS TO PREMISES.
A. Access by Landlord: Landlord may, upon 24 hours prior notice, which may be oral or written, enter the Premises at any reasonable time to examine them, to make alterations or repairs thereto or for any other purposes which Landlord considers necessary or advisable; provided, however, that in the case of any emergency, Landlord and its agents may enter the Premises at any time without notice and in any manner. Notwithstanding the foregoing, Landlord shall use its best efforts not to disrupt Tenant's classes when entering the Premises. Tenant shall allow the Premises to be exhibited by Landlord: (i) at any reasonable time to representatives of lending institutions or to prospective purchasers of the Premises, and (ii) at any reasonable time within six (6) months prior to the end of the Term to persons who may be
April 15, 1991 13
interested in leasing the Premises. Landlord reserves the right and shall be permitted reasonable access to the Premises to install facilities within and through the Premises and to install and service any systems deemed advisable by Landlord to provide services or utilities to any tenant or occupant of the Building; provided however, that whenever possible, any equipment installed pursuant to this Section shall be done so that the same runs through the plenum or other concealed portions of the Premises. In the event Landlord exercises its rights under this Subsection, Landlord shall use all reasonable efforts to minimize disruption to Tenant.
B. Access by Association and the Declarant: The Association and the Declarant shall have the right to enter the Premises for the purposes set forth in and in compliance with the Condominium Instruments.
12. SERVICES AND UTILITIES.
A. Services Obtained by Tenant: All gas, electric, heat, light, telephone services and other utilities and services supplied to the Premises which are not supplied by the Association shall be obtained by Tenant directly from the providers thereof and Tenant shall pay all deposits, charges, costs and expenses relating to the foregoing utility connections and services directly to the providers thereof. Tenant shall have complete control over the hours of operation and use of gas, electric, heat, light, telephone services and all other utilities supplied to the Premises which are not supplied by Landlord or the Association, and shall pay all costs associated therewith. Tenant hereby indemnifies and holds Landlord harmless from any damages, losses, costs, expenses, liabilities and claims that may be made by such companies or utilities which may arise from Tenant's use of such utilities and services or failure to pay any charges for such use.
B. Failure to Provide Services: Landlord's failure to provide, to any
extent, the foregoing services due to Unavoidable Delays shall not render
Landlord liable for damages to either person or property, nor be construed as
an eviction of Tenant, nor work as an abatement of any portion of Rent, nor
relieve Tenant from fulfillment of any covenant or agreement hereof, provided
that (i) Landlord shall use reasonable diligence to promptly cure any such
failure, and (ii) where such failure to provide such services causes the
Premises to be not reasonably usable for Tenant's business for more than ten
(10) days, then commencing on the date which is eleven (11) days after the
commencement of such failure and continuing until the date on which the
Premises are again reasonably usable for the operation of Tenant's business,
Tenant shall be entitled to an abatement of Rent. In the event Landlord
denies Tenant access to the Premises after such ten (10) day period, such
abatement shall also apply to the period during which Tenant has been denied
access by Landlord. In the event Landlord's
April 15, 1991 14
failure to provide any of the foregoing services is not due to Unavoidable
Delays, such failure shall not render Landlord liable for damages to either
person or property, nor be construed as an eviction of Tenant, nor work as an
abatement of any portion of Rent, nor relieve Tenant from fulfillment of any
covenant or agreement hereof, provided that (a) Landlord uses reasonable
diligence to promptly cure any such failure, and (b) where such failure to
provide services causes the Premises to be not reasonably usable for Tenant's
business for more than five (5) days, then commencing on the date which is six
(6) days after the commencement of such failure and continuing until the date
on which the Premises are again reasonably usable for the operation of
Tenant's business, Tenant shall be entitled to an abatement of Rent. In the
event Landlord denies Tenant access to the Premises after such five (5) day
period, such abatement shall also apply to the period during which Tenant has
been denied access by Landlord.
C. Conservation: Tenant hereby agrees to comply with all energy conservation procedures, controls and requirements instituted by Landlord pursuant to any government regulations. Institution by Landlord of such controls and requirements shall not entitle Tenant to terminate this Lease or to an abatement of any Rent payable hereunder.
13. INFECTIOUS WASTE.
Tenant shall indemnify and hold Landlord harmless from and against any costs, damages, losses, claims, injuries, liabilities or expenses, including attorneys' fees, to Landlord, Landlord's employees or agents, or to third parties, arising out of the handling, generation, packaging, labelling, storage, treatment, transportation or disposal of Infectious Waste (as hereinafter defined) by the Tenant, its employees, contractors or agents. Tenant further represents and warrants that Tenant and its employees, contractors and agents will conduct any and all activity involving the handling, generation, packaging, labelling, recordkeeping, storage, treatment, transportation or disposal of Infectious Waste in compliance with the Virginia Infectious Waste Management Regulations. As used herein, the term "Infectious Waste" shall have the meaning set forth in the Virginia Department of Waste Management Infectious Waste Management Regulations, VR 672-40-01, or in any subsequent amendments or revisions thereto.
14. REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION.
A. Repairs: Except as otherwise expressly provided in this Lease, all injury, breakage and damage to the Premises or Condominium caused by any act or omission of Tenant shall be repaired by and at the sole expense of Tenant, except Landlord shall have the right, at its option, to make such repairs or cause such repairs to
April 15, 1991 15
be made and to charge Tenant for all costs and expenses incurred in connection therewith as Additional Rent payable within ten (10) days after the rendering of a bill therefor. Tenant shall notify Landlord promptly of any injury, breakage or damage to the Premises or Condominium caused by Tenant.
B. Indemnification: [INTENTIONALLY DELETED]
15. LIMITATION ON LANDLORD LIABILITY.
A. Liability Standard. [INTENTIONALLY DELETED]
B. Limitation on Total Liability. Notwithstanding any other provision of this Lease, it is expressly understood and agreed that the total liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant hereunder and/or Tenant's use of the Premises, shall be limited to the estate of Landlord in the Premises. No other property or assets of Landlord or any partner or owner of Landlord shall be subject to levy, execution or other enforcement proceedings or other judicial process for the satisfaction of any judgment or any other right or remedy of Tenant arising out of or in connection with this Lease, the relationship of Landlord and Tenant hereunder and/or Tenant's use of the Premises.
April 15, 1991 16
16. FIRE AND OTHER CASUALTY.
If the Premises shall be damaged by fire or other casualty, this Lease shall not terminate and, upon adjustment of insurance claims, the Association shall repair the damage to the Premises that the Association is required to repair under the Condominium Instruments and the remainder of the damage not repaired by the Association shall, at Landlord's option, either: (i) be repaired by Tenant, at Tenant's sole cost and expense (regardless of the adequacy or inadequacy of insurance proceeds received by Tenant) or (ii) be repaired by Landlord, at Tenant's sole cost and expense (regardless of the adequacy or inadequacy of insurance proceeds received by Tenant), provided that Landlord shall have no obligation to commence any such repair until all funds estimated by Landlord to be necessary for such repair, including, without limitation, the proceeds of Tenant's insurance described in Section 17A(1) below, have been deposited with Landlord. Tenant shall have the sole obligation to repair damage to or replace Tenant's Personal Property. Except as otherwise provided herein, if any part of the Premises are rendered untenantable by reason of any such damage, Rent shall abate from the date of the damage to the date the damage is repaired (or, if Tenant is performing the repair work, to the date on which the Premises should have been repaired by Tenant using prompt and diligent efforts), as determined by Landlord, in the proportion that the area of the untenantable part bears from time to time to the total area of the Premises. No compensation or reduction of Rent shall be paid or allowed for inconvenience, annoyance or injury to Tenant or Tenant's business arising from any damage to or repair of the Premises or any portion of the Condominium.
Notwithstanding the foregoing, if prior to or during the Term of this Lease, the Premises are so damaged that, in the opinion of an independent architect who is mutually acceptable to both Landlord and Tenant, the Premises cannot be fully repaired within one hundred fifty (150) days from the date the damage occurred, or the Building is so damaged that, in the opinion of such independent architect, substantial repair or reconstruction of the Building shall be required (whether or not the Premises are damaged or rendered untenantable), then, in any such events:
(1) Landlord, at its option, may give to Tenant within sixty (60) days after such fire or other casualty, thirty (30) days' notice of termination of this Lease and, in the event such notice is given, this Lease shall terminate (whether or not the Term shall have commenced) upon the expiration of such thirty (30) days, with the same effect as if the date of expiration of such thirty (30) days were the date definitely fixed for expiration of the Term of the Lease, and the then applicable monthly Rent shall be apportioned as of such date; and
April 15, 1991 17
(2) Provided Landlord, under the terms of the construction and/or
permanent financing documents applicable to the Building then in effect,
is not deprived of the use of insurance proceeds as a result of granting
a tenant the right to terminate its Lease in case of a fire or other
casualty, Tenant shall have the right to terminate this Lease upon thirty
(30) days' written notice to Landlord, said notice to be given within
sixty (60) days after such fire or other casualty. In the event such
notice is given, this Lease shall terminate (whether or not the Term
shall have commenced) upon the expiration of such thirty (30) days with
the same effect as if the date of expiration of such thirty (30) days
were the date definitely fixed for expiration of the Term of the Lease,
and the then applicable monthly Rent shall be apportioned as of such
date, including any Rent abatement provided above. Tenant may cancel
this Lease in the event the Premises are not substantially restored to
the extent of Landlord's obligations hereunder within two hundred forty
(240) days from the date the damage occurred. To exercise this right
Tenant shall deliver written notice to Landlord delivered no later than
five (5) business days after the expiration of that period.
For the purposes of this Section of the Lease the term "untenantable" means not reasonably usable by Tenant for its business purposes.
17. TENANT INSURANCE.
A. Types of Insurance Required: Tenant, at Tenant's expenses, shall obtain and maintain in effect, at all times during the Term, insurance policies providing at least the following coverage:
(1) A policy of fire and extended coverage insurance (i.e., an "all risk" policy) for not less than full replacement value, covering all Alterations made to the Premises by Tenant except those that are insured by the Association. All proceeds of such insurance shall be used to repair or replace the items so insured. Notwithstanding anything contained herein, Tenant shall not be required to insure the improvements associated with the initial buildout of the Premises which is defined as Landlord's Work in Exhibit C attached hereto and made a part hereof. Tenant hereby agrees that no lack or inadequacy of insurance by Tenant shall in any event make Landlord subject to any claim by virtue of any theft or loss or damage to any uninsured or inadequately insured property. The insurance policy referenced above and the certificate thereof shall name Tenant as named insured thereunder and shall name Landlord and all mortgagee's and Ground Lessors of Landlord as additional named insureds, of which Tenant has been notified, all as their respective interest may appear.
April 15, 1991 18
(2) A comprehensive general liability insurance policy, with broad form property damage endorsement, naming Landlord, the Mortgagees and Ground Lessors as additional insureds and protecting Landlord, Tenant, the Mortgagees and Ground Lessors against any liability for bodily injury, personal injury, death or property damage occurring upon, in or about the Premises or the Condominium or arising out of or relating to any of the risks against which Tenant is required to indemnify Landlord, with such policy to afford protection with a combined single limit of not less that One Million Dollars ($1,000,000.00). From time to time during the Term, Landlord may require Tenant to increase the limits of said insurance to the limits of liability insurance then customarily required of tenants of other first-class office buildings in the Loudoun County, Virginia area.
B. Required Provisions of Policies: All insurance policies required to
be maintained by Tenant under this Lease must: (i) be issued by insurance
companies approved by Landlord which approval will not be unreasonably
withheld; (ii) be in form and have content reasonably satisfactory to
Landlord, which approval shall not be unreasonably withheld (iii) be written
as primary policy coverage and not contributing to or in excess of any
coverage which Landlord or the Mortgagees may carry; (iv) contain an express
waiver of any right of subrogation by the insurance company against Landlord,
the Mortgagees, the Ground Lessors, and their respective employees and agents;
(v) comply with all requirements of the Condominium Instruments; and (vi)
provide that the policy may not be canceled or permitted to lapse unless
Landlord shall have received at least fifteen (15) days prior written notice
of cancellation or non-renewal. Tenant shall deliver to Landlord certified
copies or duplicate originals of each such policy and any renewal policy,
together with evidence of payment of all applicable premiums, at least ten
(10) days before the Lease Commencement Date and at least thirty (30) days
before the renewal of any policies. Any insurance required of Tenant under
this Section may be carried under a blanket policy, provided that said policy
shall specifically set forth the amount of insurance allocated to this Lease.
C. Effect of Tenant's Activities on Insurance: Tenant shall not conduct or permit to be conducted any activity, or place any equipment in or about the Premises or the Condominium which will increase the rate of, or make void or voidable, any fire or other insurance maintained or required to be maintained by Landlord, any Mortgagee, any Ground Lessor or the Association on the Premises, the Condominium or property kept thereon or therein, which will conflict with the provisions of any such insurance policy or which will make it impracticable for Landlord or the Association to obtain insurance covering any risks against which Landlord or the Association reasonably deems it advisable to obtain insurance. In the event any increases in the rates of such insurance are due to (i) the Tenant's presence in the Building, (ii) any activity
April 15, 1991 19
conducted or property installed or placed by Tenant on or about the Premises or the Condominium or (iii) Alterations installed by Tenant or at Tenant's request (other than Building Standard Work, as defined in the Work Agreement), Tenant shall reimburse Landlord for the amount of such increases promptly upon demand therefor. Statements by the applicable insurance company or insurance rating bureau that such increases are due to any such activity, property or improvements shall be conclusive for the purposes of determining Tenant's liability hereunder.
D. Waiver: Landlord and Tenant hereby each waive and release each other from any and all liabilities, claims and losses for which Landlord or Tenant is or may be held liable, to the extent either party: (i) receives insurance proceeds on account thereof, or (ii) is required to maintain insurance pursuant to this Section, whichever is greater.
E. Landlord's Insurance: Landlord at Landlord's expense, shall obtain and maintain in effect, at all times during the Term, fire and extended coverage or all risk property insurance upon the Building and Landlord's Work in an amount equal to at least eighty percent (80%) of their insurable value, and, upon request, shall make copies of certificates thereof available for Tenant's inspection. Such property policy shall contain an express waiver of any right of subrogation by the insurance company against Tenant. Further, Landlord shall obtain and maintain in effect at all times during the Term, policies of fire, and boiler (if any exist in the Building) insurance, on forms prepared and issued by insurance companies approved by Mortgagee(s), and in form and amount satisfactory to such Mortgagee(s). Landlord shall also maintain in effect commercial general liability insurance with coverage of at least $1,000,000.00 combined single limit annual aggregate.
18. CONDEMNATION.
A. Right to Terminate: If a substantial part of the Premises or the Condominium is taken or condemned by any governmental authority for any purpose or is granted to any authority in lieu of condemnation (collectively, a "taking"), then either Landlord or Tenant shall have the right to terminate this Lease by written notice to the other, and upon the giving of such notice, the Term shall terminate as of the date title vests in the authority, and Rent shall be abated as of that date. For purposes of this Section, a substantial part of the Premises or the Condominium shall be thirty percent (30%) or more of the Premises or the Condominium.
B. Adjustment of Rent: If a portion of the Premises is taken and neither Landlord nor Tenant elects to terminate this Lease pursuant to Subsection A above, then Rent shall be equitably
April 15, 1991 20
adjusted as of the date title vests in the authority and this Lease shall otherwise continue in full force and effect.
C. Division of Award: Tenant shall have no claim against Landlord arising out of or related to any taking, or for any portion of the amount that may be awarded as a result, and Tenant hereby assigns to Landlord all its rights, title and interest in and to any such award; provided, however, that Tenant may assert any claim it may have against the authority for compensation for Tenant's Personal Property and for any relocation expenses compensable by statute, as long as such awards shall be made in addition to and stated separately from the award made for the Premises and the Condominium.
19. DEFAULT.
A. Default of Tenant: The following events shall be a default by Tenant ("Default") under this Lease:
(1) Failure of Tenant to pay Rent as and when due, if the failure continues for five (5) days after notice from Landlord specifying the failure.
(2) Failure of Tenant to comply with or perform any covenant or
obligation of Tenant under this Lease, other than those concerning the
payment of Rent, or under the Condominium Instruments, if the failure
continues for thirty (30) days after notice from Landlord to Tenant
specifying the failure; provided, however, that if such failure cannot,
with due diligence and in good faith, be cured within such thirty (30)
day period, Tenant shall have an additional period as may be reasonably
required to cure such default with due diligence and in good faith,
provided that Tenant commences such cure within the aforementioned thirty
(30) day period.
(3) If Tenant, shall file a voluntary petition in bankruptcy or insolvency, shall be adjudicated bankrupt or insolvent or shall file a petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law, or shall make an assignment for the benefit of creditors, or shall seek or acquiesce in the appointment of any trustees receiver or liquidator of Tenant of all or any part of the property of Tenant.
(4) If, within thirty (30) days after the commencement of any proceeding against Tenant or a Guarantor or Partner, whether by the filing of a petition or otherwise, seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future applicable federal, state or other law, such
April 15, 1991 21
proceeding shall not have been dismissed or if, within thirty (30) days after the appointment of any trustee, receiver or liquidator of Tenant or any Guarantor or Partner, or of all or any part of the property of Tenant or of any Guarantor or Partner, without the acquiescence of such individual or entity, such appointment shall not have been vacated or otherwise discharged, or if any execution or attachment shall have been issued against the property of Tenant or of any Guarantor or Partner, pursuant to which the Premises shall be taken or occupied or attempted to be taken or occupied.
(5) If Tenant fails to take possession of the Premises ten (10) days after the Lease Commencement Date or vacates or abandons the Premises prior to the Lease Expiration Date. Notwithstanding the foregoing, provided that Tenant is not (i) delinquent in the payment of any Rent at the time of the vacation or abandonment, (ii) continues to pay Rent as and when it is due, and (iii) leaves the vacated or abandoned Premises in a manner and condition suitable to Landlord, then Tenant shall not be considered in Default under the Lease. In the event that Landlord wishes to take-back the Premises due to a vacation or abandonment of the Premises by Tenant, then Tenant shall enter into good faith negotiations with Landlord to terminate this Lease.
B. Remedies Upon Default: Upon the occurrence of a Default, Landlord shall have the right, then or at any time thereafter:
(1) Without demand or notice, to reenter and take possession of all or any part of the Premises, to expel Tenant and those claiming through Tenant and to remove any property therein, either by summary proceedings or by any other action at law, in equity or otherwise, with or without terminating this Lease, without being deemed guilty of trespass and without prejudice to any other remedies of Landlord for breach of this Lease, and/or
(2) To give Tenant written notice of Landlord's intent to terminate this Lease, and on the date specified in Landlord's notice, Tenant's right to possession of the Premises shall cease and this Lease shall terminate.
If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done shall cease, without prejudice to Landlord's right to recover from Tenant all Rent, as set forth in Subsections C and D below. If Landlord elects to reenter pursuant to Subsection B(1) above, Landlord may terminate this Lease, or, from time to time without terminating this Lease, may relet all or any part of the Premises as the agent of Tenant, for such term, at such rental and in accordance with such other provisions as Landlord deems acceptable, with the right to make any alterations and repairs to the Premises that Landlord
April 15, 1991 22
deems appropriate, at Tenant's expense. No such reentry or taking of possession of the Premises shall be construed as an election to terminate this Lease, unless notice of such intention is given pursuant to subsection B(2) above, or unless termination be decreed by a court of competent jurisdiction at the insistence of Landlord. Landlord shall in no event be under any obligation to relet any part of the Premises.
C. Liability of Tenant: If Landlord terminates this Lease or reenters the Premises (with or without terminating this Lease), Tenant shall remain liable (in addition to all other liabilities of Tenant accrued at the time of the Default) for the sum of (i) any unpaid Rent accrued prior to the time of termination and/or reentry, as the case may be, plus interest thereon from the due date at the Default Rate, (ii) all Base Rent and Additional Rent provided for in this Lease from the time of termination and/or reentry, as the case may be, until the date this Lease would have expired had a Default not occurred, plus interest thereon from the due date at the Default Rate, (iii) any and all expenses (including but not limited to reasonable attorneys' and reasonable brokerage fees) incurred by Landlord in reentering and repossessing the Premises, in correcting any default, in painting, altering or repairing the Premises in order to place the Premises in the same condition it was in on the Lease Commencement Date (whether or not the Premises are relet), in protecting and preserving the Premises and in reletting or attempting to relet the Premises, and (iv) any other amounts necessary to compensate Landlord for any other injury or detriment caused by the Default, minus the net proceeds (after deducting any actual and commercially reasonable rental abatements, tenant improvement allowances and other concessions and inducements) actually received by Landlord, if any, from any reletting to the extent attributable to the period prior to the date this Lease would have expired had a Default not occurred. Landlord shall have the option to recover any damages sustained by Landlord either at the time of reletting, if any, or in separate actions from time to time as said damages shall have been made more easily ascertainable by successive relettings or, at Landlord's option, to defer any such recovery until the date this Lease would have expired in the absence of a Default, in which event Tenant hereby agrees that the cause of action shall be deemed to have accrued on the aforesaid date. The provisions of this Section shall be in addition to and shall not prevent the enforcement of any claim Landlord may have for anticipatory breach of this Lease. Landlord shall use reasonable efforts to relet the Premises in the event of a Default which results in the eviction or other vacation of the Premises by Tenant.
D. Waiver: Tenant, on its own behalf and on behalf of all persons and entities claiming through Tenant, including but not limited to creditors of Tenant, hereby waives any and all rights and privileges which Tenant and such other persons and entities might otherwise have under any present or future law: (i) to redeem
April 15, 1991 23
the Premises, (ii) to renter or repossess the Premises, or (iii) to restore the operation of this Lease, with respect to any dispossession of Tenant by judgment or warrant of any court, any reentry by Landlord or any expiration or termination of this Lease, whether by operation of law or pursuant to the provisions of this Lease.
E. Right of Distress: Landlord shall, to the extent permitted by law, have a right of distress for Rent.
F. Right of Landlord to Cure: If Tenant defaults in the making of any payment or in the doing of any act required to be made or done by Tenant under this Lease or under the Condominium Instruments, then Landlord may, at its option, make such payment or do such act, and the expenses thereof, with interest thereon at the Default Rate, from the date paid by Landlord, shall constitute Additional Rent hereunder due and payable by Tenant with the next payment of Monthly Base Rent.
G. Attorneys' Fees: (i) Except as provided below, in the event of any Default hereunder, Tenant shall pay to Landlord all attorneys' fees incurred by Landlord in connection with such Default or the enforcement of Landlord's rights or remedies arising in connection therewith, whether or not this Lease is terminated and even if Landlord does not institute any lawsuit against Tenant as a result of such Default.
(ii) To the extent permitted by law, in any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover from the other party its actual professional fees such as appraisers', accountants' and attorneys' fees, investigation costs, and other legal expenses and court costs incurred by the prevailing party in such action or proceeding. A party shall be considered a prevailing party if under a settlement agreement such party receives payment from the other party, whether for all or any portion of its claims.
H. Survival: Tenant's liability pursuant to this Section shall survive the termination of this Lease, the institution of summary proceedings and/or the issuance of a warrant thereunder.
I. Landlord Default: In the event Landlord fails to perform any of its obligations hereunder, for any reason other than an Unavoidable Delay, Tenant shall notify Landlord of said failure or default and Landlord shall have fourteen (14) days thereafter in which to cure the same. In the event Landlord has not cured or commenced a cure of the failure or default within said fourteen (14) days, Tenant may correct the failure or default and Landlord shall reimburse Tenant for the reasonable cost thereof upon receipt of an invoice in form reasonably acceptable to Landlord.
April 15, 1991 24
20. NO WAIVER.
No failure or delay by Landlord in enforcing its right to strict performance by Tenant of every provision of this Lease or in exercising any right or remedy hereunder, and no acceptance by Landlord of full or partial rent during the continuance of any Default, shall constitute a waiver of the provision or the Default, and no provision shall be waived or modified except by a written instrument executed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the full Rent shall be deemed to be other than a payment on account, notwithstanding any endorsement or statement on any check or letter accompanying any payment of any Rent. No waiver of any Default or settlement of any proceeding instituted on account of any claimed Default shall affect or alter this Lease or constitute a waiver of any of Landlord's rights hereunder. No failure or delay by Tenant in enforcing its right to strict performance by Landlord of every provision of this Lease or in exercising any right or remedy hereunder, shall constitute a waiver of the provision or the Default, and no provision shall be waived or modified except by a written instrument executed by Tenant. No waiver of any Default or settlement of any proceeding instituted on account of any claimed Default shall affect or alter this Lease or constitute a waiver of any of Tenant's rights hereunder.
21. HOLDING OVER.
If Tenant shall be in possession of the Premises after termination of
this Lease (whether by normal expiration of the Term or otherwise), at
Landlord's option: (i) Landlord may deem Tenant to be occupying the Premises
as a tenant from month-to-month, at one and one-half (1-1/2) times the Monthly
Rent in effect for the last full month of the Term, and subject to all of the
other provisions of this Lease, as applicable to a month-to-month tenancy, or
(ii) Landlord may exercise any or all remedies for Default at law and in
equity, including but not limited to an action against Tenant for wrongfully
holding over.
22. SUBORDINATION.
A. Lease Subordinate: This Lease shall be subject and subordinate to the lien of any and all Mortgages and to any Ground Leases, and any and all renewals, extensions, modifications, recastings and refinancings thereof. This clause shall be self-operative, without execution of any further instrument; but if requested by Landlord or any Mortgagee, Tenant shall promptly execute a certificate or other document evidencing and providing for such subordination. Landlord shall have the right to execute said document on behalf of Tenant if Tenant fails to do so within fifteen (15) days after receipt of the request. Tenant agrees that, if any Mortgage is foreclosed or Ground lease terminated, upon request by the purchaser at the foreclosure sale or Ground
April 15, 1991 25
Lessor, as the case may be, Tenant shall attorn to and recognize the purchaser or Ground Lessor as the landlord under this Lease and shall make all payments required hereunder to such new landlord without any deduction or set-off of any kind whatsoever. Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure, termination or other proceeding is filed, prosecuted or completed. Notwithstanding anything herein to the contrary, any Mortgagee may at any time subordinate the lien of its Mortgage to the operation and effect of this Lease without Tenant's consent, by giving Tenant written notice of such subordination, in which event this Lease shall be deemed to be senior to such Mortgage, and thereafter such Mortgagee shall have the same rights as it would have had if this Lease had been executed, delivered and recorded before said Mortgage. Landlord shall use reasonable efforts to obtain a Non-Disturbance and Subordination agreement from all existing and future Ground Lessors and Mortgagees. Attached hereto and made a part hereof as Exhibit D is a copy of Landlord's request for a Non- Disturbance and Subordination Agreement from Landlord's existing Mortgagee, Sovran Bank, N.A.
B. Modifications to Lease: In the event any of Landlord's insurance carriers or any Mortgagee requests modifications to this Lease, Tenant shall execute a written amendment incorporating such requested modifications within thirty (30) days after the same has been submitted to Tenant by Landlord, provided that such modifications do not materially adversely affect Tenant's use of the Premises as herein permitted or increase the rentals and other sums payable by Tenant hereunder. In the event Tenant refuses or fails to execute such amendment within thirty (30) days, Landlord shall have the right, at its sole option, in addition to Landlord's other remedies for Default, to terminate and cancel this Lease by written notice to Tenant specifying the date on which this Lease will terminate. From and after said termination date, both Landlord and Tenant shall be relieved of any and all further obligations hereunder, except for liabilities arising prior to the date of termination.
23. ASSIGNMENT AND SUBLETTING.
A. No Transfer Without Consent: Tenant shall not, without the prior written consent of Landlord in each instance (which consent will not be unreasonably withheld in the case of a sublease so long as Tenant is not in default hereunder), (i) assign, mortgage or otherwise encumber this Lease or any of its rights hereunder; (ii) sublet the Premises or any part thereof or permit the occupancy or use of the Premises or any part thereof by any persons or entities other than Tenant; or (iii) permit the assignment of this Lease or any of Tenant's rights hereunder by operation of law. Any attempted assignment, mortgaging or
April 15, 1991 26
encumbering of this Lease or any of Tenant's rights hereunder and any attempted subletting or grant of a right to use or occupy all or a portion of the Premises in violation of the foregoing sentence shall be void.
B. Take-Back Rights: Tenant may not assign this Lease, nor sublet (or permit occupancy or use of) the Premises, or any part thereof, without giving Landlord ten (10) days prior written notice thereof. If Tenant has notified Landlord of its desire to sublet in excess of twenty-five percent (25%) of the Premises or to assign this Lease, then for ten (10) days following receipt of said notice, Landlord shall have the right, exercisable by sending notice to Tenant, to sublet from Tenant for the balance of the Term of this Lease (i) all of the Premises, in the event Tenant notified Landlord of its desire to assign this Lease, or (ii) so much of the Premises as Tenant intends to sublet, in the event Tenant notified Landlord of its desire to sublet in excess of twenty-five percent (25%) of the Premises or to permit another to use in excess of twenty-five percent (25%) of the Premises, at the same rental Tenant is obligated to pay to Landlord hereunder. In the event Landlord does not exercise the aforesaid right within ten (10) days, Tenant may attempt to assign this Lease or sublet or permit use of such space, as applicable; provided, however, that Tenant shall obtain the prior written consent of Landlord as set forth in Subsection A above. In the event that Tenant defaults hereunder, Tenant hereby assigns to Landlord the Rent due from any assignee or subtenant and hereby authorizes each such party to pay said Rent to Landlord.
C. Transfer of Stock: If Tenant and/or any Guarantor is a corporation, then the sale, issuance or transfer of any voting capital stock of Tenant or any Guarantor, by the person, persons or entities owning a controlling interest therein as of the date of this Lease, which results in a change in the voting control of Tenant or the Guarantor, shall be deemed an assignment within the meaning of this Section. If Tenant and/or any Guarantor is a partnership, the sale or transfer of the partnership share, or any portion thereof, of any general partner shall be deemed an assignment of this Lease, provided, however, that the sale or transfer of any such partnership share shall not be deemed an assignment of this Lease so long as (i) Tenant has a controlling interest in the entity to which such partnership share was sold or transferred, or is otherwise liable under this Lease and (ii) the entity to which such partnership share was sold or transferred has net assets on the date of such sale or transfer equal to or greater than Tenant's net assets on the date this Lease is executed.
D. Expenses and Profits; Effect of Consent:
(1) In the event Landlord permits Tenant to assign or sublet all or a portion of the Premises to a third party, then if the rent rate agreed upon between Tenant and its proposed subtenant is
April 15, 1991 27
greater than the rent rate that Tenant must pay Landlord hereunder for that
portion of the Premises, or if any consideration shall be promised to or
received by Tenant in connection with such proposed assignment or sublease (in
addition to rent), then one-half (1/2) of such excess rent and other
consideration shall be considered Additional Rent owed by Tenant to Landlord
(less brokerage commissions, attorneys' fees and other disbursements
reasonably incurred by Tenant for such assignment and subletting if acceptable
evidence of such disbursement is delivered to Landlord), and shall be paid by
Tenant to Landlord, in the case of excess rent, in the same manner that Tenant
pays Monthly Base Rent and, in the case of any other consideration, within ten
(10) days after receipt thereof by Tenant.
(2) Tenant shall be responsible for all costs and expenses, including attorneys' fees, incurred by Landlord in connection with any proposed or purported assignment or sublease.
(3) The consent by Landlord to any assignment or subletting shall neither be construed as a waiver or release of Tenant from any covenant or obligation of Tenant under this Lease, nor as relieving Tenant from giving Landlord the aforesaid ten (10) days notice of, or from obtaining the consent of Landlord to, any further assignment or subletting. The collection or acceptance of Rent from any such assignee or subtenant shall not constitute a waiver or release of Tenant from any covenant or obligation of Tenant under this Lease, except as expressly agreed by Landlord in writing. In no event shall any assignment, subletting or transfer, whether or not with Landlord's consent, relieve Tenant of its primary liability under this Lease for the entire Term, and Tenant shall in no way be released from the full and complete performance of all the terms hereof.
(4) Notwithstanding anything in Subsections A or B above to the contrary, Tenant shall have the right, upon ten (10) days prior written notice to Landlord: (a) to sublet all or part of the Premises to any related corporation or entity which controls Tenant, is controlled by Tenant or is under common control with Tenant; or (b) to assign this Lease to a successor corporation into which or with which Tenant is merged or consolidated or which acquired substantially all of Tenant's assets and property; provided, however, that (i) such assignee assumes all of the obligations and liabilities of Tenant, (ii) any such sublessee or assignee shall have assets, capitalization and net worth at least equal to the assets, capitalization and net worth of Tenant as of the date of this Lease or as of the date of the assignment or sublease, whichever is greater, as determined by generally accepted accounting principles, and (iii) Tenant shall provide in its notice to Landlord (a) the name, current address and business of the proposed assignee or sublessee, (b) the amount and location of the space within the Premises proposed to be so subleased, (c) the proposed effective date and duration of the assignment or
April 15, 1991 28
subletting, and (d) the proposed rent or consideration to be paid to Tenant by such assignee or sublessee. Tenant also shall promptly supply Landlord with financial statements and other information as Landlord may request to evaluate the proposed assignment or sublease. For the purpose hereof, "control" shall mean ownership of not less than fifty percent (50%) of all the voting stock or legal and equitable interest in such corporation or entity.
24. TRANSFER BY LANDLORD.
Landlord (and any successor or affiliate of Landlord) may freely sell, assign or transfer all or any portion of its interest in this Lease or the Premises, and, in the event of any such sale, assignment or transfer, Landlord shall be relieved of any and all obligations under this Lease from and after the date of the sale, assignment or transfer, provided any Security Deposit held by Landlord hereunder is also transferred. From and after said date, Tenant shall be bound to such purchaser, assignee or other transferee, as the case may be, as though the latter had been the original Landlord hereunder, provided that the purchaser, assignee or transferee agrees to assume the obligations of Landlord hereunder.
25. INABILITY TO PERFORM.
This Lease and Tenant's obligation hereunder shall in no way be affected, impaired or excused, nor shall Tenant have any claim against Landlord for damages, because Landlord or the Association, due to Unavoidable Delays, is unable to fulfill any of its obligations under this Lease or under the Condominium Instruments, as applicable, including, but not limited to, any obligations to provide any services, repairs, replacements, alterations or decorations or to supply any improvements, equipment or fixtures.
This Lease and Tenant's obligation hereunder shall in no way be affected, impaired or excused, nor shall Landlord have any claim against Tenant for damages, because Tenant due to Unavoidable Delays (except any and all monetary obligations under this Lease), is unable to fulfill any of its obligations under this Lease or under the Condominium Instruments, as applicable, including, but not limited to, any obligations to provide any repairs, replacements, alterations or decorations.
26. ESTOPPEL CERTIFICATES.
Tenant shall, without charge, within fifteen (15) days after receipt of
any request therefor, execute and deliver to Landlord a certificate stating:
(i) whether this Lease is unmodified and in full force and effect (or if there
have been modifications, that the Lease is in full force and effect and
setting forth all such modifications); (ii) whether there then exist any
defenses against
April 15, 1991 29
the enforcement of any right of Landlord hereunder (and, if so, specifying the same in detail); (iii) the dates to which rent and any other charges hereunder have been paid by Tenant; (iv) that Tenant has no knowledge of any uncured defaults under this Lease (or, if Tenant has knowledge of any such defaults, specifying the same in detail); (v) that Tenant has no knowledge of any event that will or may result in the termination of this Lease (or if Tenant has such knowledge, specifying the same in detail); (vi) the address to which notices to Tenant are to be sent; and (vii) such other information as may be reasonably requested. It is understood that any such certificate may be relied upon by Landlord, the Association, any Mortgagee, prospective Mortgagee, Ground Lessor, prospective Ground Lessor, or purchaser or prospective purchaser of the Premises or any portion of the Condominium containing the Premises.
27. COVENANT OF QUIET ENJOYMENT.
Landlord covenants that it has the right to make this Lease and that, if Tenant shall pay all Rent and perform all of Tenant's other obligations under this Lease, Tenant shall have the right, during the Term and subject to the provisions of this Lease, to quietly occupy and enjoy the Premises without hinderance by Landlord or its successors and assigns.
28. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other with respect to any matter arising out of or connected with this Lease.
29. BROKERS.
Landlord and Tenant each represents and warrants to the other that, except as hereinafter set forth, neither of them has employed any broker in procuring or carrying on any negotiations relating to this Lease. Landlord and Tenant shall indemnify and hold each other harmless from any loss, claim or damage relating to the breach of the foregoing representation and warranty. Landlord recognizes only Long and Foster as broker with respect to this Lease and agrees to be responsible only for the payment of any leasing commissions owed to said broker.
30. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord shall have the following rights, exercisable without notice, without liability for damage or injury to property, person or business and without effecting an eviction, constructive or actual, or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for set-off, abatement of Rent or otherwise:
April 15, 1991 30
A. To change the Condominium's name or street address; provided, however, that Landlord will endeavor to provide Tenant with prior written notice of any such changes. In the event Landlord, in its sole discretion, changes the name or street address of the Condominium then Landlord shall pay to Tenant the reasonable cost of new stationary and other marketing materials, including but not limited to brochures, etc., provided said stationary and/or marketing materials are comparable to the quality Tenant is then using; however, if any entity other than Landlord (i.e., state and local government) changes the name and street address of the Condominium, then Landlord shall bear no responsibility whatsoever to reimburse Tenant for any costs it may incur as a result thereof.
B. To affix, maintain and remove any and all signs located in the Condominium; provided, however, that as long as Tenant is not in Default, Landlord shall not remove any signs previously approved by Landlord pursuant to the terms of this Lease.
C. To designate and approve, prior to installation, all window shades, blinds, drapes, awnings, window ventilators, lighting and other similar equipment to be installed by Tenant that may be visible from the exterior of the Premises or the Building.
D. To decorate and make repairs, alterations, additions and improvements, whether structural or otherwise, in, to and about the Condominium, and for such purposes to enter the Premises, and, during the continuance of any such work, to close temporarily doors, entry ways and other portions of the Condominium and to interrupt or temporarily suspend Condominium services and facilities, all without affecting Tenant's obligations hereunder, as long as the Premises remain tenantable.
E. To grant to anyone the exclusive right to conduct any business or render any service in the Condominium, provided Tenant is not thereby excluded from uses expressly permitted herein.
F. To alter, relocate, reconfigure and reduce the common elements of the Condominium, as long as the Premises remain reasonably accessible.
G. To erect, use and maintain pipes and conduits in and through the Premises, so long as the total rentable area of the Premises is not affected thereby.
H. To exercise its right to vote on matters before the Association and to exercise any other membership rights provided to a unit owner under the Condominium Instruments.
April 15, 1991 31
31. NOTICES.
No notice, request, approval, waiver or other communication which may be or is required or permitted to be given under this Lease shall be effective unless the same is in writing and hand-delivered, sent by registered or certified mail, return receipt requested, first-class postage prepaid, or sent postage prepaid by a reputable air courier service that provides written notices of delivery, addressed as follows:
If to Landlord:
CROSS CREEK ASSOCIATES LIMITED PARTNERSHIP
c/o JBG PROPERTIES, INC.
1250 Connecticut Avenue, N.W.
Suite 500
Washington, D.C. 20036
Attention: Director of Commercial Management
With a copy to:
David K. Weiss
Weicon, Inc.
973-C Russell Avenue
Gaithersburg, Maryland 20879
If to Tenant:
Prior to the Lease After the Lease
Commencement Date: Commencement Date:
Strayer College, Inc. Strayer College, Inc.
1025 15th St. N.W. 1025 15th St. N.W.
Washington, D.C. 20005 Washington, D.C. 20005
Attention: Ron K. Bailey Attention: Ron K. Bailey
President President
|
or at any other address of which either party shall notify the other in accordance with this Section. Such communications, if sent by air courier or registered or certified mail, shall be deemed to have been given two (2) days after the date of mailing. If any Mortgagee shall notify Tenant that it is the holder of a Mortgage affecting the Premises, no notice, request or demand thereafter sent by Tenant to Landlord shall be effective until a copy of same shall be sent to such Mortgagee in the manner prescribed in this Section at such address as such Mortgagee shall designate.
April 15, 1991 32
32. MISCELLANEOUS PROVISIONS.
A. Benefit and Burden: The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective successors and permitted assigns.
B. Governing Law: This Lease shall be construed and enforced in accordance with the laws of the jurisdiction in which the Condominium is located.
C. No Partnership: Nothing contained in this Lease shall be deemed to create a partnership or joint venture between Landlord and Tenant, or to create any other relationship between the parties other than that of Landlord and Tenant.
D. Delegation by Landlord: Wherever Landlord has the authority to take any action under this Lease, Landlord shall have the right to delegate such authority to others, and Landlord shall be responsible for the authorized actions of such agents, employees and others, to the same extent as if Landlord had taken such action itself.
E. Tenant Responsibility for Agents: In any case where Tenant is responsible for performing or refraining from an act or for preventing an action or result from occurring, Tenant shall also be responsible for any actions taken or omitted by Tenant's agents, employees, business or other invitees, licensees, contractors, subtenants, family members, guests and any other individuals or entities present in the Condominium at Tenant's invitation or as a result of Tenant's occupancy of the Premises.
F. Invalidity of Particular Provisions: If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be held invalid or unenforceable, the remaining provisions and the application of such invalid or unenforceable provisions to persons, entities and circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. Each provision of this Lease shall be valid and enforced to the fullest extent permitted by law.
G. Counterparts: This Lease may be executed in several counterparts, all of which shall constitute one and the same document.
H. Entire Agreement: This Lease, and any exhibits and addenda attached hereto, embody the entire agreement of the parties hereto, and no representations, inducements or agreements, oral or otherwise, between the parties not contained in this Lease or in the exhibits or addenda shall be of any force or effect. No rights, privileges, easements or licenses are granted to Tenant hereby, except as expressly set forth herein.
April 15, 1991 33
I. Amendments: This Lease may not be modified in whole or in part in any manner other than by an agreement in writing.
J. Mortgagee's Performance: Tenant shall accept performance of any of Landlord's obligations hereunder by any Mortgagee.
K. Limitation on Interest: In any case where this Lease provides for a rate of interest that is higher than the maximum rate permitted by law, the rate specified herein shall be deemed to equal, and the party designated as recipient of such interest shall be entitled to receive, the maximum rate of interest permitted by law.
L. Remedies Cumulative: All rights and remedies of Landlord shall be cumulative and shall not be exclusive of any other rights or remedies of Landlord hereunder or now or hereafter existing at law or in equity.
All rights and remedies of Tenant shall be cumulative and shall not be exclusive of any other rights or remedies of Tenant hereunder or now or hereafter existing at law or in equity.
M. Additional Rent: All Additional Rent due and payable under this Lease shall be due within ten (10) days after demand by Landlord, except as otherwise expressly provided in this Lease.
N. Survival of Obligation: Tenant's obligation to pay Rent due and owing upon the termination or expiration of this Lease shall survive termination or expiration of this Lease.
33. LENDER APPROVAL.
If the Mortgagee fails to give its consent to this Lease, Landlord shall have the right, at its sole option, to terminate and cancel this Lease. Such option shall be exercisable by Landlord by written notice to Tenant of such termination, whereupon this Lease shall be deemed canceled and terminated, and both Landlord and Tenant shall be relieved of any and all liabilities and obligations hereunder.
34. SECURITY DEPOSIT.
A. Amount and Uses: Landlord acknowledges receipt from Tenant of Sixteen Thousand Two Hundred Fifty Dollars ($16,250), to be held by Landlord as security for the payment of all Rent payable by Tenant and for the faithful performance by Tenant of all other obligations of Tenant under this Lease. Said Security Deposit shall be repaid to Tenant after the termination of this Lease (or any renewal thereof), provided Tenant shall have made all such payments and performed all such obligations hereunder. Landlord shall not be required to maintain the Security Deposit in a separate account. Landlord shall place the Security Deposit in an
April 15, 1991 34
interest-bearing account and all interest earned thereon shall follow the Security Deposit. The Security Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant without the prior written consent of Landlord, and any such act shall be void. Landlord may, at Landlord's option, appropriate and apply the entire Security Deposit, or so much thereof as Landlord believes may be necessary, to compensate Landlord for the payment of any past-due Rent and for loss or damage sustained by Landlord due to any Default. In the event Landlord appropriates or applies the Security Deposit in such a manner, Tenant, within five (5) days after notice thereof, shall pay to Landlord an amount sufficient to restore the Security Deposit to the original sum deposited. Tenant's failure to restore any such deficiency shall constitute a Default hereunder. In the event of bankruptcy or other debtor-creditor proceedings by or against Tenant, the Security Deposit shall be applied first to the payment of Rent due Landlord for all periods prior to the filing of such proceedings.
B. Transferability: In the event of a sale or transfer of Landlord's interest in the Premises or of the interest of any successor or assign of Landlord, Landlord (or such successor or assign) shall have the right to transfer the Security Deposit to any vendee or transferee and shall thereupon be released automatically from any liability therefor. Tenant shall look solely to the transferee for the return of the Security Deposit. No Mortgagee or purchaser of the Premises at any foreclosure proceeding shall (regardless of whether the Lease is at the time subordinated to the lien of said Mortgage) be liable to Tenant or any other person for any of such Security Deposit, or any other payment made by Tenant hereunder, unless Landlord has actually delivered said deposit or other such sum to such Mortgagee or purchaser. In the event of any rightful and permitted assignment of Tenant's interest in this Lease, the Security Deposit shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord shall have no liability to the assignor with respect to the return of the Security Deposit.
35. COMPLIANCE WITH CONDOMINIUM INSTRUMENTS.
Notwithstanding any provisions herein which expressly subject Tenant to particular provisions in the Condominium Instruments or which refer to particular provisions in such Condominium Instruments or particular rights of the Association, Tenant's right to use and occupy the Premises shall be subject and subordinate in all respects to each and every provision of the Condominium Instruments. Failure to comply with the provisions of the Condominium Instruments shall constitute a default under this Lease. This Lease grants Tenant a leasehold estate in the Premises for the Term specified together with a license granting Tenant, for such Term, Landlord's rights to use the common elements and common facilities of the Condominium, provided that Tenant and Tenant's family members, guests, contractors, subtenants, permittees, licensees,
April 15, 1991 35
employees, business and other invitees and agents exercise such license in accordance with the provisions of the Condominium Instruments; provided, however, that Landlord retains all membership rights in the Association including, without limitation, the right to vote. Tenant shall indemnify and hold harmless Landlord from and against any damages, loss, costs, claims, liabilities and expenses, direct or indirect, incurred by Landlord as a result of the noncompliance by any of the aforesaid persons with the provisions of any of the Condominium Instruments or any other covenant of this Lease. References to the Association contained herein are not intended to expand any rights of the Association established pursuant to the Condominium Instruments. In the event of a conflict between the Lease and the Condominium Instruments, the Condominium Instruments shall control.
36. TERMINATION OF CONDOMINIUM.
In the event the Association terminates the Condominium, Landlord shall have the right to present and Tenant shall have the obligation to enter into a Lease for the Premises for the remainder of the Term, the provisions of which shall be identical to the provisions of this Lease, except that provisions in the new lease shall be modified solely to reflect that the Premises are not part of a Condominium. (For example, the new lease would be revised to reflect that Additional Rent would include the Tenant's share of certain operating costs rather than Common Expenses.)
37. HAZARDOUS MATERIALS.
A. Except for those materials that are necessary in the normal course of Tenant's business activities on the Premises, Tenant, its agents, employees, contractors or invitees shall not cause or permit any Hazardous Materials, as hereinafter defined, to be brought upon, stored, used or disposed on, in or about the Premises.
B. Any Hazardous Material permitted on the Premises, all containers therefor and all materials that have been contaminated with such Hazardous Materials shall be used, kept, stored and disposed of in a manner that complies with all applicable federal, state and local laws, ordinances, regulations and standards. Without limiting the generality of the foregoing, Tenant shall be solely responsible for the preparation and submittal of any reports, data and information required by any law, ordinance, regulation or standard in connection with the use, storage or disposal of Hazardous Material on the Premises.
C. Tenant shall not cause or permit the release, discharge, spill or emission of any substance from, into or onto the Premises, whether or not such substance is defined as a Hazardous Material herein, if such substance:
April 15, 1991 36
(i) causes or is likely to cause the pollution or contamination of the Premises or of air, surface water, groundwater or soil;
(ii) causes or is likely to cause the impairment or contamination of any sewer, sewage treatment system or components thereof;
(iii) poses an actual or potential hazard to the health or safety of persons on the Premises or elsewhere; or
(iv) impairs the condition, use or enjoyment of the Premises, the Building or any other real or personal property.
D. As used herein, the term "Hazardous Material" means:
(i) any "hazardous substance" as the same is defined pursuant to 42 U.S.C. Section 9601(14) and subsequent amendments or enactments thereto;
(ii) oil, petroleum products and their by-products, including, without limitation, waste petroleum and petroleum sludges; or
(iii) any hazardous chemical for which the submittal of Material Safety Data Sheet or list is required pursuant to 42 U.S.C. Section 11021 and subsequent amendments or enactments thereto.
E. Tenant hereby agrees that it shall be fully liable for all costs, expenses and damages related to or arising from the use, storage and disposal of any Hazardous Material brought on to the Premises by Tenant. Tenant shall give immediate notice to Landlord of any violation or potential violation of the provisions of this Section. Tenant shall defend, indemnify and hold harmless Landlord and its agents from and against any claims, demands, administrative orders, judicial orders, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, court costs and litigation expenses) of whatever kind or nature, known or unknown, contingent or otherwise, arising out of or any way related to the use, storage, disposal, release, discharge, spill or emission of any Hazardous Material by Tenant, its agents, employees, contractors or invitees. The provisions of this Section shall be in addition to any other obligations and liabilities Tenant may have to Landlord at law or in equity and shall survive the transactions contemplated herein or any termination of this Lease.
As of the date hereof, and to the best of Landlord's knowledge, no Hazardous Materials, as defined herein, exists in/on the Premises, the Condominium, or the Property, and Landlord shall use its reasonable efforts to keep the Premises, the Condominium and the Property free of Hazardous Materials during the Term.
April 15, 1991 37
38. RIDERS.
The terms and provisions of Rider No. 1 attached hereto are hereby incorporated herein by reference.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
WITNESS: LANDLORD:
CROSS CREEK ASSOCIATES LIMITED
PARTNERSHIP, a Virginia limited
partnership
/s/ PAULA J. WELLINGTON By: /s/ [sig]
- -------------------------- -----------------------------
WITNESS: TENANT:
STRAYER COLLEGE, a Maryland
corporation
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April 15, 1991 38
EXHIBIT 10.07
LEASE BINDER
LANDLORD: GLM-Highland Building Limited Partnership, a Virginia
Limited Partnership
TENANT: Strayer College, Inc., a Maryland corporation
PROPERTY: An office building located at 903 South Highland Street,
Arlington, Virginia
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1. Agreement of Lease between Landlord and Tenant, dated October 1, 1991, together with the following exhibits:
Exhibit A: Outline of Premises Exhibit B: Tenant and Building Alterations Exhibit C: Rules and Regulations |
2. Non-Disturbance and Attornment Agreement, dated as of December 27, 1991, between Tenant and General Electric Capital Corporation.
HIGHLAND OFFICE BUILDING
LEASE AGREEMENT
BETWEEN
GLM-Highland Office Building Associates, L.P.
BY
GLM Development Corporation, G.P.
Landlord
AND
Strayer College, Inc. , Tenant
DATED: October 1, 1991
TABLE OF CONTENTS
ARTICLE PAGE
------- ----
1. Premises; Remeasurement; Proportionate Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Cost of Living Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Maintenance of the Building and Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. Refurbishment of Premises; Tenant Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Signs; Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Tenant's Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Services and Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Liability of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Rules and Regulations; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Damage; Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21. Covenants of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
23. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
24. Consent of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
25. Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
26. Options to Extend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27. Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Exhibit A (Outline of Premises)
Exhibit B (Tenant and Building Alterations)
Exhibit C (Rules and Regulations)
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE ("Lease") is made this 1 day of October, 1991, by
(i) GLM-HIGHLAND BUILDING LIMITED PARTNERSHIP, a Virginia limited partnership
(hereinafter referred to as "Landlord"), and (ii) STRAYER COLLEGE, INC. , a
Maryland corporation (hereinafter referred to as "Tenant").
RECITALS
A. Landlord is the owner of (i) an office building located at 901 South Highland Street, Arlington, Virginia (hereinafter referred to as "901 Building"), (ii) an office building located at 903 South Highland Street, Arlington, Virginia (hereinafter referred to as "903 Building"), and (iii) a common parking garage (hereinafter referred to as the "Garage") consisting of eight (8) parking levels and attached to the 901 Building. The 901 Building, 903 Building and Garage are hereinafter collectively referred to as the "Building".
B. Tenant desires to lease space in the 903 Building, and Landlord is willing to lease Tenant space in the 903 Building, upon the terms, conditions, covenants and agreements set forth herein.
NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby covenant and agree as set forth below.
1. Premises; Remeasurement; Proportionate Share
A. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the term and upon the terms, conditions, covenants and agreements hereinafter provided, the premises (the "Premises") shown on the attached Exhibit A. The Premises consist of a portion of the first floor and all of the second, third and fourth floors of the 903 Building. The Premises contain 26,500 rentable square feet (the "Rentable Area"). The lease of the Premises includes the right, together with other tenants of the Building and their invitees, to use the common public areas of the Building, but includes no other rights not specifically set forth herein.
B. Prior to the Lease Commencement Date, Landlord's architect shall certify to Tenant the rentable area contained in the Building and the Premises as determined in accordance with the standard method of measurement of the Washington D.C. Association of Realtors (formerly, Washington Board of Realtors). If either the Rentable Area or the rentable area of the Building is misstated in this Lease, the parties, by letter agreement, shall restate correctly the Rentable Area and the rentable area of the Building and, if necessary, reestablish any "Basic Rent" (as defined in Section 3 below) or additional rent calculated using such rentable areas.
C. Tenant's "Proportionate Share" shall be an amount equal to the Rentable Area divided by the rentable square feet contained in the Building, as certified by Landlord's architect. If the Rentable Area or the rentable area of the Building changes during the Term, following Tenant's receipt of a certificate from
Landlord's architect as to such change, the parties shall execute a letter agreement reestablishing the Basic Rent and Tenant's Proportionate Share.
2. Term
A. Except as provided in Section 26, the term of this Lease (hereinafter referred to as the "Term") shall be for a period commencing on April 1, 1992 (the "Lease Commencement Date") and expiring at midnight on March 31, 2002 (the "Lease Expiration Date").
B. The first "Lease Year" during the Term shall be the period commencing on the Lease Commencement Date and ending on the last day of the month that completes twelve (12) full calendar months after the Lease Commencement Date. Each subsequent "Lease Year" shall commence on the day immediately following the last day of the preceding Lease Year and shall continue for a period of twelve (12) full calendar months.
3. Rent
A. Tenant shall pay, as rent for the Premises, the following amounts (each of which amounts shall be considered "Rent" and all of which, unless the context requires otherwise, are collectively referred to herein as "Rent"):
(i) Basic Rent
(a) Basic Rent for each Lease Year shall be an amount equal to the product obtained by multiplying the Rentable Area by the "Rent per Square Foot" (as hereinafter defined) for such Lease Year. The Rent per Square Foot for the first Lease Year shall be Thirteen and 50/100 Dollars ($13.50). For each Lease Year thereafter during the Term, the Rent per Square Foot shall be an amount equal to one hundred two percent (102%) of the Rent per Square Foot for the immediately preceding Lease Year.
(b) Basic Rent shall be paid, in advance, on or before the first day of each month during the Term. Basic Rent shall be made payable to Landlord at the office of Landlord, or such other party or at such other address as Landlord may designate from time to time by written notice to Tenant. If the Lease Commencement Date is a date other than the first day of a month, Basic Rent from the Lease Commencement Date until the first day of the following month shall be prorated at the rate of one thirtieth (1/30th) of the monthly installment of Basic Rent for each day.
(ii) Increases in Real Estate Taxes
(a) Commencing January 1, 1993, Tenant, for each tax year
or part thereof that coincides with the Term, shall pay to Landlord, as
additional rent, Tenant's Proportionate Share of any increase in "Real Estate
Taxes" (as hereinafter defined) for such tax year over the Real Estate Taxes
for the "Base Tax Year" (as defined below). For the purposes of this Section
3.A(ii) the term "Base Tax Year" is hereby defined to mean calendar year
1992, and the term "Real Estate Taxes" for each tax year is hereby defined to mean the total amount of all taxes and assessments, general and special, ordinary and extraordinary, foreseen and unforeseen, now or hereafter assessed, levied or imposed upon the Building and the land on which the Building is situated (the "Land") for such year, together with any tax in the nature of real estate tax, any ad valorem tax or any tax on Rent imposed in lieu of or in addition to real estate taxes and assessments, and any taxes and assessments that may hereafter be substituted for Real Estate Taxes. "Real Estate Taxes" shall not include any gift, inheritance, estate, income, net profit, franchise, corporate, capital gains, income or unincorporated business tax or levy, or any recordation or transfer tax payable in connection with the transfer of the Building or any part thereof or any financing secured by the Building or any part thereof.
(b) In the event that the method currently used by Arlington County for the computation of the assessed market value of the Building and/or the Land is discontinued or revised, the determination of the increase in Real Estate Taxes under this Section 3.A(ii) shall thereafter be made according to a formula and procedure that most nearly approximates the method of determination hereinabove set forth.
(c) Commencing with the second Lease Year, Landlord shall
submit to Tenant a statement of Landlord's good faith estimate and a
description of how said estimate is determined, of the increase in the Real
Estate Taxes for the current tax year over the Real Estate Taxes for the Base
Tax Year, and within thirty (30) days after delivery of such statement, Tenant
shall begin paying to Landlord, as additional rent, due and payable on the
first day of each month, an amount equal to one-twelfth (1/12th) of the amount
determined to be Tenant's Proportionate Share of such increase in Real Estate
Taxes. Within ninety (90) days after the expiration of each tax year in which
Tenant's Proportionate Share of Real Estate Taxes is increased pursuant to this
Section 3.A(ii), Landlord shall submit a statement showing the determination of
the total increase in Real Estate Taxes for such tax year over the Base Tax
Year and Tenant's Proportionate Share of such increase. Landlord shall also
supply at this time a copy of real estate tax bills. If such statement shows
that Tenant's monthly payments pursuant to this Section 3.A(ii) exceeded
Tenant's share of the actual increase in Real Estate Taxes for the preceding
tax year, then Tenant may deduct such overpayment from its next payment or
payments of monthly rent. If such statement shows that Tenant's share of the
actual increase in Real Estate Taxes exceeded Tenant's monthly payments for the
preceding tax year, then Tenant shall pay the total amount of such deficiency
to Landlord with the next payment of Tenant's Proportionate Share of Real
Estate Taxes payable hereunder after receipt of the statement.
(d) Since the Lease Year in which Tenant's obligation to pay Real Estate Taxes begins and the last Lease Year of the Term, as the same may be extended pursuant to Section 26, will not coincide with the tax year, Tenant's Proportionate Share of Real Estate Taxes during such Lease Years shall be determined by calculating Tenant's Proportionate Share for the full tax year then multiplying the resulting amount by a
fraction, the numerator of which shall be the number of days in the tax years that coincide with such Lease Years, and the denominator of which shall be 365. Following the end of the tax year in which the Term expires, Landlord shall render a statement as provided under this Section 3.A(ii)(d). If Tenant's payment as aforesaid was less than the amount shown in such statement, Tenant shall pay to Landlord within thirty (30) days after demand therefor, the difference between the amount previously paid and the amount shown in such statement. If Tenant's previous payment exceeded the amount shown in such statement, Landlord shall promptly refund to Tenant such excess payment.
(iii) Increase in Operating Charges
(a) Commencing January 1, 1993, Tenant shall pay Landlord, as additional rent, Tenant's Proportionate Share of "Operating Increases" (as hereinafter defined) for each calendar year during the Term. As used in this Lease, "Operating Increases" shall mean the difference between the "Operating Charges" (as defined in the next sentence) for a particular calendar year during the Term (starting with calendar year 1993) and the Operating Charges for the first Lease Year (the "Base Year"). The "Operating Charges" for the Base Year or any calendar year are hereby defined as the sum of the following reasonable costs and expenses for the Building: (i) gas, electricity, water, sewer, and other utility charges (including surcharges) of whatever nature, (ii) insurance premiums, (iii) Building personnel costs, including, but not limited to, salaries, wages, fringe benefits and other direct and indirect costs of engineers, superintendents, watchmen, porters and any other Building personnel below the grade of property manager, (iv) costs of service and maintenance contracts for Building equipment, including, but not limited to, chillers, boilers, controls, elevators, mail chute, windows, security services, and management fees, (v) any other costs and expenses (other than items that are capital improvements) incurred by Landlord in operating the Building, and (vi) the cost of any additional services not provided to the Building at the Lease Commencement Date but thereafter provided by Landlord in the prudent management of the Building. The management fee referred to in the preceding sentence shall be limited to four percent (4%) of the gross basic rent actually received from tenants in the Building during each calendar year. If any equipment used at the Building or services rendered at the Building are also used or rendered at other properties owned or managed by Landlord, the cost of such equipment and services shall be equitably apportioned among such properties and only the portion attributable to the Building shall be included within Operating Charges. Operating Charges shall not include (i) principal or interest payments on any mortgages, (ii) ground rent, (iii) leasing commissions, (iv) advertising or promotional expenses incurred to publicize the Building for leasing purposes, (v) deductions for depreciation or amortization of the Building or any part thereof, (vi) capital improvements to the Building (except that, to the extent such improvements result in savings in the Operating Charges, the resulting savings shall be included in Operating Charges), (vii) costs and expenses paid directly by Tenant or any other tenant of the Building or reimbursable to Landlord under any warranty, lease, contract, or insurance policy, (viii) legal fees incurred in connection with negotiating
or drafting leases or enforcing Landlord's rights thereunder, (ix) accounting
fees other than fees incurred in connection with preparing an annual budget and
conducting an annual audit, (x) late charges imposed on Landlord or its
management company, (xi) the cost of char or other cleaning services other than
services provided to the common areas of the Building, (xii) overhead and
profit increments, including any fees (other than the management fee provided
for above) paid to an individual or entity related to Landlord for services to
the Building if such fees exceed the fair market cost of the services rendered,
(xiii) general administrative expenses that would not be chargeable to
operating expenses of the Building in accordance with generally accepted
accounting principles, (xiv) the cost of services that are not available to
Tenant without additional charge but that are provided to other tenants or
occupants, or (xv) costs, fines or penalties incurred in connection with any
violation of any law or regulation applicable to the Building, including,
without limitation, the cost of correcting any present violation and of
complying with future laws or regulations relating to the life safety systems
and handicapped access features of the Building or concerning asbestos or
hazardous or toxic waste or materials.
(b) In the event that, for any calendar year during the Term, the average occupancy rate of the Building is less than ninety-five percent (95%), then, for purposes of calculating Operating Increases, the Operating Expenses for such calendar year shall be increased by the additional costs and expenses that Landlord reasonably estimates would have been incurred if during such calendar year the average occupancy rate had been ninety-five percent (95%). It is not the intent of this provision, commonly referred to as a "gross up" clause, to permit Landlord to charge Tenant for any Operating Expenses attributable to unoccupied space, or to seek reimbursement from Tenant for costs the Landlord never incurred. Rather, the intent of this provision is to allow Landlord to recover only those increases in Operating Expenses properly attributable to the occupied space in the Building, and this provision is thus designed to calculate the actual cost of providing variable Operating Expense services (i.e., Operating Expenses that are affected by variations in occupancy levels, such as utility service) to the rentable area of the Building receiving such service.
(c) Landlord represents to Tenant that, as of October 1, 1991, approximately eleven percent (11%) of the Building is leased or set aside for leasing to retail tenants and that such tenants are currently treated as office tenants for purposes of calculating operating expense increases. If, during the Term, the portion of the Building rented for retail use exceeds eleven percent (11%) of the Building, Landlord shall separately meter the portion of the Building rented for retail use that exceeds eleven (11) percent of the Building.
(d) Commencing January 1, 1993, Landlord shall submit to Tenant a statement of Landlord's estimate, determined in good faith, of the increase of the Operating Charges, and within thirty (30) days after the delivery of such statement, Tenant shall begin paying to Landlord, as additional rent, due and payable on the first day of each month, an amount equal to one-twelfth (1/12th) of the amount determined to be Tenant's
Proportionate Share of the increase in the Operating Charges. Landlord's statement shall include a description of how such estimate was determined. On or before March 31, 1994, and on or before every March 31st thereafter during the Term, Landlord shall submit a statement showing the determination of the Operating Charges for the immediately preceding calendar year and Tenant's Proportionate Share of Operating Increases. If such statement shows that Tenant's monthly payments pursuant to this Section 3.A(iii) exceeded Tenant's Proportionate Share of the actual Operating Increases for the preceding calendar year, then Tenant may deduct such overpayment from its next payment or payments of Basic Rent and additional rent. If such statement shows that Tenant's share of the actual increase in Operating Charges exceeded Tenant's monthly payments for the preceding calendar year, then Tenant shall pay the total amount of such deficiency to Landlord with the next payment of Tenant's Proportionate Share of Operating Increases due after receipt of the statement.
(e) Tenant shall have the right, upon ten (10) days written' notice to Landlord, to inspect and examine the books, records and computations of Landlord relative to the Operating Increases. Landlord shall retain such books, records and computations for at least two (2) years following the period to which they relate. If any such examination uncovers an overstatement of Tenant's Proportionate Share of Operating Increases, Landlord shall promptly refund such overstatement. If the overstatement exceeds five percent (5%) of Tenant's Proportionate Share of Operating Increases, Landlord shall reimburse Tenant for the reasonable cost of Tenant's examination.
(f) Since the Lease Year in which Tenant's obligation to pay Operating Increases begins and the last Lease Year of the Term, as it may be extended pursuant to Section 26, will not coincide with the calendar year, Operating Increases to be paid by Tenant during such Lease Years shall be determined by calculating Tenant's Proportionate Share for the full calendar year then multiplying the resulting amount by a fraction, the numerator of which shall be the number of days in the calendar years that coincide with such Lease Years, and the denominator of which shall be 365. Within ninety (90) days after the end of the calendar year in which the Term expires, Landlord shall render a statement to Tenant as provided in this Section 3.A(iii). If Tenant's payment as aforesaid was less than the amount shown in such statement, Tenant shall pay to Landlord within thirty (30) days after demand therefor, the difference between the amount previously paid and the amount shown in such statement. If Tenant's previous payment exceeded the amount shown in such statement, Landlord shall promptly refund to Tenant such excess payment.
B . Rent shall be paid to Landlord without demand and without deduction, set-off or counterclaim on the first (1st) day of each month during the Term. If Landlord shall at any time or times accept Rent after it shall become due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute, or be construed as, a waiver of any or all of Landlord's rights hereunder.
4. Cost of Living Adjustment
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5. Use of Premises
Tenant will use and occupy the Premises solely for a college, including a
book store and a student lounge, and for the administrative, storage and other
operational needs of such college, and for general office and business uses,
all in accordance with the uses permitted under applicable zoning and other
municipal regulations. Without the prior written consent of Landlord, the
Premises will not be used for any other purpose. Tenant will not use or occupy
the Premises for any unlawful purpose and will comply with all present and
future laws, ordinances, regulations and orders of the United States of
America, any state, county, and local authority, and any other public or
quasi-public authority having jurisdiction over the Premises. Landlord shall
obtain the initial certificate of occupancy for the Premises prior to the Lease
Commencement Date. Tenant shall cooperate with Landlord as necessary to obtain
the certificate of occupancy. Tenant represents and warrants to Landlord that
Tenant has entered into this Lease entirely for the use set forth in this
Section 5 and that it shall not use the Premises for any residential purpose.
6. Assignment and Subletting
A. Landlord's Prior Consent Required
(i) Tenant and Tenant's representatives, successors and assigns will not directly or indirectly assign, transfer, mortgage or otherwise encumber this Lease or sublet or lease (or permit the occupancy or use of) the Premises, or any part thereof, without obtaining the prior written consent of Landlord. Except as set forth in this Section 6, no assignment or transfer of this Lease or the right of occupancy hereunder may be effected by operation of law or otherwise without the prior written consent of Landlord. The transfer of a majority of the issued and outstanding capital stock of any corporate tenant of this Lease or a majority of the total interest in any partnership tenant, however accomplished and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease.
(ii) Notwithstanding anything to the contrary set forth in the preceding paragraph, provided Tenant remains liable under this Lease, without Landlord's consent (A) Tenant may assign this Lease to a subsidiary of Tenant or in connection with a merger, consolidation or the sale of all or substantially all of Tenant's assets, or (B) Ron K. Bailey may assign all or any portion of its interest in Tenant to the members of his immediate family or to a trust for his benefit or the benefit of one or more members of his immediate family.
B. Qualifications of Subtenant.
(i) Subject to the provisions of Section 6.A hereof, Landlord shall not unreasonably withhold or delay its consent hereunder to any sublease by Tenant, provided that all of the following conditions are met:
(a) Tenant must first notify Landlord, in writing, of any proposed sublease, at least fifteen (15) days prior to the effective date of such proposed sublease. The notice to Landlord must include a copy of the proposed sublease and a copy of the proposed subtenant's most recent financial statement, if available;
(b) The subtenant must have a credit rating reasonably satisfactory to Landlord;
(c) The proposed use of the Premises must not, in Landlord's reasonable opinion, conflict with the reputation of the Building on the effective date of the sublease; and
(d) The sublease must (1) be expressly subject and subordinate to this Lease, (2) require that any subtenant must comply with and abide by all of the terms of this Lease, and (3) provide that any termination of this Lease shall extinguish the sublease.
C. Landlord's Right of First Refusal.
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D. No Waiver or Release
The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from its obligations under this Lease or as relieving Tenant from obtaining the consent in writing of Landlord to any further assignment or subletting. The acceptance of rent from any assignee or subtenant shall not constitute a waiver or release of Tenant from its obligations under this Lease.
7. Maintenance of the Building and Premises
A. Obligations of Landlord and Tenant
(i) Landlord shall repair, maintain, clean, replace and redecorate as necessary the exterior and interior of the Building (other than the interior of the Premises) and all building systems (including the systems serving the Premises) so that the exterior and interior of the Building (including the common areas of the Building) are clean and in good order and repair at all times during the Term. Landlord shall also maintain all structural walls, columns or other structural components located in the Premises. All repairs, maintenance, replacements and redecorating required by Landlord shall be undertaken as soon as commercially reasonable after Landlord is aware of the need for such repair, maintenance, replacement or redecoration and shall thereafter be diligently prosecuted to
completion. Nothing contained in the preceding sentence shall make Landlord's obligations to maintain the Building contingent on Tenant informing Landlord of the need for repairs, maintenance, replacements or redecoration.
(ii) Subject to Section 7.A(i) above, Tenant will keep the interior of the Premises and the fixtures and equipment therein in good order and repair and shall suffer neither waste nor injury thereto. At the expiration or other termination of the Term, Tenant shall surrender the Premises broom-clean and in good order and repair, ordinary wear and tear excepted.
B. Damage to Premises or Building
If the Premises or the Building is damaged by the negligent act or willful misconduct of Tenant, or its agents, contractors, invitees, or licensees, Tenant, following written notice from Landlord, shall repair such damage at its expense. If Tenant has not repaired such damage after notice as set forth in the preceding sentence and the expiration of such time as is reasonable under the circumstances, Landlord may repair such damage and seek reimbursement from Tenant for its reasonable costs incurred in repairing such damage. Notwithstanding the foregoing, if the damage caused by Tenant is covered by insurance that Landlord carries or is required to carry under this Lease, Landlord shall not seek reimbursement from Tenant with respect to such damage.
C. Notice of Defective Condition
Tenant shall give Landlord prompt notice if any plumbing or heating system or any electrical line located in, servicing or passing through the Premises needs repairing or replacing, provided Tenant, but not Landlord, has actual knowledge of the need for a repair or replacement. Nothing contained in the preceding sentence shall make Landlord's obligation to repair or replace such system or line contingent on Tenant informing Landlord of the need for repairs or replacements. Following such notice, Landlord shall make the repair or replacement with due diligence. Except as specifically provided in this Lease, there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord making or failing to make any repairs, alterations, additions, or improvements in or to the Building or the Premises or in or to the fixtures, appurtenances or equipment thereof.
D. Tenant's Rights re Interrupted Services
If Landlord fails to perform any maintenance or to make any repair or replacement that Landlord is required to perform or make under this Section 7 and such failure deprives Tenant of the use of all or any portion of the Premises for three (3) or more consecutive days, then, from the date Tenant is unable to use all or a portion of the Premises until such time as the entire Premises are available for Tenant's use, Rent shall be abated by the percentage of the Premises that Tenant is unable to use as a result of such failure.
8. Refurbishment of Premises; Tenant Alterations
A. Refurbishment of Premises
Prior to the Lease Commencement Date, Landlord shall perform the work described on the attached Exhibit B to Tenant's reasonable satisfaction. Since the refurbishment of the Building will take place after this Lease is fully executed and before the Lease Commencement Date, and Tenant, under its current lease with Landlord, will be operating its business at the Premises during such time, Landlord shall use reasonable commercial efforts not to disrupt Tenant's operations at the Premises during the refurbishment of the Building.
B. Tenant Allowance
Upon execution of this Lease, Landlord will provide Tenant with the cash allowance described on Exhibit B.
C. Alterations
(i) Except as set forth herein, Tenant will not make or permit anyone to make any alterations, fixed decorations, additions or improvements, structural or otherwise, to the Premises, including, but not limited to, wall-to-wall or attached carpeting, attached light fixtures, computer air-conditioning equipment and flooring, kitchen equipment attached to the plumbing of the Building or showers (hereinafter referred to as the "Alterations"), in or to the Premises or the Building, without the prior written consent of Landlord. Notwithstanding anything to the contrary contained in the preceding sentence, Tenant, without Landlord's consent, may make interior, nonstructural Alterations costing no more than Fifty Thousand and No/100 Dollars ($50,000.00) in any one instance. All such Alterations must conform to all rules and regulations established from time to time by the Underwriters Association of Arlington, Virginia and to all applicable requirements of the federal, Commonwealth of Virginia and Arlington County governments. Tenant shall obtain lien waivers from the suppliers of all materials or services performed or supplied in connection with the Alterations.
(ii) If any mechanics' or materialmen's lien is filed against the Premises, the Building and/or the Land, for work claimed to have been done for, or materials claimed to have been furnished to, Tenant, within twenty (20) days thereafter, at Tenant's sole cost and expense, such lien shall be discharged or a bond posted with respect thereto. If Tenant shall fail to discharge or bond against any such mechanics' or materialmen's lien within twenty (20) days, Landlord may, at its option, discharge the same and treat the cost thereof as additional rent, payable with the monthly installment of Rent next becoming due. It is understood and agreed that in the event Landlord shall give its written consent to Tenant's making any such Alterations, such written consent shall not be deemed to be an agreement or consent by Landlord to subject Landlord's interest in the Premises, the Building or the Land to any mechanics' or materialmen's liens that may be filed in respect of any such Alterations made by or on behalf of Tenant.
C. Indemnification
Tenant will indemnify and hold Landlord harmless from and against any and all expenses, liens, claims or damages to person or property that may arise directly or indirectly by reason of the making of any such Alterations. If any such Alteration is made without the prior written consent of Landlord, except as provided in Section 8.B above, Landlord may correct or remove the same and Tenant shall be liable for any and all reasonable expenses incurred by Landlord in the performance of this work. All Alterations in or to the Premises or the Building made by either party shall immediately become the property of Landlord and shall remain upon and be surrendered with the Premises at the end of the Term in good order and repair, ordinary wear and tear excepted. If such property of Tenant is not removed by Tenant within three (3) days after the termination of this Lease, the same shall become the property of Landlord and shall be surrendered with the Premises as part thereof.
9. Signs; Furnishings
A. Signs
Tenant shall maintain Tenant's existing sign on the exterior of the building in good order and repair. If Tenant determines from time to time during the Term that its exterior sign should be replaced, Tenant may replace the sign at Tenant's expense with Landlord's prior approval, which approval shall not be unreasonably withheld. If any sign, advertisement or notice which can be seen outside of the Premises (other than the exterior sign) is exhibited by Tenant, without Landlord's consent, Landlord shall have the right to remove the same and Tenant shall be liable for any and all reasonable expenses incurred by Landlord in said removal.
B. Furnishings
Any and all damage or injury to the Premises or the Building caused by moving the property of Tenant into, in or out of the Premises, shall be repaired by and at the sole cost of Tenant. Tenant agrees promptly to remove from the sidewalks adjacent to the Building any of Tenant's furniture, equipment or other material there delivered or deposited.
10. Tenant's Equipment
Landlord hereby approves Tenant's existing electrical equipment and machinery. Tenant shall not install or operate in the Premises any electrically-operated equipment or machinery (other than electric typewriters, word processors, computers and ancillary equipment, telecopiers, residential-sized refrigerators, microwaves, vending machines, adding machines, radios, televisions, clocks, copying machines and recording equipment) of any kind or nature whatsoever that will or may reasonably be anticipated to necessitate any changes, replacements or additions to, or in the use of, the water system, heating system, plumbing system, air-conditioning system, or
electrical system of the Premises or the Building without first obtaining the prior written consent of Landlord. If Tenant installs any business machine or mechanical equipment that causes excessive noise or vibration to be transmitted to the structure of the Building or to any space therein to such a degree as to be reasonably objectionable to any tenant in the Building, Tenant, at Tenant's expense, shall take commercially reasonable steps to reduce such vibration or noise.
11. Inspection
Provided Landlord has given Tenant reasonable advance notice (except in an
emergency when notice will not be required), Tenant will permit Landlord, or
its agents or other representatives, to enter the Premises, without charge
therefor to Landlord and without diminution of the Rent payable by Tenant, to
examine, inspect and protect the Premises and the 903 Building and to make such
reasonable repairs as Landlord is required to make under this Lease, or to
exhibit the same to prospective tenants during the last one hundred eighty
(180) days of the Term. Any inspection under this Section that is not an
emergency shall be during Tenant's ordinary business hours, Monday through
Friday, 9:00 a.m.- 6:00 p.m. Landlord shall use reasonable commercial efforts
to minimize any disruption to Tenant's operations caused by Landlord's presence
in the Premises.
12. Insurance
A. Insurance Rating
Tenant will not conduct or permit to be conducted, any activity, or place any equipment in or about the Premises or the Building that may reasonably be expected to invalidate the insurance coverage in effect or increase the rate of fire insurance or other hazard insurance on the Building. If any invalidation of coverage or increase in the rate of "all risk" insurance is stated by Landlord's insurance company to be due to any activity or equipment of Tenant in or about the Premises or the Building, such statement shall be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Tenant shall be liable for such increase and shall reimburse Landlord thereof upon demand and any such sum shall be considered additional rent payable with the monthly installment of Rent next becoming due. Landlord represents and warrants to Tenant that the use of the Premises set forth in Section 5 above will not invalidate Landlords' insurance or increase Landlord's insurance premiums.
B. Required Insurance
(i) Tenant shall carry commercial general liability insurance in a company or companies licensed to do business in the Commonwealth of Virginia and reasonably approved by Landlord. Said insurance shall be in the amount of One Million and No/100 Dollars ($1,000,000.00) and shall name Landlord as an additional insured, as its interest may appear. Landlord shall carry "all risk" insurance insuring the full replacement value of the Building (excluding excavations and foundations). If
required by Landlord, receipts evidencing payment for said insurance shall be delivered to Landlord at least annually by Tenant and each policy shall contain an endorsement that will prohibit its cancellation prior to the expiration of fifteen (15) days after notice of such proposed cancellation to Landlord.
(ii) Notwithstanding anything to the contrary set forth elsewhere in this Lease, neither party shall be liable to the other or to any insurer (by way of subrogation or otherwise) for any loss or damage, even though such loss or damage may have been occasioned by the negligence of such party, if such loss was covered by an insurance policy containing an endorsement to the effect that any such release by the insured shall not adversely affect the insured's right to recover for such loss, and that the insurer waives its right of subrogation.
13. Services and Utilities
A. Landlord will furnish air-conditioning during the season of the year when air-conditioning is reasonably required and heat during the season of the year when heat is reasonably necessary sufficient (together, "HVAC") to meet Tenant's reasonable needs. Landlord will provide Tenant HVAC so that the temperature in the Premises does not exceed seventy-five degrees (75 degrees) Fahrenheit with fifty percent (50%) relative humidity in the summer and is not lower than sixty-eight degrees (68 degrees) Fahrenheit in the winter during Tenant's hours of operation (as defined in Section 13.D below). During the Term, Landlord, at its expense and subject to the conditions set forth herein, shall maintain a service contract for the HVAC system with Harvey W. Hottel, Inc. ("Hottel"). Landlord shall be required to maintain a service contract with Hottel only so long as, in Landlord's reasonable opinion, (i) Hottel is maintaining the HVAC system in a first-class manner, and (ii) the cost of Hottel's services is commercially reasonable when compared to similar maintenance contracts available to Landlord from reputable and qualified servicers of commercial HVAC systems in Northern Virginia. If Landlord ceases to maintain a service contract with Hottel based on the criteria set forth in the preceding sentence, Landlord thereafter shall maintain an HVAC service contract with a reputable and qualified servicer of commercial HVAC systems. Landlord will provide electricity, water and sewer sufficient for Tenant's reasonable needs. Landlord shall provide at least one (1) automatically operated elevator twenty-four (24) hours a day, seven (7) days a week throughout the Term. It is understood and agreed that Landlord shall not be liable for failure to furnish, or for delay, suspension or reduction in furnishing, any of the utilities or services required to be furnished by Landlord hereunder if such failure, delay, suspension or reduction is caused by breakdown, maintenance, repairs, strikes, scarcity of labor or materials, acts of God, Landlord's compliance with governmental regulation, legislation, or judicial or administrative orders, or from any other cause whatsoever beyond Landlord's reasonable control, which causes shall not include the failure or inability to pay money; provided, however that Landlord shall, in the event of a breakdown or a reduction in services or utilities, use reasonable diligence to restore such utilities and services. Notwithstanding anything to the contrary
set forth in the preceding sentence, if any services or utilities that Landlord is required by this Lease to provide are disrupted or reduced for any reason for three (3) or more consecutive days and such disruption or reduction deprives Tenant of the use of all or any portion of the Premises, then, from the date of such disruption or reduction until such time as the entire Premises are available for Tenant's use, Rent shall be abated according to the percentage of the Premises that Tenant is unable to use as a result of such disruption or reduction.
B. For purposes of this Section, Tenant's hours of operation shall be Monday through Saturday from 7:00 a.m. to 10:30 p.m. Landlord shall provide Tenant with after-hours HVAC service (i.e., service during hours other than Tenant's hours of operation) at no charge. Tenant will provide Landlord with at least twenty-four (24) hours advance notice of its need for after-hours HVAC service. Tenant shall use reasonable commercial efforts to conserve on utility costs for the Premises by engaging in prudent energy management measures.
14. Liability of Landlord
A. Liability
(i) Except as otherwise set forth in this Lease, Landlord shall not be liable to Tenant for any damage, compensation or claim arising from the necessity of repairing any portion of the Premises or the Building, the interruption in the use of the Premises, accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons whatsoever) of elevators or heating, cooling, electrical or plumbing equipment or apparatus, or the termination of this Lease by reason of the destruction of the Premises, or from any fire, robbery, theft, mysterious disappearance and/or any other casualty, or from any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from, any part of the Premises or the Building, or from drains, pipes or plumbing work in the Building, or from any other cause whatsoever, or for any personal injury arising from the use, occupancy and condition of the Premises, unless any of the foregoing is caused by the negligence of Landlord or its agents, employees or contractors, or a willful act or failure to act on the part of Landlord or its agents, employees or contractors. Tenant shall not be entitled to any abatement or diminution of Rent as a result of any of the foregoing occurrences, unless any of the foregoing is caused by the negligence of Landlord or its agents, employees or contractors or a willful act or failure to act on the part of Landlord or its agents, employees or contractors. Any goods, property or personal effects of Tenant stored or placed in or about the Premises or the Building shall be at its risk, and Landlord shall not in any manner be held responsible therefor, unless due to negligence of Landlord or its agents, employees or contractors, or a willful act or failure to act by Landlord or its agents, employees or contractors. The employees of Landlord are prohibited from receiving any packages or other articles delivered to the Building by or for Tenant, and if any such employee receives any such package or articles, such employee shall be the agent of Tenant for such purposes and not of
Landlord. Tenant acknowledges that Landlord will not carry insurance on Tenant's furniture, furnishings, fixtures and equipment.
(ii) Except for damages resulting from the negligence or willful misconduct of Tenant or Tenant's invitees, Tenant shall not be liable to Landlord, its employees, agents or other invitees for any damage, compensation, claim or expense arising from (i) damage or loss to the property of Landlord or others located anywhere in the Building (other than the Premises), or (ii) death, accident or injury to persons occurring anywhere in the Building (other than the Premises).
(iii) Notwithstanding anything to the contrary in this Lease, neither party shall be liable to the other for any loss or damage to property that is either covered by insurance or that such party is required to insure under this Lease. The parties shall look to their respective property damage or business interruption insurance policies, and not to each other, or each other's agents or employees, for any loss incurred as a result of damage to property or interruption of business.
B. Indemnity
(i) Tenant hereby agrees to indemnify and hold Landlord harmless from and against any cost, damage, claim, liability or expense (including reasonable attorney's fees) incurred by or claimed against Landlord, directly or indirectly, that is occasioned by or results from any default by Tenant hereunder or any negligent act on the part of Tenant, or as a result of or in any way arising from Tenant's use and occupancy of the Premises or in any other manner which relates to the business of Tenant; provided, however, that the foregoing indemnity shall not apply with respect to any claim which arises in whole or in part out of the negligence or willful misconduct of Landlord, its agents, employees or contractors. In such event, Landlord shall be required to mitigate damages. Any such cost, damage, claim, liability or expense incurred by Landlord for which Tenant is obligated to reimburse Landlord shall be deemed additional rent due and payable in accordance with Section 18.D hereof. It is expressly understood and agreed that Tenant's liability under this Lease extends to the acts and omissions of any subtenant and any agent, employee or contractor.
(ii) Landlord shall protect, defend, indemnify and hold Tenant harmless from and against all claims for loss of life or injury to person or property arising from or out of any occurrence in the Building (other than the Premises) unless caused by the negligence or willful misconduct of Tenant or its agents, employees or contractors.
15. Rules and Regulations; Compliance with Laws
A. Tenant shall at all times abide by and observe the rules and regulations attached hereto as Exhibit D. In addition, Tenant shall abide by and observe such other reasonable rules and regulations as may be promulgated from time to time by Landlord, with a copy sent to Tenant, for the operation and maintenance of the Building; provided, however, that the same shall be in
conformity with common practice and usage in similar buildings and shall not be inconsistent with the provisions of this Lease. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce such rules and regulations, or the terms, conditions or covenants contained in any other lease, as against any other tenant, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents, contractors, invitees, licensees, customers, clients, family members or guests. If there is any inconsistency between this Lease and any current or future rules and regulations, this Lease shall govern. Notwithstanding the foregoing, Landlord agrees to protect and defend Tenant's right of quiet enjoyment as covenanted in Section 21.A. Landlord agrees that any and all changes in rules and regulations shall also be made to apply to any other Tenant.
B. Subject to Paragraph 5 of Exhibit B and except as set forth herein, Landlord shall comply with all present and future laws and regulations applicable to the structure and operation of the Building, including, without limitation, any laws or regulations, now or hereafter enacted or promulgated by governmental authorities, applying to life safety systems, handicapped access and the removal of asbestos or hazardous or toxic waste or materials (other than hazardous or toxic waste or materials the presence of which is attributable to Tenant). Tenant at its expense shall comply with all present and future laws and regulations applicable to Tenant's use of the Premises as a school or university.
16. Damage; Condemnation
A. Damage to the Premises
If the Premises shall be partially damaged by fire or other casualty, this Lease shall not be terminated and Landlord shall, after such damage occurs, repair such damage, at the expense of Landlord (taking into account unavoidable delays caused by strikes, acts of God, lockouts, labor difficulties, riots, explosions, sabotage, mechanical breakdowns, accidents, governmental restrictions, enemy action, civil commotion or any other cause or reason whatsoever beyond the reasonable control of Landlord, which conditions shall not include the failure or inability to pay money); provided, however, that if the Premises or the 903 Building is damaged by fire or other casualty to such extent that the damage cannot be fully repaired within one hundred eighty (180) days from the date the damage occurs, Landlord or Tenant, upon written notice one to the other, shall have the option to terminate this Lease, and the Term shall terminate ten (10) days after such notice is given, in which event the Rent shall be apportioned and paid to the date of such damage. During the period that Tenant is deprived of the use of the damaged portion of the Premises, Tenant shall be required to pay Rent (as set forth in Section 3) covering only that part of the Premises that Tenant is able to occupy.
B. Condemnation
If the whole or a substantial part (as hereinafter defined) of the Premises (or use or occupancy of the Premises) shall be taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose, then the terms of this Lease shall cease and terminate as of the date when title vests in such governmental or quasi-governmental authority. If less than a substantial part of the Premises is taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose, the Rent shall be equitably adjusted (on the basis of the number of square feet before and after such event) on the date when title vests in such governmental or quasi-governmental authority and the Lease shall otherwise continue in full force and effect. Tenant shall have no claim against Landlord (or otherwise) and hereby agrees to make no claim against the condemning authority for any portion of the amount that may be awarded as damage as a result of any governmental or quasi-governmental taking for condemnation or for the value of any unexpired Term of the Lease; provided, however, that Tenant may claim an award for lost profits, moving expenses and the value of its leasehold improvements. For purposes of this Section 16.B, a substantial part of the Premises shall be considered to have been taken if more than fifty percent (50%) of the Premises are unusable by Tenant as a direct result of such taking. If between thirty percent (30%) and fifty percent (50%) of the Premises are unusable by Tenant as a direct result of such taking, then Tenant shall have the election to stay or move, such election to be exercised by written notice given by Tenant to Landlord as soon as practicable after the final and binding award is rendered. Upon gaining knowledge of any condemnation proceeding under this Section, Landlord shall give written notice of such proceeding to Tenant.
17. Bankruptcy
A. Events of Bankruptcy
The following shall be "Events of Bankruptcy" under this Lease:
(i) Tenant's becoming insolvent, as that term is defined in Title 11 of the United States Code, entitled Bankruptcy, 11 U.S.C. 101 et seq. (the "Bankruptcy Code"), or under the insolvency laws of any State, District, Commonwealth or Territory of the United States (the "Insolvency Laws");
(ii) The appointment of a receiver or custodian for all or a substantial portion of Tenant's property or assets, or the institution of a foreclosure action upon all or a substantial portion of Tenant's real or personal property;
(iii)The filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws;
(iv) The filing of an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, that is either not dismissed within sixty (60)
days of filing, or results in the issuance of an order for relief against the debtor, whichever is later; or
(v) Tenant's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors.
B. Landlord's Remedies
(i) Termination of Lease
Upon the occurrence of an Event of Bankruptcy, Landlord shall have the right to terminate this Lease by giving written notice to Tenant, whereupon Tenant shall be immediately obligated to quit the Premises within five (5) days of receipt of written notice pursuant to this Section 17.B.(i). Any other notice to quit, or notices of Landlord's intention to re-enter is hereby expressly waived. If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, subject, however, to the right of Landlord to recover from Tenant all Rent and any other sums accrued up to the time of termination or recovery of possession by Landlord, whichever is later, and any other monetary damages or loss of reserved Rent sustained by Landlord; provided, however, and notwithstanding the foregoing or the further remedies set forth in this Section 17.B, Landlord shall not have the right to terminate this Lease while a case in which Tenant is the subject debtor under the Bankruptcy Code is pending, unless Tenant or Tenant's trustee in bankruptcy is unable to comply with the provisions of Section 17.B.(v), (vi) and (vii) below.
(ii) Suit for Possession
Upon termination of this Lease pursuant to Section 17.B.(i), Landlord may proceed to recover possession under and by virtue of the provisions of the laws of the Commonwealth of Virginia.
(iii) Reletting of Premises
Upon termination of this Lease pursuant to Section 17.B.(i), Landlord shall have the option to relet the Premises for such Rent and upon such terms as are not unreasonable under the circumstances and, if the full rental reserved under this Lease (and any of the reasonable costs, reasonable expenses or direct and actual damages indicated below) shall not be realized by Landlord, Tenant shall be liable for all direct and actual damages sustained by Landlord, including, without limitation, deficiency in rent, reasonable attorneys' fees, brokerage fees and expenses of placing the Premises in rentable condition. Landlord, in putting the Premises in such condition or preparing the same for re-rental may, at Landlord's option, make such reasonable alterations, repairs, or replacements in the Premises as Landlord, in its reasonable judgment, considers advisable and necessary for the purpose of reletting the Premises, and the making of such alterations, repairs, or replacements shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall be required to mitigate damages.
(iv) Acceleration of Payments. If Tenant fails to pay any monthly
installment of Rent within twenty (20) days after such Rent is due three (3)
consecutive times or three (3) times in a period of six (6) consecutive months,
then Landlord, by written notice to Tenant, may declare the Rent reserved under
this Lease for the next six (6) months [or at Landlord's option, fewer than six
(6) months] to be due and payable within thirty (30) days after such notice.
Any Rent so accelerated shall be applied by Landlord to the Rent as it becomes
otherwise payable hereunder.
(v) Monetary Damages
Any damage or loss of Rent sustained by Landlord as a result of an Event of Bankruptcy may by recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or at Landlord's option, in a single proceeding deferred until the expiration of the Term (in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of said Term) or in a single proceeding prior to either the time of reletting or the expiration of the Term, in which event Tenant agrees to pay Landlord the difference, if any, between the present value of the Rent reserved under this Lease on the date of breach, discounted at eight percent (8%) per annum, and the fair market value determined by the Bankruptcy Court, of the Lease on the date of breach. In the event Tenant becomes the subject debtor in a case under the bankruptcy Code, the provisions of this Section 17.B.(iv) may be limited by the limitations of damage provisions of the Bankruptcy Code.
(vi) Assumption or Assignment by Trustee
In the event Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease pursuant to this Section 17 shall be subject to the rights of the Trustee in bankruptcy to assume or assign this Lease. The Trustee shall not have the right to assume or assign this Lease unless the Trustee: (A) cures, or provides adequate assurance that the Trustee will promptly cure, such default; (B) compensates, or provides adequate assurance that the Trustee will promptly compensate, a party other than Tenant for any actual pecuniary loss to Landlord resulting from such default; and (C) provides adequate assurance of future performance (as hereinafter defined) under this Lease.
(vii) Adequate Assurance of Future Performance
Landlord and Tenant hereby agree in advance that the phrase "adequate assurance of future performance", as used in this Section 17.B., shall mean that all of the following minimum criteria must be met: (A) the Trustee must agree that Tenant's business shall be conducted in a first class manner, and that no liquidation sales, auctions, or other non-first class business operations shall be conducted on the Premises; (B) the Trustee must agree that the use of the Premises as stated in this Lease will remain unchanged; and (C) the Trustee must agree that the
assumption or assignment of this Lease will not violate or affect the rights of other tenants in the Building.
(viii) Failure to Provide Adequate Assurance
In the event Tenant is unable: (A) to cure its defaults, (B) to
reimburse Landlord for its monetary damages, (C) to pay when due the Rent due
under this Lease, or (D) to meet the criteria and obligations imposed by
Section 17.B.(vi) above, then Tenant agrees in advance that it has not met its
burden to provide adequate assurance of future performance, and this Lease may
be terminated by Landlord in accordance with Section 17.B.(i) above.
(ix) Notwithstanding the foregoing, Tenant's rights under the Federal Bankruptcy Code, as amended, or any other name under which it shall be known, shall not be prejudiced.
18. Default
A. Tenant's Events of Default
The following shall be "Events of Default" under this Lease:
(i) If Tenant shall fail to make timely any payment required under this Lease and such failure continues for a period of ten (10) days after Landlord's written notice thereof to Tenant; or
(ii) If Tenant shall violate or fail to perform any of the other terms, conditions, covenants or agreements herein made by Tenant, and such violation or failure continues for a period of thirty (30) days after Landlord's written notice thereof to Tenant. Notwithstanding anything to the contrary contained in subparagraph (ii) of the immediately preceding sentence, Tenant shall not be in default under such subparagraph if the default thereunder is of such a nature that it cannot be cured within the thirty (30) day period provided for therein so long as Tenant shall commence to cure such default within such thirty (30) day period and shall thereafter diligently and continuously prosecute the curing of such default.
B. Landlord's Remedies
Should any Event of Default occur under this Lease, Landlord may pursue any or all of the following remedies:
(i) Termination of Lease
Landlord may terminate this Lease, by giving written notice of such termination to Tenant, whereupon this Lease shall automatically cease and terminate and Tenant shall be immediately obligated to quit the Premises. Any other notice to quit or notice of Landlord's intention to re-enter the Premises is hereby expressly waived. If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice; provided,
however, that Landlord shall (a) have the right to recover from Tenant all Rent and any other sums accrued up to the time of termination or recovery of possession by Landlord, whichever is later, and (b) act in a commercially reasonable manner to mitigate its damages;
(ii) Suit for Possession
Upon termination of this Lease pursuant to Section 18.B.(i), Landlord may proceed to recover possession of the Premises under and by virtue of the provisions of the laws of the Commonwealth of Virginia;
(iii) Reletting of Premises
Should this Lease be terminated by reason of Tenant's default as hereinabove provided, Landlord shall have the option to relet the Premises for such Rent and upon such terms as are commercially reasonable, and, if the full rental reserved under this Lease (and any of the reasonable costs, reasonable expenses or direct and actual damages indicated below) shall not be realized by Landlord, Tenant shall be liable for all direct and actual damages sustained by Landlord, including, without limitation, deficiency in rent, reasonable attorneys' fees, reasonable brokerage fees and reasonable expenses of placing the Premises in rentable condition. Landlord shall be required to mitigate damages. Landlord, in preparing the Premises for re-rental may, at Landlord's option, make such alterations, repairs or replacements in the Premises as Landlord, in its reasonable judgment, considers advisable and necessary for the purpose of reletting the Premises, and the making of such alterations, repairs or replacements shall not operate or be construed to release Tenant from liability hereunder as aforesaid;
(iv) Acceleration of Payments
[INTENTIONALLY DELETED.]
(v) Monetary Damages
Any actual and direct damage or loss of Rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or at Landlord's option in a single proceeding deferred until the expiration of the Term (in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of said Term) or in a single proceeding prior to either the time of reletting or the expiration of the Term; or
(vi) Cumulative Remedies
Mention in this Lease of any particular remedy shall not preclude Landlord or Tenant from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises, by
reason of the violation by Tenant of any of the covenants and conditions of this Lease. Tenant does not waive any rights it may have under this Lease.
C. Waiver
If, under the provisions hereof, Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of any other covenant, condition or agreement herein contained nor of any of Landlord's rights hereunder except as specifically compromised and settled. No waiver by either party of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of such covenant, condition or agreement itself, or of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installments of Rent payable hereunder shall be deemed to be other than on account of the earliest payable Rent, nor shall any endorsement or statement on any check or letter accompanying a check for payment of Rent deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue any other remedy provided in this Lease. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of the Lease.
D. Right of Landlord to Cure Tenant's Default
If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord, following such notice and opportunity to cure as is required by Section 18.A, may, but shall not be required to, make such payment or do such act, and charge the amount of the expense thereof, if made or done by Landlord, with interest thereon at the rate per annum that is two percent (2%) greater than the "prime rate" then in effect at Citibank, N.A., New York, New York (the "Penalty Rate"), from the date paid by Landlord to the date of payment thereof by Tenant; provided, however, that nothing herein contained shall be construed or implemented in such a manner as to allow Landlord to charge or receive interest in excess of the maximum legal rate then allowed by applicable law. Such payment and interest shall constitute additional rent hereunder due and payable with the next monthly installment of Rent.
E. Late Payment
If Tenant fails to pay an installment of Rent and/or additional rent on or before the tenth (10th) day of the calendar month in which such installment becomes due and payable, Tenant shall pay to Landlord a late charge of four percent (4%) of the amount of such installment. Such late charge shall constitute additional rent hereunder due and payable with the next monthly installment of rent due.
19. Holding Over
In the event that Tenant shall not immediately surrender the Premises on the Lease Expiration Date, Tenant shall, by virtue of
the provisions hereof, become a tenant by the month. In such event unless Landlord has given its written consent to a monthly tenancy Tenant shall be required to pay one hundred fifty percent (150%) of the Basic Rent required under Section 3.A(i) hereof, together with all additional rent in effect during the last month of the Term. Such monthly tenancy shall commence with the first day next after the expiration of the Term. Except as otherwise provided above with respect to the payment of rent, Tenant shall, as a monthly tenant, be subject to all of the terms, conditions, covenants and agreements of this Lease, Tenant shall give Landlord at least thirty (30) day's written notice of any intention to quit the Premises, and Tenant shall be entitled to thirty (30) days' written notice to quit the Premises; provided, however, that if Tenant is in default hereunder, Tenant shall not be entitled to any notice to quit, the usual thirty (30) day's notice to quit being hereby expressly waived. Notwithstanding the foregoing provisions of this Section 19, in the event that Tenant shall hold over after the expiration of the Term, and if Landlord shall desire to regain possession of the Premises promptly at the expiration of the Term, then at any time prior to Landlord's acceptance of Rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any legal process available in the Commonwealth of Virginia.
20. Security Deposit
Landlord hereby acknowledge the prior receipt from Tenant of the sum of
Eighteen Thousand Four Hundred Forty and Twenty-Six Hundredths Dollars
($18,440.26) as a security deposit. The security deposit shall bear interest
from the Lease Commencement Date until returned to Tenant pursuant to this
Section 20 at the passbook savings rate and shall be considered as security
for the payment and performance by Tenant of all of Tenant's obligations,
covenants, conditions and agreements under the Lease. If Tenant is not in
default under the terms hereof, beginning in the thirty-seventh (37th) month of
the Term, at Tenant's sole discretion, Tenant may apply such security deposit
plus accrued interest to Tenant's rental obligations as set forth in Section 3
less such portion thereof as Landlord shall have retained to make good any
default by Tenant with respect to any of Tenant's aforesaid obligations,
covenants, conditions or agreements. In the event of any default by Tenant
hereunder during the Term, Landlord shall have the right, but shall not be
obligated, to apply all or any portion of the security deposit plus any accrued
interest to cure such default, in which event Tenant shall be obligated
promptly after written notice to deposit with Landlord the amount necessary to
restore the security deposit to the amount held by Landlord immediately prior
to such advance by Landlord. In event of the sale or transfer of Landlord's
interest in the Building, Landlord shall have the right to transfer the
security deposit to the purchaser or transferee, in which event Tenant shall
look only to the new landlord for the return of the security deposit and
Landlord shall thereupon be released from all liability to Tenant for the
return of such security deposit.
21. Covenants of Landlord
A. Quiet Enjoyment
Landlord covenants that it has the right to make this Lease for the Term aforesaid, and that if Tenant shall pay the Rent and perform all of the covenants, terms, conditions and agreements of this Lease to be performed by Tenant, Tenant shall, during the Term hereby created, freely, peaceably and quietly occupy and enjoy the full possession of the Premises without molestation or hindrance by Landlord or any party claiming through or under Landlord, subject to the provisions of Section 21.B. Landlord recognizes that Tenant's business is dependent on the absence of intrusive noise, and Landlord agrees to make every reasonable effort to preserve quiet in the Premises. Specifically, Landlord agrees not to permit the installation of noisy equipment in any space contiguous to the Premises that Landlord leases in the future.
B. Reservation
Landlord hereby reserves to itself and its successors and assigns the following rights (all of which are hereby consented to by Tenant): (i) to erect, use and maintain pipes and conduits in and through the plenum of the Premises, and (ii) to grant to anyone the exclusive right to conduct any particular business or undertaking in the 903 Building that is in keeping with a first class office building in Arlington, Virginia. Landlord may exercise any or all of the foregoing rights without being deemed to be guilty of an eviction, actual or constructive, or a disturbance or interruption of the business of Tenant or Tenant's use or occupancy of the Premises. In the event of any sale or transfer by the then Landlord hereunder of the Building, the landlord whose interest is sold or transferred shall be and hereby is completely released and forever discharged from and in respect of all covenants, obligations and liabilities as landlord hereunder accruing after the date of such sale or transfer; provided, however, that as conditions precedent to such release or discharge, (i) Landlord, prior to the consummation of any sale or transfer, shall have given actual notice of the existence or this Lease, as then amended, to such purchaser or transferee, and shall deliver a copy of the Lease, as then amended, to such purchaser or transferee, (ii) and such purchaser or transferee shall assume Landlord's obligations under this Lease in writing. Landlord hereby agrees to indemnify and hold Tenant harmless from and against any cost, damage, claim, liability or expense (including reasonable attorney's fees) incurred by or claimed against Tenant, directly or indirectly, that is occasioned by or results from any defaults by Landlord in giving such notice. This Lease shall not be affected by any such sale or transfer, and the successor Landlord shall accept this Lease and be bound by its terms, and tenant agrees to attorn to such successor-landlord.
22. Parking
Without additional cost, Tenant shall have the right to use ninety (90) parking spaces in the Garage throughout the Term and any Extension Term. During the Term and the Extension Term,
Landlord shall not reduce the total number of parking spaces available in the Garage.
23. Miscellaneous
A. No Representations by Landlord
Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are acquired by Tenant except as herein expressly set forth. Subject to Section 7, Tenant will accept occupancy of the Premises entirely "As Is" except as provided in Exhibit B.
B. No Partnership
Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of Landlord and Tenant.
C. Estoppel Certificate
Tenant agrees, at any time and from time to time during the Term,
upon not less than twenty (20) days prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing that shall
contain substantially the following provisions: (i) a statement that this Lease
is unmodified and in full force and effect (or if there have been
modifications, that the Lease is in full force and effect as modified and
stating the modifications), (ii) a statement of the dates to which the Rent and
any other charges hereunder have been paid by Tenant, (iii) a statement of
whether or not, to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease,
and if so, specifying each such default of which Tenant may have knowledge,
(iv) a statement of the address to which notices to Tenant should be sent, (v)
a statement that Tenant accepts the Premises and the improvements therein, if
true, and (vi) such other statements pertaining to the status of the Lease as
Landlord, any prospective purchaser of the Building or the Land, any mortgagee
or prospective mortgagee of the Building or the Land or of Landlord's interest
in either and/or any prospective assignee of any such mortgagee, may reasonably
request. Any such statement delivered pursuant hereto, may be relied upon by
any owner of the Building or the Land, any prospective purchaser of the
Building or the Land, any mortgagee or prospective mortgagee of the Building or
the Land or of Landlord's interest in either, or any prospective assignee of
any such mortgagee.
Landlord, within twenty (20) days after a request therefor, shall deliver to Tenant an estoppel certificate pertaining to the status of the Lease.
D. Days - Calendar Days
Unless the context specifically provides to the contrary, any reference to days in this Lease refers to calendar days, including holidays and weekends.
E. Liability
It is expressly understood and agreed that the liability of Landlord to Tenant under this Lease is restricted solely to the assets of the limited partnership that owns the Land and the Building and that the partners thereof shall have no personal liability under this Lease.
F. Notices
All notices or other communications hereunder shall be in writing and shall be deemed duly given if delivered in person (with receipt therefor) or by certified or registered mail, return receipt requested, first class postage prepaid, (i) if to Landlord at GLM - Highland Building Limited Partnership, Suite 705, 2600 Virginia Ave., NW, Washington, D.C. 20037, and (ii) if to Tenant, at 903 South Highland Street, Arlington, Virginia 22204 Attn: Mr. Ron K. Bailey, unless notice of change of address is given pursuant to the provisions of this Section 23.F. If notice is served by mail, notice shall be deemed duly served on the date stamped on the receipt.
G. Invalidity of Particular Provisions
If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
H. Gender and Number
Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution.
I. Benefit and Burden
The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns. Landlord may freely and fully assign its interest hereunder.
J. Subordination
(i) This Lease is subject and subordinate to the lien of all and any mortgages (which term "mortgages" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) that may now or hereafter encumber or otherwise affect the Land and Building of which the Premises form a part, or Landlord's
leasehold interest therein, and to all and any renewals, extensions, modifications, recasting or refinancing thereof. Tenant agrees that in the event that any proceedings are brought for the foreclosure of any such mortgages, Tenant shall attorn to the purchaser at such foreclosure sale, if requested to do so by such purchaser, and shall recognize such purchaser as the landlord under this Lease, and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, that may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event that any such foreclosure proceeding is prosecuted or completed. Further, any purchaser, assignee, and mortgagee shall be required to recognize this Lease.
(ii) Notwithstanding anything to the contrary set forth in the preceding paragraph, this Lease shall not be subordinate to any ground or underlying lease or to the lien of any mortgage, deed of trust or other encumbrance (each, a "Mortgage") until and unless the parties to such Mortgage acknowledge in writing that Tenant's interest in the Premises and its rights under this Lease shall not be disturbed so long as Tenant is not in default under this Lease. Landlord shall keep each such Mortgage in full force and effect and shall not permit any default thereunder. Tenant's obligation to pay Rent under this Lease is conditioned upon Landlord obtaining a nondisturbance agreement in form and substance reasonably satisfactory to Tenant (a "Nondisturbance Agreement") from the parties to any Mortgages in existence prior to the Lease Commencement Date. Landlord shall use reasonable commercial efforts to obtain, (i) prior to the time this Lease is executed, a Nondisturbance Agreement from any lender whose interest is secured by a Mortgage as of the date this Lease is executed, and (ii) a Nondisturbance Agreement from any future lender whose interest is secured by a Mortgage on the Building.
K. Entire Agreement
This Lease, together with Exhibits A through D attached hereto, contains and embodies the entire agreement of the parties hereto, and no representations, inducements or agreements between the parties, oral or otherwise, not contained in this Lease and the Exhibits, shall be of any force or effect. This Lease may not be modified, changed or terminated in whole or in part in any manner other than by an agreement in writing duly signed by both parties hereto.
L. Common Areas
Tenant, its agents, employees, contractors and invitees shall have the right to use the common areas of the Building in common with other tenants of the Building and their agents, employees, contractors and invitees.
M. Leasing Commission. Landlord and Tenant each represents and warrants to the other that, except for The Fred Ezra Company ("Ezra"), neither of them has employed any broker in carrying on the negotiations relative to this Lease or otherwise in connection with this Lease. Landlord and Tenant shall each indemnify and hold harmless the other from and against any claim
or claims for brokerage or other commission arising from such party having
employed a broker (other than Ezra) contrary to its representation in this
Section 23.M. Landlord recognizes that FE is entitled to the payment of a
commission for services rendered in the negotiation and obtaining of this
Lease, and Landlord has agreed to pay such commission pursuant to a separate
agreement.
24. Consent of Landlord
Whenever in this Lease Landlord's consent is a prerequisite of an action by Tenant, such consent shall not be unreasonably withheld or delayed.
25. Choice of Law
This Lease shall be construed, interpreted and determined in accordance with the laws of the Commonwealth of Virginia.
26. Options to Extend
A. Extension Terms; Rent per Square Foot
(i) Tenant shall have the option to extend the Term for two (2) additional consecutive periods of five (5) years each (the "Extension Terms") commencing immediately following the expiration of the initial Term and (with respect to the second Extension Option) immediately following the expiration of the initial five-year Extension Term, at the Rent per Square Foot for the Premises set forth herein. (Each of the options referred to in the preceding sentence shall be referred to hereafter as an "Extension Option".) The Rent per Square Foot for both Extension Terms shall be ninety percent (90%) of the "Fair Market Rent per Square Foot" [as defined in subsection (ii) of this Section 26.A]. Commencing with the second Lease Year of each such Extension Term, the Rent per Square Foot shall be an amount equal to one hundred two percent (102%) of the Rent per Square Foot for the immediately preceding Lease Year
(ii) The "Fair Market Rent per Square Foot" shall mean the prevailing fair market rental rate (including prevailing fair market tenant concessions being offered by landlords as of the commencement of the applicable Extension Term) for leases of comparable size in buildings of similar age, quality and location as the Building and with tenants of comparable creditworthiness as Tenant ("Comparable Leases"). The Fair Market Rent per Square Foot shall be reduced to a net effective rent by adjusting such rent to reflect the value of any rent abatement, build-out allowances or other tenant concessions offered in connection with such rent. For a period of forty-five (45) days following Tenant's exercise of its renewal option, the parties shall attempt in good faith to agree on the Fair Market Rent per Square Foot. If the parties are unable to agree, the parties shall use the method for determining the Rent per Square Foot set forth in Section 26.B below.
B. If the parties are unable to agree on the Fair Market Rent per Square Foot, the Fair Market Rent per Square Foot shall be determined as set forth in this Section 26.B, provided, however, that in no event shall the Fair Market Rent per Square Foot payable during the first Lease Year of the first or second Extension Term be less than one hundred two percent (102%) of the Rent per Square Foot payable during the last Lease Year of the original Term or the first Extension Term, respectively. Within ten (10) days after expiration of the 45-day negotiating period described in Section 26.A(ii) above, each party will designate a licensed real estate broker with at least five (5) years' experience in commercial office building leasing in Arlington, Virginia (an "Appraiser" or the "Appraisers"). The two (2) Appraisers shall together select a third (3rd) Appraiser within five (5) days after their selection. Within twenty-five (25) days after all three (3) Appraisers have been chosen, each shall render his opinion as to the Fair Market Rent per Square Foot, using the definitions and criteria set forth in Section 26.A above. The disputed Fair Market Rent per Square Foot shall be the average of the amounts determined by all three (3) Appraisers. Notwithstanding the foregoing, if any of the three (3) appraisals is either ten percent (10%) greater or less than the average of the three (3) appraisals, then such appraisal shall be disregarded, and the disputed Fair Market Rent per Square Foot shall be the average of the two other appraisals. If two (2) of the appraisals are either ten percent (10%) greater or less than the average of the three (3) appraisals, then both of such appraisals shall be disregarded, and the remaining appraisal alone shall be used. If all three (3) of the appraisals are either ten percent (10%) greater or less than the average of the three (3) appraisals, then the average of the three appraisals shall be used. The parties shall share equally the cost of the three (3) appraisals.
C. The Base Year for calculating Tenant's Proportionate Share of Operating Increases during the first Extension Term shall be the first Lease Year of the first Extension Term. The Base Year for calculating Tenant's Proportionate Share of Operating Increases during the second Extension Term shall be the first Lease Year of the second Extension Term.
D. Tenant shall have the right to exercise each Extension Option provided (i) this Lease is in full force and effect and Tenant is not in default under any of the material terms of this Lease, and (ii) Tenant provides written notice to Landlord of Tenant's desire to exercise the Extension Option no later than twelve (12) months prior to the expiration of the initial Term or the first Extension Term, as the case may be. If Tenant elects to finalize its exercise of the Extension Option, Tenant shall provide written notice to Landlord of Tenant's desire to finalize the Extension Option within thirty (30) days after the Fair Market Rent per Square Foot has been determined pursuant to this Section 26. If Tenant does not give Landlord such notice within this 30-day period, Tenant's exercise of its renewal option shall be deemed withdrawn.
27. Landlord's Default
If Landlord fails promptly and adequately to perform or observe any
provision contained in this Lease on its part to be performed or observed (i)
within ten (10) days after written notice in the case of a default in the
payment of money, (ii) within fifteen (15) days after written notice in the
case of a failure to provide services or to make repairs, and (iii) in all
other cases within thirty (30) days after written notice of default, unless
more than thirty (30) days shall be required because of the nature of the
default, in which case if Landlord shall fail to proceed diligently to cure
such default after notice, Landlord shall be responsible to Tenant for any and
all actual damages sustained by tenant as a result of such failure. After the
expiration of any grace period provided in the preceding sentence, Tenant, in
addition to any other right it may have at law or in equity, shall have the
right, but not the obligation, to cure any such default at Landlord's expense,
and Landlord shall be obligated to reimburse Tenant on demand for all of
Tenant's costs and expenses in connection therewith, including, but not limited
to, all costs and reasonable attorneys' fees incurred to cure such default or
breach of Lease. Notwithstanding the foregoing, Tenant shall only be entitled
to offset against Rent any claim it might have for reimbursement under this
Section 27 if Tenant has received a judgment by a court of competent
jurisdiction to this effect.
[Signatures appear on next page.]
IN WITNESS WHEREOF, Landlord and Tenant have executed this lease under seal on the day and year first hereinabove written.
GLM-HIGHLAND BUILDING LIMITED
PARTNERSHIP
By: GLM Development
Corporation,
General Partner
ATTEST:
/s/ DONNA J. WESTLUND By: /s/ WILLIAM A. DIETCH
- ----------------------- ----------------------
[Corporate Seal] William A. Dietch
Vice President
ATTEST: TENANT:
------
STRAYER COLLEGE, INC.
/S/ GLENDA S. HARDISON By: /s/ RONALD K. BAILEY
- ------------------------ --------------------
Ronald K. Bailey,
President
[Corporate Seal]
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EXHIBIT 10.08
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter referred to as "this Lease") is made this 21st day of April, 1993 by and between STRAYER COLLEGE (hereinafter referred to as "Tenant"); and ALEXANDRIA TECH CENTER I, a Virginia Limited Partnership (hereinafter referred to as "Landlord"); as follows:
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, for the term, or terms, and under the covenants and conditions hereinafter set forth, the real property situate and lying in the City of Alexandria, Virginia being identified as Landlord's building (hereinafter referred to as "the Premises") located at 2730 Eisenhower Avenue, Alexandria, Virginia and consisting of two stories containing approximately 21,948 square feet of space in the Alexandria Tech Center. The Premises and the parcel of land on which the Building is situated and any other improvements thereon herein referred to collectively as the "Property." The Property is further identified as Parcel 7100-02-04-01-4 as duly dedicated, platted and recorded in Deed Book 1143, page 46 in Deed Book 1144, page 1330 among the land records of the City of Alexandria, Virginia.
2. TERM. The term of this Lease shall be five (5) years commencing on June 15, 1993 and expiring on June 14, 1998.
3. RENT.
(a) Basic Rent-Original Term. Tenant agrees to pay to Landlord annual basic rent in the sum of TWO HUNDRED FORTY SIX THOUSAND NINE HUNDRED FIFTEEN AND No/100 DOLLARS ($246,915.00). Basic rent shall be paid in equal monthly installments on or before the fifteenth day of each calendar month hereunder, without demand being made therefor of TWENTY THOUSAND FIVE HUNDRED SEVENTY SIX AND 25/100 DOLLARS ($ 20,576.25). Each monthly payment of rent shall be made payable to Landlord and mailed or delivered to Landlord in care of its management agent at the address set forth in Section 26 hereinbelow, or to such other person, or at such other place, as Landlord may from time to time designate in writing. The annual Basic Rent payment shall be adjusted upon notice to Tenant by Landlord, pursuant to the terms of Section 23.
(b) Payment of Rent. It is agreed and understood by all parties to this Lease that any rental payment received by the Landlord ten (10) days or more after the due date shall be subject to imposition of a late charge of five percent (5%) of the monthly rental. Said late charge, if not remitted with the delinquent rental payment, shall be due and payable with the following payment and shall be considered additional rent.
(c) Additional Rent. Tenant's Proportionate Share (as defined in Section 7) of the expenses described in Sections 7 and 8 hereof, together with any other charges or sums due to Landlord hereunder shall be deemed Additional Rent.
4. USE. The Premises are to be used for the purpose of operating an educational institution and for no other purposes whatsoever without the prior written consent of Landlord. Landlord shall obtain the occupancy permit.
5. UTILITIES. Tenant shall be solely responsible for and shall promptly pay all charges for water, sewer, heat, gas, electricity, and/or any other utility used or consumed in connection with the Premises and shall provide trash and refuse removal.
6. TAXES. Tenant agrees to pay to Landlord all of the real property, front foot benefit, metropolitan district and other similar taxes or public or private assessments (whether regular or special) levied against any or all of the Property and to pay, or cause to be paid, any and all taxes of whatever nature levied against the personal property, including trade fixtures, equipment and inventory kept on the Premises or used from the Premises; and any and all use, employee, business or other taxes incurred by Tenant's operation.
7. JANITORIAL, SERVICE & TRASH REMOVAL. Tenant shall be solely responsible for all building janitorial, cleaning services and trash removal services.
8. COMMON AREA MAINTENANCE EXPENSES. Tenant shall pay to Landlord as Additional Rent its Proportionate Share of Common Area Maintenance Expenses. Common Area Maintenance Expenses shall include the amount paid by the Landlord to Alexandria Tech Center Owner's Association for Common Area landscaping, private street and utility maintenance and repair, snow removal, labor, fees and insurance. Tenant's proportionate share of Alexandria Tech Center Owner's Association for all purposes of this Lease is currently 4.95%. Tenant's Proportionate Share will be reduced accordingly if additional Buildings are developed. Premiums on insurance and other normal operating expense, but neither payments of interest nor principal due under any mortgage or deed of trust nor any depreciation allowance shall be included among such items.
9. MAINTENANCE AND OTHER OPERATING EXPENSES.
(a) Tenant, at Tenant's cost, shall keep and maintain the interior of the Premises in good order and repair, usual wear and tear excepted. Tenant shall keep the exterior of the Premises, including the adjacent sidewalks,parking areas and trash receptacle areas, free of all trash or debris. Tenant, at Tenant's expense, shall perform all maintenance or service on all the mechanical, plumbing, electrical and heating and air conditioning and elevator equipment located in or serving the Premises and shall keep and maintain such equipment in good order and repair during the term of this Lease. Landlord warrants that all mechanical plumbing, electrical and heating and air conditioning equipment located in or servicing the Premises are in good working order, and Landlord will be responsible for any repairs required within the first 30 days after Tenant occupies the Premises.
(b) Tenant agrees to replace any plate, window or door glass broken in the Premises, with glass of like kind and quality except when said plate, window or door glass is broken by reason of defective construction of the Building, or due to negligent repair of the Building by Landlord. Tenant shall be responsible for its Proportionate Share of the cost of all common area maintenance, including, but not limited to, any public liability insurance maintained by Landlord with respect to the Property, which Proportionate Share Tenant shall pay to Landlord as Additional Rent hereunder.
(c) Tenant, at Tenant's cost, is responsible for the maintenance of the elevator emergency telephone service, building security, monitoring access system, exterminating service and Premises landscape maintenance.
10. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Landlord and Tenant acknowledge that the Premises will be improved by Landlord in preparation for the conduct of Tenant's business, as shown in Attachment 1. Tenant shall deliver to Landlord in writing all information about Tenant's floor plan, partitioning, electrical, floor loading and other requirements for the improvements to be made to the Premises. Improvements will begin on or before April 26, 1993. Landlord shall complete all of the work shown on the Approved Plans at Landlord's sole cost and expense not to exceed $263,376.00 ($12 per sq. ft. X 21,948 sq. ft.). Landlord hereby warrants to Tenant that any and all such alterations or improvements shall be made in full and complete compliance with all laws, rules, regulations, ordinances and in satisfaction of the requirements of such health and other codes as may now, or during the term or terms hereunder, be or become applicable. Any and all such alterations, additions or improvements shall be made by Landlord in a good workmanlike manner without cost to Tenant. All alterations; additions or improvements shall become the property of Landlord. Tenant shall make no further alterations, additions or improvements without Landlord's prior written consent. Unspent portions shall revert to Tenant.
11. TRADE AND OTHER FIXTURES. Tenant may install, or cause to be installed, such equipment and trade or other fixtures as are reasonably necessary for the operation of its business. Such trade or other fixtures shall remain personal property and shall be removed by Tenant at the termination of this Lease. Any damage to the Premises caused by such removal shall be repaired by Tenant or by Landlord at Tenant's expense.
12. CASUALTY DAMAGE. Upon the occurrence of any casualty, damage or destruction affecting the Premises, Tenant shall give immediate notice to Landlord. If, in the opinion of Landlord, the Premises are rendered substantially unfit for occupancy or use by any such casualty, damage or destruction, or Landlord shall decide not to rebuild or remodel the Premises, this Lease shall cease and Basic Rent and Additional Rent shall abate from the occurrence of such casualty or vacation of the Premises, whichever is later. If, in the opinion of Landlord, the Premises are not thereby rendered substantially unfit for occupancy or use, Landlord shall promptly and diligently restore so much of the Premises
as was damaged to its condition at the commencement of this Lease, exclusive of the Tenant Improvement Items, with no abatement of rent.
13. FIRE INSURANCE. Landlord shall provide, and pay the premiums for, Fire and Extended Coverage and Boiler and Machinery Insurance, to protect the Building with coverage amounts and with an insurer satisfactory to Landlord. Tenant will not do anything in or about the Premises that will contravene or affect any insurance which Landlord may place thereon. Tenant will pay as Additional Rent its Proportionate Share of the cost of such insurance upon being billed therefor by Landlord and shall pay the entire cost of any increase in the insurance premium due to Tenant's use of the Premises.
14. LIABILITY INSURANCE-HOLD HARMLESS. Landlord shall not be liable to Tenant or Tenant's employees, patrons or visitors for any damage to persons or property caused by any action, omission or negligence of Landlord, and Tenant agrees to hold Landlord harmless from all claims for any such damage; nor shall Landlord be liable for any damage to persons or property due to the Building, any other improvement located on the Property, or any part or appurtenance thereof being improperly constructed, or being or becoming out of repair, and Tenant accepts the Premises as suitable for the purposes for which the same are leased, and accepts the Building and each and every appurtenance thereof "AS IS". Additionally, Tenant hereby agrees to hold Landlord harmless in respect to any act or omission of other tenants, their agents, employees, contractors, patrons or visitors. Tenant agrees at Tenant's expense to maintain in force continuously throughout the term or terms of this Lease public liability insurance covering the Premises, with such limits as may be required by Landlord from time to time, but in any event of not less than $500,000 for each person and $1,000,000 for each occurrence with respect to bodily injury or death and $100,000 for each occurrence with respect to property damage or destruction, and shall forthwith furnish Landlord a certificate by the insurer that such insurance is in force and naming Landlord as an additional insured.
15. COMPLIANCE WITH LAWS. Tenant agrees to promptly comply with all applicable and valid laws, ordinances and regulations of any and all Federal, State, County, Municipal or other lawful authorities pertaining to the use and occupancy of the Premises.
16. ASSIGNMENT AND SUBLETTING. Tenant shall have the right to sublease or assign all or any portion of the Premises throughout the term of the lease. Any such assignment or sublease shall be subject to all of the terms and conditions of this Lease and Tenant shall remain primarily liable for the payment of the rent and the performance of all of the terms and conditions hereof. Tenant shall notify Landlord in writing of such sublease or assignment.
17. BANKRUPTCY. Should Tenant make an assignment for benefit of creditors, file for bankruptcy, or have an involuntary petition in bankruptcy filed against it, such action shall constitute a breach of this Lease, which shall automatically terminate all rights of Tenant under the Federal Bankruptcy Code (or any successor federal bankruptcy statute).
Tenant, as debtor and as debtor in possession, and any trustee who may be appointed, agree to perform each and every obligation of Tenant under this Lease, including, but not limited to, the payment of all monetary obligations hereunder, until such time as this Lease is either rejected or assumed by order of a United States Bankruptcy Court, or other federal court having jurisdiction over bankruptcy matters.
18. EMINENT DOMAIN. If all or any part of the Premises are taken under power of eminent domain or conveyed under threat of condemnation proceedings and Landlord shall determine that the remainder of the Premises is inadequate or unsatisfactory for the purposes of this Lease, then this Lease shall terminate effective as of the date Tenant is required to give up the right to occupy or use the Premises. Tenant shall have no right to make any claim against Landlord because of such termination, nor to participate in any awards.
19. ENFORCEMENT OF LEASE. If suit is brought by Landlord to enforce any covenant of this Lease or for the breach of any covenant or condition herein contained, Tenant agrees that it shall pay to Landlord a reasonable attorney's fee and court costs. Each party hereby waives its right to jury trial in any suit relating to this Lease and Tenant waives any statutory right of redemption.
20. DEFAULT. In the event Tenant shall default in the performance of any obligation hereunder requiring monetary payments or shall default in the performance of any other obligation hereunder and such default is not cured within ten (10) days of Landlord's notice to Tenant, then Landlord may enforce performance of this Lease in any manner provided by law, and/or Landlord may (i) re-enter and repossess the Premises and any and all improvements thereon and additions thereto; (ii) declare the entire balance of the rent for the remainder of the term to be due and payable, and collect such balance by any manner not inconsistent with applicable law, (iii) terminate this Lease by giving written notice of such termination to Tenant without in any way releasing Tenant from its obligation for payment of rent for the remainder of the term; and (iv) pursue any combination of such remedies and/or any other right or remedy available to Landlord. Upon a termination of this Lease by Landlord, this Lease shall cease and come to an end as if that were the day originally fixed for the expiration of the term thereof, and Landlord's agent or attorney shall have the right without further notice or demand to re-enter and remove all persons from the Premises without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or breach of covenant, or Landlord's agent or attorney may resume possession of the Premises and relet the same for the remainder of the term at the best rental such agent or attorney may obtain for the account of Tenant, who shall pay to Landlord any deficiency, and Landlord shall have a lien as security for the rent reserved upon all the goods, wares, chattels, implements, machinery, equipment, fixtures, tools and other personal property belonging to Tenant which are or may be put upon the Premises.
21. HOLDING OVER. Should Tenant hold over the Premises, or any part thereof after the expiration of the term of this Lease, unless otherwise agreed in writing, such holding over shall constitute and be construed as a tenancy from month to month only, at a monthly rental equal to current market rates to be agreed upon by both Landlord and Tenant.
22. OPTION TO RENEW. Tenant may renew this Lease for a term of three years at 95% of current market rates to be agreed upon by both Landlord and Tenant. However, the initial annual Basic rent for the renewal term for the 6th lease year, shall in no event be less than the annual Basic rent paid by Tenant during the 5th lease year.
23. RENTAL ADJUSTMENT. The annual Basic Rent, and the monthly installments thereof, shall be increased after the first year and each and every year thereafter as follows:
1st year $246,915
June '94 - May '95 2nd year $256,792
June '95 - May '96 3rd year $267,107
June '96 - May '97 4th year $277,862
June '97 - May '98 5th year $289,055
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24. SIGNS. Tenant shall have the right to install at Tenant's expense two signs as depicted on Attachment 2. One sign shall face I-495 and one sign shall be on the front of the building. Any additional signs displayed on the Property (interior and exterior) will conform to all rules, regulations and ordinances concerning signs and shall be only as approved by Landlord and installed at Tenant's expense.
25. PARKING SPACES. Landlord shall provide Tenant with 120 parking spaces at all times on the premises and an additional 150 off-site parking spaces from 5:30 p.m. to 10:30 p.m. on weekdays and from 9:00 a.m. to 4:00 p.m. on Saturdays and Sundays. Landlord shall designate such spaces and they shall be within 1,000 feet of the Premises. Tenant shall be responsible for the supervision and control of their employee and student parking to assure that their personnel and student off-site parking is limited only to the off-site parking areas designated by Landlord.
26. OPTION TO PURCHASE. At any time during the Lease Term Tenant has the option, upon six (6) months advance written notice, to purchase the Premises for cash as follows:
(a) Purchase Price - $3,100,000 during the first year of the Lease Term and increased by four percent (4%) each year thereafter, plus any unamortized costs of Tenant improvements based upon a ten (10) year, straight line amortization schedule.
(b) Off-Site Parking - In the event Tenant purchases the Premises, the Landlord will lease to Tenant 150 off-site parking spaces within 1,000 feet of the Premises for use from 5:30 p.m. to 10:30 p.m. weekdays and from 9:00 a.m. to 4:00 p.m. on Saturdays and Sundays at an annual cost of $18,000 payable monthly, with a 100% Consumer Price Index (defined below) increase each year after the first three (3) years of the lease. Tenant will have the right to lease such spaces as long as Tenant occupies the Premises. The Consumer Price Index shall mean the "Consumer Price Index for All Urban Consumers (CPI-U), All Items, Washington, D.C., SMSA C Standard Metropolitan Statistical Area) 1967 = 100" as issued by the Bureau of Labor Statistics of the United States Department of Labor.
27. SUBORDINATION. This Lease is subject and subordinate to all mortgages, deeds of trust, or other debt instruments which may now or hereafter affect such Lease, the Building, the Property or other improvements thereon. The foregoing provisions shall be self operative and no further instrument of subordination shall be required by any mortgagee or other interested party, provided, however, that in confirmation of such subordination Tenant shall, upon request of Landlord, execute and deliver, in recordable form, any instrument of subordination requested by Landlord, and Tenant hereby does constitute and appoint Landlord as Tenant's attorney-in-fact to execute any such subordination instrument on behalf of Tenant.
28. CONTINUOUS USE. Anything herein to the contrary notwithstanding, this Lease shall be deemed in default if Tenant shall discontinue the business referred to in Paragraph 4 herein, the Premises shall become or appear vacant, or Tenant abandons or appears to abandon the Premises. Under any of the aforesaid conditions the Landlord may exercise its rights as stated in Paragraph 18 herein.
29. NO PARTNERSHIP. By execution of this Lease, Landlord does not in any way for any purpose become a partner of Tenant in the conduct of its business or assume, nor become subject to any responsibility or liability therefor.
30. NOTICES. Any notice required or permitted hereunder shall be in writing and delivered either in person against hand receipt to the other party or other party's authorized agent, or by United States Certified Mail Return Receipt Requested, postage fully paid, to the address set forth hereinafter, or to such other address as either party may designate in writing and delivered as herein provided.
Landlord: Donald F. Simpson
Alexandria Tech Center I Limited Partnership
2750 Eisenhower Avenue, Suite 102
P.O. Box 430
Alexandria, VA 22313
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Tenant: Strayer College
1025 15th Street, N.W.
Washington, D.C. 20005
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Attn: Mr. Ron K. Bailey, President
31. SEPARABILITY CLAUSE. Should any provisions of this Lease be or become void or unenforceable, the remaining provisions hereof shall remain in full force and effect.
32. COMPLETE AGREEMENT. This Lease contains a complete expression of the agreement between the parties hereto.
33. APPLICABLE LAW. This Lease shall be given effect and construed by application of the law of Virginia.
34. SECURITY DEPOSIT. Simultaneously with the entry into this Lease by the parties hereto, the Tenant shall deposit with Landlord the sum of Twenty Thousand Five Hundred Seventy Six and 25/100 Dollars ($20,576.25), which shall be retained by Landlord as security for Tenant's payment of basic rent, additional rent and performance of its other obligations under this Lease. On the occurrence of a default under this Lease, the Landlord shall be entitled, at its sole discretion, to apply any or all of such sum (i) in payment of any rent then due and unpaid, (ii) any expense incurred by Landlord in curing such default, and (iii) any damages incurred by Landlord by reason of such default. On termination of this Lease, any of such sum which is not so applied or retained shall be returned to Tenant.
35. JURY TRIAL. The parties hereby waive the right to trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises and/or any claim of injury or damage.
36. RULES AND REGULATIONS. Rules and regulations governing the use of the Premises are set forth in Attachment 3 and incorporated herein.
37. LANDLORD'S RIGHT OF ENTRY. Landlord and its agents after giving Tenant reasonable notification shall have the right to enter the Premises at any time during Tenant's business hours to inspect the Premises, to show the Premises to prospective purchasers, tenants and mortgagees, and for any other purpose relating to the operation of the Property and/or this Lease. In addition, Landlord and its agents shall have the right to enter the Premises at any time in the event of an emergency.
38. QUIET ENJOYMENT. Landlord covenants that Tenant, so long as it complies with the terms hereof, shall peaceably and quietly hold and enjoy the Premises for the term of this Lease.
39. LEASE CONTINGENCIES. This Lease is contingent upon the following events occurring prior to April 21, 1993.
(a) Issuance of a Special Use Permit by the City of Alexandria allowing Tenant to operate at the Premises.
(b) Issuance of approval by the State of Virginia for Tenant to operate at the Premises.
(c) Execution of a Lease Termination Agreement by Tenant and current landlord for existing lease obligation of approximately 5,000 square feet at the Huntington Metro, 5916-B North King Highway.
(d) Execution of a Lease Termination Agreement between AT&T and Simpson Development Company for existing lease obligation of the Property.
(e) Final execution of this Lease Agreement by Tenant and Landlord.
WITNESS the hands and seals of the parties hereto as of the day and year first above written.
STRAYER COLLEGE, INC.
TENANT:
ALEXANDRIA TECH CENTER I
LANDLORD:
SIMPSON DEVELOPMENT CO., INC., GENERAL PARTNER
/s/ DONALD F. SIMPSON -------------------------------- PRESIDENT |
EXHIBIT 10.13
FIRST AMENDMENT TO AGREEMENT OF LEASE
FOR OFFICE CONDOMINIUM SPACE
THIS FIRST AMENDMENT TO AGREEMENT OF LEASE FOR OFFICE CONDOMINIUM SPACE ( "Amendment") is made this 25th day of July, 1994, by and between STRAYER COLLEGE, a Maryland corporation ("Tenant") and CROSS CREEK ASSOCIATES LIMITED PARTNERSHIP ("Landlord").
WHEREAS, by virtue of that certain office Condominium Lease dated April 22, 1991 ("Lease") Landlord leased to Tenant and Tenant leased from Landlord approximately 12,000 rentable square feet of office space comprised of the entire second (2nd) floor ("Premises") of the office building located at 45150 Russell Branch Parkway in Ashburn, Virginia ("Building"), as more particularly described in said Lease;
WHEREAS, by virtue of that certain Rider No. 1 To Lease Agreement dated April 22, 1991 ("Rider No. 1") certain provisions of the Lease were added and/or modified, as more particularly described in said Rider No. 1;
WHEREAS, Tenant wishes to lease additional space in the Building, extend the Term of the Lease, and obtain a purchase option to buy the Building, and Landlord has so agreed in accordance with the terms hereinafter stated.
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby agree as follows:
1. The term "Lease" as used hereinafter shall include and refer to all of the terms and conditions of the Lease and Rider No. 1;
2. Any and all capitalized terms used herein and not otherwise defined shall have the same meaning(s) as defined therefor in the Lease;
3. Effective as of the Additional Space Commencement Date (as hereinafter defined) the Lease shall be modified as follows:
A. The word "Term" as used throughout the Lease, shall refer to the Extended Term (as hereinafter defined);
B. The definition of "Common Expenses", as defined on Page 2, Section
1.F shall be deleted and inserted in its place and stead shall be
the following language:
"F. Common Expenses: The amount by which the Condominium Assessment and the Management and Operating Expenses exceed those incurred by Landlord for the Building during Fiscal Year 1994.
F-1 Tenants Proportionate Share of Common Expenses: Tenants Proportionate Share of Common Expenses (inclusive of Management and Operating Expenses) is 58.33%."
C. The definition of "Premises", as defined on Page 4, Section 1.T shall be deleted and inserted in its place and stead shall be the following language:
"T. Premises: Condominium Unit Nos. 200, 201, 202, 203, 204, 205, 300, 301, 302, and 305, totaling 21,000 rentable square feet of space, as shown on the floor plan(s) attached hereto and made a part hereof as Exhibit A."
D. The definition of "Management and Operating Expenses" as defined on Page 3, Section 1.R shall be deleted and inserted in its place and stead shall be the following language:
"R. Management and Operating Expenses: All costs and expenses incurred by Landlord each Fiscal Year during the Term in connection with the ownership and operation of the Premises, including, without limitation: (a) wages, salaries and other labor costs, including taxes, insurance, retirement, medical and other employee benefits; (b) rent loss and such other insurance as Landlord may elect to carry; (c) fees, charges, and other costs, including management fees, consulting fees, legal fees, accounting fees and fees of all independent contractors engaged by Landlord or reasonably charged by Landlord if Landlord performs management services in connection with the Premises; and (d) any other expenses of any kind whatsoever reasonably incurred by Landlord in managing, operating, maintaining and repairing the Premises. Management and Operating Expenses shall not include: (i) Real Estate Taxes, (ii) payments of principal and interest on any mortgages and any other costs associated with any mortgages, (iii) costs of preparing, improving or altering any space in preparation for occupancy of any new or renewal tenant, (iv) expenses for which Landlord is
reimbursed or indemnified (either by an insurer, condemnor,
tenant, warrantor or otherwise) to the extent of funds
received by Landlord, (v) expenses incurred in leasing or
procuring tenants (including lease commissions, advertising
expenses and expenses of renovating space for tenants),
(vi) costs representing an amount paid to an affiliate of
Landlord which is in excess of the amount which would have
been paid in the absence of such relationship, (vii)
amounts paid to any partner, shareholder, officer, director
or executive of Landlord for salary or other compensation,
(viii) costs of services furnished to other tenants in the
Building but not made available to Tenant, (ix) costs or
expenses relating to any Ground Lease, (x) costs or
expenses incurred in connection with a transfer of any
interest in Landlord or the Condominium, or (xi) attorneys'
fees relating to any leasing or sale of the Building,
financing of the Building or enforcement of any lease in
the Building except as otherwise provided herein with
respect to defaults by Tenant under this Lease. If these
Management and Operating Expenses, as defined herein, are
not separately charged against the Premises, then the term
"Management and Operating Expenses" shall mean and refer to
Tenant's share (as defined below) of the Management and
Operating Expenses for all condominium units, convertible
space or convertible land in the Building for which
Landlord is incurring such costs and expenses. Tenant's
share shall be determined by dividing the net rental square
feet of the Premises by the net rental square feet of all
condominium units, convertible space or convertible land in
the Building for which Landlord is incurring the costs and
expenses described in this subsection. There shall be no
duplication of costs or reimbursement. It is understood
that other buildings may be developed in the Condominium
and such other buildings may share facilities and services
with the
Building. Management and Operating Costs shall include that portion of all costs, expenses and disbursements to the Building by Landlord. Management and Operating Expenses shall include any costs associated with or included in the Condominium Assessment."
E. The definition of "Real Estate Taxes" and "Tax Expenses" as defined on Page 4 Section(s) 1.V and l.W respectively, shall be deleted and inserted in their place and stead shall be the following language:
"V. Real Estate Taxes: All real estate taxes and assessments, general or special, ordinary or extraordinary, foreseen or unforeseen, that are assessed, levied or imposed upon the Premises (regardless of whether such tax or assessment affects other real property) under any current or future taxation or assessment system or modification of, supplement to, or substitute for such system, whether or not based on or measured by the receipts or revenues from the Premises, including, without limitation, all taxes and assessments for public improvements or any other purpose, any gross receipts or similar taxes, any sales taxes, use taxes, business taxes and license fees imposed upon the Landlord as owner of the Premises (regardless of whether the same affects other real property) or upon the rents payable hereunder, and all reasonable expenses incurred by Landlord in obtaining or attempting to obtain a reduction of any taxes, rates or assessments described above, including but not limited to legal fees. Real Estate Taxes shall not include: (i) any taxes on Tenant's Personal Property or other tenant's personal property, which taxes are the sole obligation of each tenant, (ii) franchise, corporation, income or net profits tax, unless substituted for real estate taxes
or imposed as additional charges in connection with the
ownership of the Premises, which may be assessed against
Landlord or the Premises or both, (iii) transfer taxes
assessed against Landlord or the payments of Landlord, and
(iv) penalties or interest on any late payments of
Landlord.
W. Tax Expenses: The amount by which the Real Estate Taxes exceed those incurred by Landlord for the Building during Fiscal Year 1994.
1.W.1 Tenants Proportionate Share of Real Estate Taxes:
Tenant's Proportionate Share of Real Estate Taxes is 58.33%
of the real estate taxes for Phase I of the Condominium (as
described in the condominium instruments recorded among the
land records of Loudoun County, Virginia at Deed Book 1094,
Page 553) for each fiscal or tax year.
4. The term of this First Amendment shall become effective on the date on which Tenant accepts or takes occupancy of any portion of Condominium Unit Nos. 300, 301, 302 or 305 which in no event shall occur later than July 1, 1994 ("Additional Space Commencement Date"), and shall expire on the anniversary date of the fifth (5th) Lease Year following the Additional Space Commencement Date ("Lease Expiration Date"). The new five (5) year Lease Term shall hereinafter be referred to as the "Extended Term". Contemporaneously with occupancy Tenant and Landlord shall execute a declaration in the form attached hereto as Exhibit "B" confirming the Additional Space Commencement Date.
A. Section 4.A on Page 7 is hereby deleted and inserted in its place and stead shall be the following language:
"A. Base Rent: Base Rent shall equal Two Hundred Ninety-Eight Thousand Two Hundred and 00/100 Dollars ($298,200) per annum on the basis of Fourteen and 20/100 Dollars ($14.20) per square foot of the Premises. Tenant shall pay Base Rent to Landlord in equal monthly installments of Twenty Four Thousand Eight Hundred Fifty and 00/100) Dollars ($24,850) ("Monthly Base Rent") in advance on the first day of each and every calendar month during the Extended Term, without notice. If the Additional Space Commencement Date occurs on a date other than the first day of a calendar month, Tenant shall receive a credit equal to the Monthly Base Rent multiplied by the number of days in said calendar month prior to the Additional Space Commencement Date and divided by the number of days in such month, which credit shall be applied towards the installment of Monthly Base Rent next due hereunder."
B. Section 12.A on Page 14 shall be deleted and inserted in its place and stead shall be the following language:
"Services Obtained by Tenant: All electric, telephone, cleaning and char service supplied to the Premises shall be obtained by Tenant directly from the providers thereof and Tenant shall pay all deposits, charges, costs and expenses relating to the foregoing utility connections and service directly to the providers thereof. All other services and utilities (i.e. water and sewer) shall be provided by the Landlord and/or Association and shall be included in Tenant's Proportionate Share of Common Expenses. Notwithstanding the foregoing, Tenant shall have the Premises and the bathrooms servicing the Premises cleaned daily, including
weekends. Tenant hereby indemnifies and holds Landlord harmless from any damage, losses, costs, expenses, liability and claims that may be made by such companies or utilities which may arise from Tenant's use of such utilities and services for failure to pay any charges for such use.
Failure to Provide Services: Landlord and/or the Associations' failure to provide any services required hereunder due to Unavoidable Delays shall not render Landlord or the Association liable for damages to either person or property, nor be construed as an eviction of Tenant, nor work as an abatement of any portion of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof, provided that (i) Landlord or the Association shall use reasonable diligence to promptly cure any such failure, and (ii) where such failure to provide such services causes the Premises to be not reasonably usable for Tenant's business for more than ten (10) days, then commencing on the date which is eleven (11) days after the commencement of such failure and continuing until the date on which the Premises are again reasonably usable for the operation of Tenant's business, Tenant shall be entitled to an abatement of Rent. In the event Landlord or the Association denies Tenant access to the Premises after such ten (10) day period, such abatement shall also apply to the period during which Tenant has been denied access by Landlord or the Association. In the event Landlord or the Associations' failure to provide any of the foregoing services is not due to an Unavoidable Delay, such failure shall not render Landlord or the Association liable for damages to either person or property, nor be construed as an eviction of Tenant, nor work as an abatement of any portion of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof, provided that (a) Landlord or the Association uses reasonable
diligence to promptly cure any such failure, and (b) where such failure to provide services causes the Premises to be not reasonably usable for Tenant's business for more than five (5) days, then commencing on the date which is six (6) days after the commencement of such failure and continuing until the date on which the Premises are again reasonably usable for the operation of Tenant's business, Tenant shall be entitled to an abatement of Rent. In the event Landlord or the Association denies Tenant access to the Premises after such five (5) day period, such abatement shall also apply to the period during which Tenant has been denied access by Landlord or the Association.
Conservation: Tenant hereby agrees to comply with all energy conservation procedures, controls and requirements instituted by Landlord and/or the Association pursuant to any government regulations. Institution by Landlord and/or the Association of such controls and requirements shall not entitle Tenant to terminate this Lease or to an abatement of any Rent payable hereunder."
C. Section 29 on Page 30 is hereby deleted and inserted in its place and stead shall be the following language:
"Brokers: Landlord and Tenant each represents and warrants to the other that, except as hereinafter set forth, neither of them has employed any broker in procuring or carrying on any negotiations relating to this First Amendment. Landlord and Tenant shall indemnify and hold each other harmless from any loss, claim or damage relating to the breach of the foregoing representation and warranty."
D. The following language is hereby deleted from Section 31:
"with a copy to:
David K. Weiss
Weicon, Inc.
973-C Russell Avenue
Gaithersburg, MD 20879"
E. In addition to those Sections deleted hereinbefore, the following Lease provisions shall be inapplicable during the Extended Term:
Section 3, Work Agreement
Section 5.A.
Section 5.C. (i)
Section 33, Lender Approval
Exhibit C, Office Space Work Agreement
Paragraph 1 of Rider No. 1
Paragraph 4 of Rider No. 1
Paragraph 5 of Rider No. 1
Paragraph 6 of Rider No. 1
Paragraph 7 of Rider No. 1
5. Paragraph 2 of Rider No. 1 is hereby amended to provide that Landlord shall permit Tenant to affix, at the sole cost and expense of Tenant, two (2) identification signs on the northwest corner of the Building. One sign shall be affixed to the north face of the Building, and the other sign shall be affixed to the west face of the Building, in the locations shown on Exhibit 1 attached to Rider No. 1. Said signs shall be constructed at Tenant's sole cost and expense in accordance with the specifications attached hereto as Exhibit D and incorporated herein by reference.
6. Subject to Force Majeure (as hereinafter defined), on or before September 15, 1994, Landlord shall complete construction of a parking lot ("Parking Lot") on the vacant land behind and adjacent
to the Building and as shown on Exhibit C attached hereto and made a part hereof. The Parking Lot shall contain approximately 100 striped parking spaces, two (2) of which shall be handicap accessible and will be constructed in accordance with Loudoun County, Virginia requirements and approvals. Landlord shall contribute the lesser of (i) 50% of the total construction costs of the Parking Lot or (ii) $40,000 (including but not limited to the cost of design, permits, lighting, landscape and construction); and Tenant shall bear the remaining cost. The method of payment for the Parking Lot, the selection of a general contractor, and the estimated final cost of construction of the Parking Lot are memorialized in Exhibit H attached to this Amendment and incorporated herein by reference. Once constructed, said Parking Lot shall be available for Tenant's use during the Extended Term of this Lease.
The term "Force Majeure" as used herein shall refer to and mean an unavoidable delay, beyond the control of Landlord, including but not limited to, delays imposed by local, state or federal governmental requirements, and weather conditions.
7. Tenant hereby acknowledges that it is currently in occupancy of a portion of the Premises pursuant to the terms of the Lease and it has inspected the entire Premises (including but not limited to Condominium Unit Numbers 300, 301, 302 and 305) and shall accept the same "as is" on the Additional Space Commencement Date, provided it remains in its current condition, and that Landlord
shall have no obligation whatsoever, to improve, alter or otherwise modify the Premises in any way whatsoever on behalf of Tenant before or during the Term or Extended Term. Any of Landlord's materials or supplies located within Condominium Unit Numbers 300, 301, 302 and 305 on the Additional Space Commencement Date shall become property of the Tenant.
8. Landlord agrees to provide repairs and upgrades to the heating, ventilation, and air conditioning ("HVAC") system in the Premises in accordance with that letter dated June 17, 1994, a copy of which is attached hereto as Exhibit "E" and incorporated herein by reference; provided, however, that Landlord shall maintain dry bulb interior temperatures in the general occupancy portions of the Building and Premises within the range of 70 to 78 degrees Fahrenheit, with a relative humidity of 55 percent or less, for outdoor ambient temperatures of between 14 degrees Fahrenheit dry bulb Winter and 93 degrees Fahrenheit dry bulb/75 degrees Fahrenheit wet bulb Summer per ASHRAE Table 1 for Metropolitan Washington, D.C. Said repairs and upgrades shall be commenced upon execution of this Amendment and thereafter pursued diligently to completion.
9. A. Provided Tenant is not in default under the Lease, Tenant shall have an option to purchase ("Purchase Option") the Property (as hereinafter defined). The Purchase Option shall be operable during the first three (3) Lease Years of the
Extended Term only and shall thereafter be null and void unless otherwise agreed to in writing by Landlord. The purchase price ("Purchase Price") of the Property during the three (3) year Purchase Option period ("Purchase Option Period") shall be as set forth in the following Purchase Price Schedule:
Purchase Price Schedule
Time Period Purchase Price
----------- --------------
1. July 1, 1994 - June 30, 1995 $3,000,000
2. July 1, 1995 - June 30, 1996 $3,100,000
3. July 1, 1996 - June 30, 1997 $3,200,000
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B. Settlement of the purchase of the Property by Tenant must occur on
or before the last day of the time period set forth in the
Purchase Price Schedule above, and Tenant must deliver notice to
Landlord of his intent to purchase at least ninety (90) days prior
to the date of settlement in order for the prescribed purchase
price to be applicable. For example, if Tenant notifies Landlord
of its intent to exercise the Purchase Option in September, 1995,
but the actual settlement occurs on July 15, 1996, the Purchase
Price will be $3,200,000.00, not $3,100,000.00. Alternatively, if
Tenant notifies Landlord of its intent to exercise the Purchase
Option on May 15, 1995, but the actual settlement of the purchase
occurs on August 31, 1995 (taking into consideration the ninety
(90) day notice period), then the purchase price will be
$3,100,000.00, not $3,000,000.00.
C. The "Property" is hereby defined as follows:
(a) 33,000 leasable square feet of office condominium space, consisting of Condominium Unit Numbers 100, 101, 102, 103, 200, 201, 202, 203, 204, 205, 300, 301, 302, and 305, Phase I, Cross Creek Office Condominium, and all limited common elements and other rights and privileges appurtenant thereto, including but not limited to retail condominium space, surrounding common areas and Building structure; and
(b) approximately five (5) acres of adjacent land on which the Parking Lot will be constructed, as said land is more particularly described in Exhibit F attached hereto and incorporated herein by reference.
D. In the event Landlord receives a bona fide third party offer to purchase the Property, during the Purchase Option Period which Landlord wishes to accept, Tenant, provided it is not in default under the Lease, shall have a right of first refusal ("Right Of First Refusal To Purchase") to purchase the Property, at the lesser of (i) the Purchase Price set forth in the Purchase Price Schedule in 9.A. above, or (ii) the third party offer. The Right Of First Refusal To Purchase shall be exercised by Tenant within ten (10) days of receipt of notice from Landlord that it has received a bona fide third party offer to purchase the Property, ("Landlord's Notice"). In the event Tenant exercises the Right Of First Refusal To Purchase, settlement of the purchase shall occur no later than ninety (90) days from the date of Landlord's Notice.
E. Regardless of whether Tenant purchases the Property by virtue of the Right Of First Refusal To Purchase or by exercising the Purchase Option, Landlord and Tenant agree that all current real estate taxes, including any special taxes assessed for transportation district improvements, rents, utilities and other applicable charges for the Property shall be apportioned and prorated as of the date of settlement hereunder. Landlord shall bear the cost of preparation of the deed of conveyance, Virginia State grantor's tax and all charges or assessments of any kind or nature that have been levied or assessed against the Property for the time period prior to settlement. All recording transfer taxes (state and county tax stamps), title examination and title insurance premium shall be paid by Tenant. Landlord and Tenant shall each pay their own respective attorneys' fees. Tenant shall purchase the Property in its then "as is condition".
F. Landlord covenants and warrants that, as of the date hereof, the Landlord is the sole and true and lawful owner of the Property. The Property shall be sold, conveyed and transferred to Tenant by general warranty deed with English covenants of title, free of all claims, liens, encumbrances, indebtedness, leasing commissions, assessments and charges of any kind or nature with the exception of leases existing at the date of execution of this Amendment and subsequent third party leases entered into by the Landlord. Title shall be
good of record and in fact, marketable and fully insurable at standard rates by a title insurance company to be chosen by Tenant, and shall be subject only to those exceptions noted in Schedule B, Section 2 of that title insurance commitment issued by First American Title Insurance Company, and identified as commitment number TA-613-94/FA 23418, a copy of which is attached hereto as Exhibit "F" and incorporated herein by reference (the "Permitted Exceptions"). The Property shall be sold and conveyed subject to no rights of ways, encroachments, easements, covenants, conditions or restrictions, recorded or unrecorded, other than the Permitted Exceptions.
At any time during the term of this Amendment that the Tenant, at
its sole discretion, determines is appropriate, the Tenant may
cause an examination of title of the Property to be commenced (the
"Title Report"). Thereafter, but in no event later than thirty
(30) days prior to settlement, the Tenant shall deliver a copy of
the title report to the Landlord, review the Title Report and
advise Landlord in writing (hereinafter referred to as the "Title
Notice") of any encumbrances or exceptions to title which are not
Permitted Exceptions (hereinafter referred to as "Objections").
Landlord shall advise Tenant in writing within ten (10) days of
receipt of the Title Notice of any Objections which Landlord
determines it will be unwilling or
unable to cure at or prior to settlement; all other Objections shall be cured by Landlord, at Landlord's expense, at or prior to settlement.
Deeds of Trust, judgments, or other liens against the Property that can be cured by payment of money, shall be first paid and released of record from Landlord's proceeds at settlement (if not sooner paid and released of record by Landlord), utilizing the proceeds paid by the Tenant at settlement.
In the event Landlord notifies Tenant that it will be unable or unwilling to cure any such Objections, Tenant thereafter shall have the right to terminate the provisions of this Lease upon ninety (90) days prior notice to Landlord; provided, however, that in no event shall the effective date for any such termination of this lease by Tenant be prior to August 31, 1996.
The state of title at settlement shall be the same as is disclosed by the Title Report. Upon the Landlord's and Tenant's execution of this Amendment, Landlord shall not execute, grant or record any easements, covenants, conditions, or restrictions with respect to the Property, nor shall Landlord expand the condominium regime for the Property to subject any additional land or buildings to said
condominium regime during the Purchase Option Period, without the Tenant's prior written consent, which consent shall not unreasonably be withheld, conditioned or delayed. Landlord shall grant and convey to the Tenant all of Landlord's right, interest and title to any roads, rights of way or easements (whether abutting the Property or otherwise being off site) necessary to provide access to and from or permit the use and enjoyment of the Property.
G. If Landlord shall fail to perform any of its obligations under the Purchase Option, Tenant shall be entitled to (i) maintain an action against Landlord for specific performance, or (ii) terminate this Lease, effective upon a date not prior to August 31, 1996. In the event Landlord has taken any actions which would render specific performance impossible, but only in such event, Tenant shall be entitled to maintain an action against Landlord to recover damages.
10. A. Landlord hereby represents and warrants to Tenant that, to the best of Landlord's knowledge and as of the date hereof, other than the Purchase Option granted to Tenant hereinbefore, there exist no contracts, rights of first refusal, or other options to purchase the Property in favor of any third party, and further that Landlord will not enter into any contract to sell the Property or extend a right of first refusal or option to purchase the Property to any third
party during the Purchase option Period, subject to the terms hereof.
B. Landlord, as the sole owner of the Property, has a good, marketable, record title to the Property and has the full right and power to sell, sign, convey and transfer the Property. Landlord shall provide Tenant with proper documentation as Tenant may reasonably request confirming that Cross Creek Associates Limited Partnership is validly existing and organized as a Virginia limited partnership. The Property, including all personal property being conveyed hereunder, will be conveyed free and clear of all liens and encumbrances other than the Permitted Exceptions simultaneously with settlement. Landlord has no knowledge of any legal or equitable interest in the Property owned or claimed by any other person, firm or corporation other than interests specifically disclosed or permitted herein. All bills and claims for labor performed and materials, supplies, or services furnished to or for the benefit of the Property prior to settlement shall be paid in full, except for proratable expenses as set forth herein, and there shall be no mechanics or materialman's liens (filed or perfected) on or affecting the Property or part thereof.
C. A current rent roll for the Property, including each Tenant's name, buildings, suite number, monthly rent, percentage rent
and/or rent escalation terms, reimbursement of real state taxes and/or other operating costs, security deposit, date of receipt of security deposit (if interest will be due thereon), expiration date, current delinquencies, renewal and/or expansion options (if any), is attached hereto as Exhibit G and incorporated herein by this reference. Each of the leases listed on Exhibit G is in force as of the date hereof and constitutes the entire agreement with each of such tenants. Except for those security deposits and interest thereon (if required by agreement) delivered by Landlord at settlement, no tenant or occupant of any portion of the Property is entitled to any rebate, concession, or other benefit, other than as specified in leases in existence as of the date of execution of this Agreement. Except as shown on the rent roll attached as Exhibit G, no such tenant or occupant shall have paid rent, additional rent, or any service or other charge more than thirty days in advance. Landlord hereby indemnifies and agrees to hold harmless Tenant of and from any claim, lawsuit or expense, including reasonable attorneys' fees, with respect to any obligation to any tenant or occupant occurring prior to the date of settlement under the Purchase Option. Not less than five (5) business days prior to the settlement, Landlord shall deliver to Tenant and to Tenant's lender if required, from each tenant and/or occupant of the Property, a fully executed complete estoppel letter. Said letter shall not be dated
more than thirty (30) days prior to settlement. At settlement Landlord shall deliver to Tenant Landlord's warranty that there has been no adverse change in the information provided in the estoppel letter and, for any tenant or occupant for whom no estoppel letter could be obtained, Landlord's own certification with respect to the information requested therein. Landlord shall indemnify and hold Tenant harmless against and from all losses, costs and expenses including reasonable attorneys' fees, arising out of any discrepancy between (i) the written provisions of any leases for the Property, including any amendments to such leases entered into after the date of this Amendment, or Landlord certifications or warranties, and (ii) the actual facts concerning such leases.
D. To the best of Landlord's knowledge, as of the date of execution hereof, there are no judgments, actions or proceedings pending in any court against the Property or against Landlord in connection with the Property.
E. To the best of Landlord's knowledge, as of the date of execution hereof, there are no threatened or pending condemnation, eminent domain or annexation proceedings or other litigation or proceedings against or affecting any part of the Property.
F. At settlement Landlord shall execute and deliver to Tenant a certificate confirming the accuracy and completeness of all of Landlord's representations and warranties set forth herein in all material respects as of the settlement date.
11. During the Purchase Option Period, provided Tenant is not in default under the Lease, Tenant shall have a right of first refusal to lease any space which is currently vacant at the Property or any space which may become available at the Property each and every time it becomes available ("Right Of First Refusal To Lease"), within ten (10) days of receipt of notice from Landlord specifying the terms under which Landlord will lease the space to Tenant. In the event Tenant does not exercise its Right Of First Refusal To Lease within such ten (10) day period, Landlord shall be free to enter into a lease agreement for said space with a third party and Tenant shall have no further rights with respect to said space unless it becomes available again during the Purchase Option Period. In the event Tenant exercises its Right Of First Refusal To Lease, Landlord and Tenant, within ten (10) days of Tenant's notice to Landlord of its intent to exercise said option, shall enter into an amendment to the Lease memorializing the terms under which Tenant will lease the space.
12. Landlord and Tenant hereby represent to one another that the person(s) executing this First Amendment on their behalf has the requisite power and authority to so bind them to the terms hereof.
13. Except as expressly modified herein, all other terms and conditions of the Lease shall continue in full force and effect throughout the Extended Term.
(Signatures on Following Page)
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and year first hereinabove written.
ATTEST: LANDLORD:
CROSS CREEK ASSOCIATES LIMITED PARTNERSHIP
By: JBG Real Estate Associates General Partner
[sig] By: /s/ MICHAEL J. GLOSSERMAN
- ---------------------- ----------------------------------------
Michael J. Glosserman
Executive Vice President
ATTEST: TENANT:
STRAYER COLLEGE, a Maryland corporation
[sig] 7/27/94 By: [sig]
- ---------------------- ----------------------------------------
Printed Name: 7/22/94
------------------------------
Title: President
-------------------------------------
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EXHIBIT 23.02
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Amendment No. 3 to Form S-1 (No. 333-3967) of our report dated May 15, 1996, on our audit of the balance sheet of Strayer Education, Inc. as of May 15, 1996, and our report dated May 14, 1996, on our audits of the combined balance sheets of Strayer College, Inc. and Affiliate as of December 31, 1995 and 1994, and the related combined statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. We also consent to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Washington D.C.
July 16, 1996