UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009 |
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or |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 001-34272
BRIDGEPOINT EDUCATION, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or organization) |
59-3551629
(I.R.S. Employer Identification No.) |
13500 Evening Creek Drive North, Suite 600
San Diego, CA 92128
(Address, including zip code, of principal executive offices)
(858) 668-2586
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The total number of shares of common stock outstanding as of August 7, 2009, was 53,333,361.
BRIDGEPOINT EDUCATION, INC.
FORM 10-Q
INDEX
2
BRIDGEPOINT EDUCATION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except
par value)
|
As of June 30,
2009 |
As of December 31,
2008 |
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---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 111,864 | $ | 56,483 | ||||
Restricted cash |
691 | 666 | ||||||
Marketable securities |
10,000 | | ||||||
Accounts receivable, net of allowance of $27,336 at June 30, 2009 and $18,246 at December 31, 2008 |
42,400 | 28,946 | ||||||
Inventories |
350 | 288 | ||||||
Current portion of deferred income taxes |
2,734 | 2,734 | ||||||
Prepaid expenses and other current assets |
5,611 | 6,773 | ||||||
Total current assets |
173,650 | 95,890 | ||||||
Property and equipment, net |
38,110 | 27,715 | ||||||
Goodwill and intangibles |
3,361 | 1,897 | ||||||
Deferred income taxes |
14,255 | 2,366 | ||||||
Other long term assets |
1,331 | 1,378 | ||||||
Total assets |
$ | 230,707 | $ | 129,246 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
|
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Current liabilities: |
||||||||
Accounts payable |
$ | 4,843 | $ | 4,705 | ||||
Accrued liabilities |
21,736 | 16,543 | ||||||
Deferred revenue and student deposits |
110,104 | 67,425 | ||||||
Current portion of leases payable |
150 | 142 | ||||||
Current maturities of notes payable |
74 | 74 | ||||||
Other liabilities |
34 | 40 | ||||||
Total current liabilities |
136,941 | 88,929 | ||||||
Leases payable, less current portion |
226 | 308 | ||||||
Notes payable, less current maturities |
134 | 160 | ||||||
Other long term liabilities |
3,222 | 2,740 | ||||||
Rent liability |
6,772 | 3,938 | ||||||
Total liabilities |
147,295 | 96,075 | ||||||
Commitments and contingencies (see Note 12) |
| | ||||||
Redeemable convertible preferred stock: $0.01 par value: Authorized shares20,000 at June 30, 2009 and 19,850 at December 31, 2008; Issued and outstanding shareszero at June 30, 2009 and 19,778 at December 31, 2008 |
| 27,062 | ||||||
Stockholders' equity: |
||||||||
Common stock, $0.01 par value: Authorized shares300,000 at June 30, 2009 and December 31, 2008; Issued and outstanding shares53,141 at June 30, 2009 and 3,335 at December 31, 2008 |
531 | 33 | ||||||
Additional paid-in capital |
74,006 | 1,703 | ||||||
Retained earnings |
8,875 | 4,373 | ||||||
Total stockholders' equity |
83,412 | 6,109 | ||||||
Total liabilities, redeemable convertible preferred stock and stockholders' equity |
$ | 230,707 | $ | 129,246 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BRIDGEPOINT EDUCATION, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In
thousands, except per share amounts)
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||||
Revenue |
$ | 110,908 | $ | 49,942 | $ | 195,183 | $ | 88,890 | |||||||
Costs and expenses: |
|||||||||||||||
Instructional costs and services |
28,357 | 12,734 | 50,491 | 25,682 | |||||||||||
Marketing and promotional |
39,655 | 18,369 | 68,760 | 33,432 | |||||||||||
General and administrative |
41,093 | 7,925 | 66,976 | 15,135 | |||||||||||
Total costs and expenses |
109,105 | 39,028 | 186,227 | 74,249 | |||||||||||
Operating income |
1,803 | 10,914 | 8,956 | 14,641 | |||||||||||
Other income (expense), net |
44 | (38 | ) | 116 | (92 | ) | |||||||||
Income before income taxes |
1,847 | 10,876 | 9,072 | 14,549 | |||||||||||
Income tax expense |
587 | 2,831 | 3,925 | 2,522 | |||||||||||
Net income |
1,260 | 8,045 | 5,147 | 12,027 | |||||||||||
Accretion of preferred dividends |
103 | 501 | 645 | 1,002 | |||||||||||
Net income available to common stockholders |
$ | 1,157 | $ | 7,544 | $ | 4,502 | $ | 11,025 | |||||||
Earnings per common share: |
|||||||||||||||
Basic |
$ | 0.02 | $ | 0.14 | $ | 0.08 | $ | 0.17 | |||||||
Diluted |
$ | 0.02 | $ | 0.06 | $ | 0.07 | $ | 0.08 | |||||||
Weighted average common shares outstanding used in computing earnings per common share: |
|||||||||||||||
Basic |
46,066 | 3,335 | 24,938 | 3,335 | |||||||||||
Diluted |
52,236 | 7,616 | 30,280 | 7,403 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BRIDGEPOINT EDUCATION, INC.
Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and
Stockholders'
Equity
(Unaudited)
(In thousands)
|
Series A
Convertible Preferred Stock |
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Common Stock |
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Additional
Paid-in Capital |
Retained
Earnings |
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Shares | Amount | Shares | Par Value | Total | |||||||||||||||||
Balance at December 31, 2008 |
19,778 | $ | 27,062 | 3,335 | $ | 33 | $ | 1,703 | $ | 4,373 | $ | 6,109 | ||||||||||
Stock-based compensation |
| | | | 32,007 | | 32,007 | |||||||||||||||
Accretion of preferred dividends |
| 645 | | | | (645 | ) | (645 | ) | |||||||||||||
Stockholder settlement |
| | 710 | 7 | 10,570 | | 10,577 | |||||||||||||||
Preferred stock conversion |
(19,778 | ) | (27,707 | ) | 44,805 | 448 | (448 | ) | | | ||||||||||||
Exercise of options |
| | 104 | 1 | 37 | | 38 | |||||||||||||||
Excess tax benefit of option exercises |
| | | | 429 | | 429 | |||||||||||||||
Exercise of warrants |
| | 687 | 7 | 966 | | 973 | |||||||||||||||
Stock issued in initial public offering, net of issuance costs of $8.0 million |
| | 3,500 | 35 | 28,742 | | 28,777 | |||||||||||||||
Net income |
| | | | | 5,147 | 5,147 | |||||||||||||||
Balance at June 30, 2009 |
| $ | | 53,141 | $ | 531 | $ | 74,006 | $ | 8,875 | $ | 83,412 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BRIDGEPOINT EDUCATION, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
|
Six Months Ended
June 30, |
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---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | |||||||
Operating activities |
|||||||||
Net income |
$ | 5,147 | $ | 12,027 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||
Provision for bad debts |
9,097 | 5,294 | |||||||
Depreciation and amortization |
2,467 | 975 | |||||||
Deferred income taxes |
(11,889 | ) | (3,943 | ) | |||||
Stock-based compensation |
32,007 | 84 | |||||||
Stockholder settlement |
10,577 | | |||||||
Loss on disposal of fixed assets |
42 | | |||||||
Changes in operating assets and liabilities: |
|||||||||
Accounts receivable |
(22,551 | ) | (12,850 | ) | |||||
Inventories |
(62 | ) | (122 | ) | |||||
Prepaid expenses and other current assets |
1,162 | (1,286 | ) | ||||||
Other long term assets |
47 | 484 | |||||||
Accounts payable and accrued liabilities |
4,478 | 9,807 | |||||||
Deferred revenue and student deposits |
42,679 | 12,940 | |||||||
Other liabilities |
3,310 | (189 | ) | ||||||
Net cash provided by operating activities |
76,511 | 23,221 | |||||||
Investing activities |
|||||||||
Capital expenditures |
(12,015 | ) | (1,849 | ) | |||||
Purchase of marketable securities |
(10,000 | ) | | ||||||
Business acquisition |
(1,500 | ) | | ||||||
Restricted cash |
(25 | ) | (666 | ) | |||||
Net cash used in investing activities |
(23,540 | ) | (2,515 | ) | |||||
Financing activities |
|||||||||
Proceeds from the issuance of common stock, net of issuance costs of $8.0 million |
28,777 | | |||||||
Proceeds from exercise of stock options |
38 | | |||||||
Excess tax benefit of option exercises |
429 | | |||||||
Proceeds from exercise of warrants |
973 | | |||||||
Payments of notes payable |
(26 | ) | (2,884 | ) | |||||
Payments on conversion of preferred stock |
(27,707 | ) | | ||||||
Payments of capital lease obligations |
(74 | ) | (75 | ) | |||||
Net cash provided by (used in) financing activities |
2,410 | (2,959 | ) | ||||||
Net increase in cash and cash equivalents |
55,381 | 17,747 | |||||||
Cash and cash equivalents at beginning of period |
56,483 | 7,351 | |||||||
Cash and cash equivalents at end of period |
$ | 111,864 | $ | 25,098 | |||||
Supplemental disclosure of noncash transactions: |
|||||||||
Purchase of equipment included in accounts payable and accrued liabilities |
$ | 853 | $ | 330 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Nature of Business
Bridgepoint Education, Inc. (together with its subsidiaries, the "Company"), incorporated in 1999, is a regionally accredited provider of postsecondary education services. Its wholly-owned subsidiaries, Ashford University and the University of the Rockies, offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. The Company delivers programs online as well as at its traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado.
In March 2005, the Company acquired the assets of The Franciscan University of the Prairies and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs.
In September 2007, the Company acquired the assets of the Colorado School of Professional Psychology and renamed it the University of the Rockies. Founded as a non-profit organization in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions.
Unaudited Interim Financial Information
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements included in the Company's Registration Statement on Form S-1 (File No. 333-156408). In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company's condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008, the condensed consolidated statements of income for the three and six months ended June 30, 2009 and 2008, the condensed consolidated statement of redeemable convertible preferred stock and stockholders' equity for the six months ended June 30, 2009, and the condensed consolidated statements of cash flows for the six months ended June 30, 2009 and 2008.
Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
The Company evaluated subsequent events through August 11, 2009, the date on which the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 was filed with the Securities and Exchange Commission.
7
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
2. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.
Restricted Cash
The Company had $0.7 million in restricted cash as of June 30, 2009 and December 31, 2008, primarily related to the letter of credit issued on behalf of the University of the Rockies.
Marketable Securities
As of June 30, 2009, the Company maintained $10.0 million in marketable securities which primarily consisted of various corporate obligations. These securities are stated at fair market value using recently quoted market prices. The Company's investments are denominated in U.S. dollars, are investment grade and highly liquid. The Company's portfolio is invested solely in short-term securities, with maturities of less than one year.
The Company has classified its portfolio as available-for-sale and considers as current assets those investments which will mature or are likely to be sold in less than one year. At June 30, 2009, the cost approximated the fair value of the investments.
The Company regularly monitors and evaluates the realizable value of its marketable securities. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income (expense), net, in the consolidated statements of income.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of Statement of Financial Accounting Standards ("SFAS") 123R, Share-Based Payment ("SFAS 123R"). The expense for all stock-based awards granted represents the grant-date fair value that was estimated, in accordance with the provisions of SFAS 123R. Compensation expense for options is recorded in the condensed consolidated statement of income, net of estimated forfeitures, using the graded vesting method over the requisite service period. Stock-based compensation expense totaled $32.0 million and $41,000, for the three months ended June 30, 2009 and 2008, respectively. Stock-based compensation expense totaled $32.0 million and $84,000 for the six months ended June 30, 2009 and 2008, respectively.
Comprehensive Income
There are no comprehensive income items other than net income. Comprehensive income equals net income for all of the periods presented.
Marketing and Promotional
Advertising costs are expensed as incurred. Advertising costs, which include marketing leads, events and promotional materials for the three months ended June 30, 2009 and 2008 were $9.7 million and
8
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
2. Summary of Significant Accounting Policies (Continued)
$6.6 million, respectively. Advertising costs for the six months ended June 30, 2009 and 2008 were $18.3 million and $11.8 million, respectively.
Segment Information
The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both its ground and online students regardless of geography. The Company's chief operating decision maker, the CEO and President, manages its operations as a whole, and no expense or operating income information is evaluated by its chief operating decision maker on any component level.
Reverse Stock Split
On March 31, 2009, the Company's board of directors approved a 1-for-4.5 reverse stock split of the Company's common stock, par value $0.01 per share, which was effective as of that date. As a result of the reverse stock split, every 4.5 shares of the Company's common stock were combined into one share of common stock and any fractional shares created by the reverse stock split were rounded down to the nearest whole share. The Company did not reduce the number of shares of common stock it is authorized to issue or change the par value of the common stock. The reverse stock split affected all of the common stock and options and warrants to purchase common stock that were outstanding on the effective date of the reverse stock split. Common stock, additional paid-in capital, retained earnings and share and per share data for prior periods have been retroactively restated to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Pronouncements that Address Fair Value Measurements for Purpose of Lease Classification or Measurement under Statement 13 , which amends SFAS 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13, Accounting for Leases . In February 2008, the FASB also issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 , which delays the effective date of SFAS 157 until the first quarter of 2009 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis (at least annually). SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In April 2009, the FASB further issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP FAS 157-4"). FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The Company adopted SFAS 157 and related Staff Positions and such adoption did not have a material impact on its consolidated financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). FSP EITF 03-6-1
9
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
2. Summary of Significant Accounting Policies (Continued)
clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common stockholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. The Company adopted FSP EITF 03-6-1 and such adoption did not have a material impact on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments ("FSP FAS 115-2 and FAS 124-2"), which change existing guidance for determining whether an impairment is other-than-temporary to debt securities. This guidance also requires an entity to present the total other-than-temporary impairment in the statement of earnings with an offset for the amount recognized in other comprehensive income. When adopting FSP FAS 115-2 and FAS 124-2, an entity is required to record a cumulative- effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The Company adopted FSP FAS 115-2 or FAS 124-2 and such adoption did not have a material impact on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments ("FSP FAS 107-1 and APB 28-1"). This staff position also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under this staff position, a publicly-traded company is required to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, an entity is required to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. FSP FAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009, with early adoption permitted. The Company adopted FSP FAS 107-1 and APB 28-1 and such adoption did not have a material impact on its consolidated financial statements.
In April 2009, the Securities and Exchange Commission's ("SEC") Office of the Chief Accountant and Division of Corporation Finance issued SEC Staff Accounting Bulletin ("SAB") 111 ("SAB 111"). SAB 111 amends and replaces SAB Topic 5M, Miscellaneous AccountingOther Than Temporary Impairment of Certain Investments in Equity Securities, to reflect FSP FAS 115-2 and FAS 124-2. This FSP provides guidance for assessing whether an impairment of a debt security is other than temporary, as well as how such impairments are presented and disclosed in the financial statements. The amended SAB Topic 5M maintains the prior staff views related to equity securities but has been amended to exclude debt securities from its scope. SAB 111 is effective upon the adoption of FSP FAS 115-2 and FAS 124-2. The Company adopted SAB 111 and such adoption did not have a material impact on its consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS 165"). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance
10
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
2. Summary of Significant Accounting Policies (Continued)
sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted SFAS 165 and such adoption did not have a material impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets ("SFAS 166"). SFAS 166 is a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for annual periods beginning after November 15, 2009. The Company does not believe the adoption of SFAS 166 will have a material impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167"). SFAS 167 is a revision to FASB Interpretation No. ("FIN") 46 (Revised December 2003), Consolidation of Variable Interest Entities , and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. SFAS 167 is effective for annual periods beginning after November 15, 2009. The Company does not believe the adoption of SFAS 167 will have a material impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting PrinciplesA Replacement of FASB Statement No. 162 ("SFAS 168"). The FASB Accounting Standards Codification ("Codification") will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all non-SEC accounting and reporting standards in effect at that time. Accordingly, all accounting literature that is not included in the Codification, other than certain grandfathered accounting literature and SEC rules and interpretative releases, will cease to be authoritative on the effective date of SFAS 168. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not believe the adoption of SFAS 168 will have a material impact on the preparation of its consolidated financial statements.
In June 2009, the SEC Staff issued SAB No. 112 ("SAB 112"). SAB 112 amends or rescinds portions of the SEC Staff's interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with SFAS 141-R and SFAS 160. The Company does not believe that the adoption of SAB 112 will have a material impact on its consolidated financial statements.
3. Earnings Per Common Share
In accordance with SFAS No. 128, Computation of Earnings Per Share ("SFAS 128"), and Emerging Issues Task Force ("EITF") Issue 03-06, Participating Securities and the Two-Class Method under FASB
11
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
3. Earnings Per Common Share (Continued)
Statement No. 128 , basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period using the two-class method. Under the two-class method, net income is allocated between common shares and other participating securities based on their participating rights.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common and potentially dilutive securities outstanding during the period if the effect is dilutive (the dilutive effects of options, warrants and redeemable convertible preferred stock). The numerator of diluted earnings per common share is calculated by starting with income allocated to common shares under the two-class method and adding back income attributable to preferred shares to the extent such an adjustment would be dilutive. Potentially dilutive common shares for the three and six months ended June 30, 2009 and 2008 consisted of incremental shares of common stock issuable upon the exercise of options and warrants and upon the conversion of preferred stock.
The following table sets forth the computation of the basic and diluted earnings per common share for the periods indicated (in thousands, except per share data):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | ||||||||||
Numerator: |
||||||||||||||
Net income |
$ | 1,260 | $ | 8,045 | $ | 5,147 | $ | 12,027 | ||||||
Accretion of preferred dividends |
(103 | ) | (501 | ) | (645 | ) | (1,002 | ) | ||||||
Net income available to common stockholders |
$ | 1,157 | $ | 7,544 | $ | 4,502 | $ | 11,025 | ||||||
Denominator: |
||||||||||||||
Weighted average shares outstanding |
46,066 | 3,335 | 24,938 | 3,335 | ||||||||||
Effect of dilutive options |
5,476 | 3,241 | 4,348 | 3,189 | ||||||||||
Effect of dilutive warrants |
694 | 1,040 | 994 | 879 | ||||||||||
Diluted weighted average common shares outstanding |
52,236 | 7,616 | 30,280 | 7,403 | ||||||||||
Basic earnings per common share |
$ | 0.02 | $ | 0.14 | $ | 0.08 | $ | 0.17 | ||||||
Diluted earnings per common share |
$ | 0.02 | $ | 0.06 | $ | 0.07 | $ | 0.08 | ||||||
The computation of dilutive common shares outstanding excludes the following securities:
The computation of dilutive common shares outstanding excludes the equivalent common shares that would be related to both the accreted value and the optional conversion feature of the redeemable
12
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
3. Earnings Per Common Share (Continued)
convertible preferred stock for the periods indicated because the effect of applying the if-converted method would be anti-dilutive.
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
Redeemable convertible preferred stock |
11,676 | 50,143 | 29,066 | 60,446 |
The computation of dilutive common shares outstanding excludes certain stock options and warrants to purchase shares of common stock for the periods indicated because the exercise prices exceeded the average market price of the Company's common stock during such periods or the sum of assumed proceeds exceeded the average market price, and therefore the effect would be anti-dilutive.
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
Options |
2,354 | | 1,183 | | |||||||||
Warrants |
| 39 | | 39 |
The Company calculated basic earnings per common share using the two-class method under the guidelines of SFAS 128 to reflect the participation rights of each class and series of stock. Under SFAS 128, basic net income is computed for common stock outstanding during the period by dividing net income allocated to the participation rights of each class by the weighted average number of common shares outstanding during the period.
The following presents the net income allocated to each class of common stock in the calculation of basic earnings per common share for the three and six months ended June 30, 2009 and 2008:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
Net income available to common stockholders |
$ | 1,157 | $ | 7,544 | $ | 4,502 | $ | 11,025 | |||||
Net income allocated to redeemable convertible preferred stock |
103 | 501 | 645 | 1,002 | |||||||||
Net income |
$ | 1,260 | $ | 8,045 | $ | 5,147 | $ | 12,027 | |||||
|
Three Months Ended
June 30, 2009 |
Six Months Ended
June 30, 2009 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Weighted
Avg Shares |
Income
Allocation |
Weighted
Avg Shares |
Income
Allocation |
|||||||||
Common stock |
46,066 | $ | 923 | 24,938 | $ | 2,080 | |||||||
Redeemable convertible preferred stock |
11,676 | 337 | 29,066 | 3,067 | |||||||||
Total |
$ | 1,260 | $ | 5,147 | |||||||||
13
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
3. Earnings Per Common Share (Continued)
|
Three Months Ended
June 30, 2008 |
Six Months Ended
June 30, 2008 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Weighted
Avg Shares |
Income
Allocation |
Weighted
Avg Shares |
Income
Allocation |
|||||||||
Common stock |
3,335 | $ | 470 | 3,335 | $ | 576 | |||||||
Redeemable convertible preferred stock |
50,143 | 7,575 | 60,446 | 11,451 | |||||||||
Total |
$ | 8,045 | $ | 12,027 | |||||||||
The numerator of diluted earnings per common share is computed by starting with the numerator of basic earnings per common share and adding back income attributable to the participation rights of redeemable convertible preferred stock, to the extent such an adjustment would be dilutive.
The denominator of diluted earnings per common share includes the incremental potential common shares issuable upon the following events, to the extent their effect is dilutive:
The numerator for diluted earnings per share was not adjusted from the basic earnings per share calculation for the impact of redeemable convertible preferred stock because all potential common shares of redeemable convertible preferred stock were anti-dilutive.
4. Significant Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expense and other current assets consist of the following (in thousands):
|
As of June 30,
2009 |
As of December 31,
2008 |
|||||
---|---|---|---|---|---|---|---|
Prepaid expenses |
$ | 1,329 | $ | 3,407 | |||
Prepaid licenses |
2,826 | 1,798 | |||||
Income tax receivable |
| 1,118 | |||||
Prepaid insurance |
668 | 73 | |||||
Other current assets |
788 | 377 | |||||
|
$ | 5,611 | $ | 6,773 | |||
14
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
4. Significant Balance Sheet Accounts (Continued)
Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
|
As of June 30,
2009 |
As of December 31,
2008 |
|||||
---|---|---|---|---|---|---|---|
Land |
$ | 368 | $ | 327 | |||
Buildings |
7,494 | 6,109 | |||||
Furniture, office equipment and software |
27,363 | 17,420 | |||||
Leasehold improvements |
9,856 | 8,819 | |||||
Vehicles |
67 | 43 | |||||
Total property and equipment |
45,148 | 32,718 | |||||
Less accumulated depreciation and amortization |
(7,038 | ) | (5,003 | ) | |||
Property and equipment, net |
$ | 38,110 | $ | 27,715 | |||
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
As of June 30,
2009 |
As of December 31,
2008 |
|||||
---|---|---|---|---|---|---|---|
Accrued salaries and wages |
$ | 6,089 | $ | 3,813 | |||
Accrued bonus |
2,250 | 3,182 | |||||
Accrued vacation |
1,633 | 1,342 | |||||
Income tax payable |
3,289 | | |||||
Accrued expenses |
8,475 | 8,206 | |||||
|
$ | 21,736 | $ | 16,543 | |||
5. Fair Value Measurements
The Company accounts for marketable securities under the provisions of SFAS 157. SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Marketable securities at June 30, 2009, measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157, consisted only of certificates of deposit in the amount of $10.0 million, and are valued based on third-party quotations of similar assets in active markets. The certificates of deposits were classified as Level 2 instruments.
6. Notes Payable and Long-Term Debt
In April 2004, the Company entered into a senior secured credit agreement ("Credit Agreement") with Comerica Bank (the "Bank"). The Credit Agreement provides for a revolving credit facility
15
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
6. Notes Payable and Long-Term Debt (Continued)
("Revolving Credit Facility") which includes a letter of credit sub-limit ("LC Sub-limit"). The Credit Agreement also provides for an equipment line of credit ("Equipment Line") and a term loan facility ("Term Loan"), and also allows the Company to borrow subordinated debt from the Company's majority stockholder.
In October 2008, the Credit Agreement was amended to (i) increase the maximum available borrowing capacity to $15.0 million, (ii) increase the maximum available borrowing capacity under the Revolving Credit Facility to $15.0 million, (iii) increase the LC Sub-limit to $14.2 million and (iv) extend the maturity date to October 31, 2009. In May 2009, the Credit Agreement was amended again to increase the LC Sub-limit to $15.0 million, retroactively to January 1, 2009.
As of June 30, 2009, the Company had no borrowings outstanding under the Revolving Credit Facility. The Company used the availability under its Revolving Credit Facility to issue letters of credit aggregating $14.3 million as of June 30, 2009.
As of June 30, 2009, the Company had no borrowings outstanding under the Equipment Line or the Term Loan.
As part of the Credit Agreement, the Company is subject to certain limitations, including limitations on its ability to incur additional debt, make certain investments or acquisitions and enter into certain merger and consolidation transactions, among other restrictions. The Credit Agreement also contains a material adverse change clause, and the Company is required to maintain compliance with minimum profitability and minimum liquidity ratios. As of June 30, 2009, the Company was in compliance with all financial covenants in the Credit Agreement.
Under the Credit Agreement, the Company is required to maintain an amount equal to the aggregate face amount of all issued and outstanding letters of credit in compensating balances in deposit with the Bank, which amounted to $14.3 million at June 30, 2009. Because the compensating balance is not restricted as to withdrawal, it is not classified as restricted cash in the accompanying condensed consolidated balance sheets. If the cash amount maintained with the Bank drops below the aggregate amount of all issued and outstanding letters of credit, the difference would be treated as a borrowing under its Revolving Credit Facility with assessed interest.
The Company has a letter of credit from a credit union in the amount of $0.7 million, which is secured by a cash deposit. This amount is included in the restricted cash balance at June 30, 2009.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. In that regard, in May 2009, the Company entered into a surety bond facility with an insurance company to provide such bonds when applicable. As of June 30, 2009, the total available surety bond facility was $1.5 million and the Company had issued surety bonds totaling $45,000.
In connection with the acquisition of the Colorado School of Professional Psychology in 2007, the Company entered into a non-interest bearing note payable agreement. The outstanding balance as of June 30, 2009 was $208,000. The outstanding balance of the note is to be paid monthly in equal installments. At June 30, 2009 there is no material difference between the fair value and the carrying amount of the Company's note payable and long-term debt.
16
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
7. Redeemable Convertible Preferred Stock
The following discussion reflects the terms of the redeemable convertible preferred stock (Series A Convertible Preferred Stock) set forth in the Company's Fourth Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on July 29, 2005. All shares of redeemable convertible preferred stock were optionally converted into common stock immediately prior to the closing of the Company's initial public offering on April 20, 2009.
The redeemable convertible preferred stock ranked senior to all common stock.
The holders of redeemable convertible preferred stock were not entitled to any dividends except in the event that the Company declared, set aside or paid any dividend on the common stock (other than dividends payable solely in additional shares of common stock), in which case holders of the redeemable convertible preferred stock could participate in any such dividends on a per share as-converted basis. Such dividends were payable when and as declared by the Company's board of directors. No preferred stock dividends were declared during the three or six months ended June 30, 2009. See "Preferred Dividends" below for payments upon liquidation, dissolution or winding up of the Company and payments upon optional conversion.
Each issued and outstanding share of redeemable convertible preferred stock was entitled to the number of votes equal to the number of shares of common stock into which each such share of redeemable convertible preferred stock was convertible with respect to matters presented to the stockholders of the Company for their action or consideration.
Optional Conversion Feature
Each share of redeemable convertible preferred stock was convertible, at the option of the holder, at any time into shares of common stock at a conversion rate of 2.265380093 shares of common stock per share. As of June 30, 2009, there were no outstanding shares of redeemable convertible preferred stock that would have resulted in additional shares being issued upon optional conversion. At December 31, 2008 there were 44.8 million shares of common stock that would be issued upon optional conversion of all outstanding shares of redeemable convertible preferred stock.
Upon an optional conversion, the holder was entitled to receive shares of common stock as discussed above, in addition to the payments discussed below under "Payments upon optional conversion." The right of the holders of redeemable convertible preferred stock to elect to receive both shares of common stock and the accreted value under the optional conversion feature resulted in fair value in excess of the invested amount, which resulted in a beneficial conversion feature to such preferred stockholders. This beneficial conversion feature was recorded as a deemed dividend on the date of the issuance of the redeemable convertible preferred stock because there was no stated redemption date (maturity date) and the optional conversion feature was immediately exercisable. The beneficial conversion feature is recognized on the condensed consolidated balance sheet as an increase in additional paid-in capital to allocate a portion of the proceeds from the issuance to the beneficial conversion feature and a decrease to additional paid-in capital for the deemed dividend. This beneficial conversion feature was measured as the excess of the fair value of the common shares into which the preferred shares are convertible over the accounting conversion price as determined in accordance with EITF Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios , and EITF Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments . The Company has not issued redeemable convertible preferred stock since 2005. As of June 30, 2009 and December 31, 2008, the Company had recorded $14.1 million of deemed dividends
17
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
7. Redeemable Convertible Preferred Stock (Continued)
related to the beneficial conversion feature associated with redeemable convertible preferred stock issued prior to 2006.
Preferred Dividends
Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of redeemable convertible preferred stock were entitled to receive an amount equal to the sum of (i) the "accreted value" (as defined below) of the shares of redeemable convertible preferred stock plus (ii) any dividends declared but unpaid on the shares of redeemable convertible preferred stock. The term "accreted value" was defined as an amount equal to the sum of (i) the "stated value" (as defined below) for a share of redeemable convertible preferred stock plus (ii) 8% per year of the stated value, compounding annually and commencing on the date of issuance of such share. The term "stated value" was defined as $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to the redeemable convertible preferred stock. The amount by which the accreted value exceeded the stated value for any share of redeemable convertible preferred stock was referred to as the "accreted dividend" for such share. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
With respect to the payment of amounts described in the preceding paragraph, each of the following events was deemed to be a "liquidation, dissolution or winding up" of the Company: (i) the consolidation with or into another corporation in which the stockholders of record of the Company owned less than 50% or the voting securities of the surviving corporation; (ii) the sale of substantially all the assets of the Company; (iii) the sale of securities of the Company representing more than 50% of the voting securities (other than a qualified public offering); and (iv) a sale to Warburg Pincus, the majority stockholder of the Company, or its successors or assigns.
Upon an optional conversion of shares of redeemable convertible preferred stock, the holder of such shares was entitled to receive (in addition to the common stock acquirable upon conversion of such shares) an amount equal to (i) the accreted value of such shares plus (ii) any dividends declared but unpaid on such shares. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
During the quarter ended June 30, 2009, the Company used the proceeds from its initial public offering to pay the accreted value (carrying value) of the redeemable convertible preferred stock. The accreted value at the time of payment (April 20, 2009) was $27.7 million, of which $7.9 million was accreted dividends. At December 31, 2008, the accreted value was $27.1 million, of which $7.3 million was accreted dividends.
Mandatory Conversion
If not earlier converted pursuant to the optional conversion feature, each share of the redeemable convertible preferred stock would have automatically converted into shares of common stock at its then effective conversion rate (2.265380093 shares of common stock per share of redeemable convertible preferred stock) (i) upon the closing of an underwritten public offering pursuant to an effective
18
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
7. Redeemable Convertible Preferred Stock (Continued)
registration statement under the Securities Act of 1933 in which the net proceeds to the Company were not less than $25.0 million and the shares of common stock were designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange, or (ii) at any time upon the vote to so convert of the holders of at least a majority of the redeemable convertible preferred stock.
Redemption
If, after seven years of the initial issuance of the redeemable convertible preferred stock, the Company had not consummated a liquidity event or a qualified public offering and the optional conversion feature had not been exercised, the holders of a majority of the redeemable convertible preferred stock would have had the right to require the Company to redeem any or all of their redeemable convertible preferred stock at a price in cash equal to the accreted value, plus any declared, but unpaid dividends.
8. Stock-Based Compensation
In March 2009, the Company adopted its 2009 Stock Incentive Plan ("2009 Plan") pursuant to which it may award stock options and other stock-based awards. The compensation committee of the board of directors of the Company determines eligibility, vesting schedules and exercise prices for options granted. Subject to certain adjustments in the event of a change in capitalization or similar transaction, the Company may initially issue a maximum of 5,000,000 shares of its common stock under the 2009 Plan. Unless terminated earlier, the 2009 Plan will terminate on March 3, 2019. All options granted in 2009 are pursuant to the 2009 Plan.
Before the adoption of the 2009 Plan, the Company awarded options pursuant to the Company's Amended and Restated 2005 Stock Incentive Plan ("2005 Plan"). Effective upon the closing of the Company's initial public offering, the Company was no longer able to make grants under the 2005 Plan. The Company has also awarded options outside of the 2005 Plan and the 2009 Plan from time to time.
|
Options
Outstanding |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2008 |
8,827,585 | $ | 0.37 | 6.33 | $ | 122,219,518 | ||||||||
Granted |
2,765,822 | $ | 10.50 | |||||||||||
Exercised |
(103,559 | ) | $ | 0.36 | ||||||||||
Forfeitures |
(107,678 | ) | $ | 3.44 | ||||||||||
Balance at June 30, 2009 |
11,382,170 | $ | 2.81 | 8.03 | $ | 161,553,660 | ||||||||
Vested and expected to vest at June 30, 2009 |
11,192,845 | $ | 2.70 | 8.01 | $ | 160,013,542 | ||||||||
Exercisable at June 30, 2009 |
7,826,247 | $ | 0.35 | 7.40 | $ | 130,270,646 | ||||||||
The Company recorded $32.0 million and $41,000 of compensation expense related to options for the three months ended June 30, 2009 and 2008, respectively, and $32.0 million and $84,000 of compensation expense related to options for the six months ended June 30, 2009 and 2008, respectively,
19
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
8. Stock-Based Compensation (Continued)
in accordance with SFAS 123R. The related income tax benefit was $12.4 million and $16,000 for the three months ended June 30, 2009 and 2008, respectively, and $12.4 million and $33,000 for the six months ended June 30, 2009 and 2008, respectively.
As of June 30, 2009, there was $12.2 million of unrecognized compensation costs related to time-vested options and $74,000 of unrecognized compensation costs related to performance-vested options.
The Company amortizes unearned stock-based compensation over the vesting term using an accelerated graded method in accordance with FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (An Interpretation of APB Opinions No. 15 and 25) ("FIN 28"). These costs are expected to be recognized over a weighted average period of 1.9 years at June 30, 2009.
The Company granted options to purchase 2.8 million shares of common stock during the three months ended June 30, 2009 in connection with the Company's initial public offering. These options vest over a four-year period, commencing the date of grant, and have an exercise price of $10.50 per share, which is equal to the price at which shares were sold to the public in the Company's initial public offering. The aggregate grant date fair value of these options was $14.1 million.
The following assumptions were used to estimate the fair value of the options granted during the three months ended June 30, 2009 using the Black-Scholes model:
Risk free interest rate |
1.9 | % | ||
Expected dividend yield |
| |||
Expected volatility |
48.0 | % | ||
Expected life (in years) |
6.25 |
No options expired during the three months ended June 30, 2009. There were options to purchase 103,559 shares of common stock exercised during the three months ended June 30, 2009. The intrinsic value of the options exercised during the three months ended June 30, 2009 was $1.1 million. The Company received cash of $38,000 from exercised options during the three months ended June 30, 2009. The actual tax benefit related to exercised options was $0.4 million.
The Company reserved 14.8 million and 9.9 million shares of common stock for the exercise of existing stock options and stock options available for grant as of June 30, 2009 and December 31, 2008, respectively.
Acceleration of Exit Options
On March 28, 2009, the Company's board of directors amended the exit options for certain members of the Company's management team (10 individuals) to add an additional vesting condition so that the number of shares underlying the options that would not have vested upon the closing of the Company's initial public offering, under the original terms of the options, would vest in full upon the closing of such offering. This additional vesting condition constituted a modification under SFAS 123R. Accordingly, to the extent the exit option vested under the original vesting conditions, the original grant date fair value was recorded on the vesting date; and to the extent each exit option vested under the additional vesting condition, the modification date fair value would be recorded on the vesting date.
20
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
8. Stock-Based Compensation (Continued)
The compensation expense that was recorded for the exit options during the second quarter of 2009 was $30.4 million in the aggregate ($0.1 million related to the portion of the exit options vesting under the original vesting conditions and $30.3 million related to the portion of the exit options vesting under the additional vesting condition), which was based upon the sale by Warburg Pincus of 20.8% of its ownership of the Company's common stock (as-converted) in the Company's initial public offering. The incremental compensation cost resulting from the modification was $30.0 million. The compensation expense was calculated using the Black-Scholes model, including a fair value of common stock of $14.91, an exercise price of either $0.07 or $0.13 based on the respective options, an estimated life of three years, a zero dividend yield, volatility of 65% and a risk free interest rate of 1.28%. This compensation expense was recorded in accordance with where the related optionee's regular compensation is recorded.
9. Warrants
From time to time, the Company has issued warrants to purchase common stock to various consultants, licensors and lenders. Each warrant represents the right to purchase one share of common stock. No warrants were issued during the three or six month periods ended June 30, 2009.
The following table summarizes information with respect to all warrants outstanding as of June 30, 2009 and December 31, 2008. During the three and six months ended June 30, 2009, 655,659 and 711,215 warrants were exercised, respectively. As of June 30, 2009 and December 31, 2008, all outstanding warrants were exercisable.
Exercise Price
|
June 30,
2009 |
December 31,
2008 |
Expiration
Date |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
$1.125 |
329,435 | 738,819 | 2013-2015 | |||||||
$2.250 |
140,286 | 289,452 | 2013 | |||||||
$2.835 |
172,222 | 305,554 | 2013 | |||||||
$2.925 |
19,555 | 38,888 | 2013 | |||||||
$4.500 |
166,666 | 166,666 | 2013 | |||||||
$9.000 |
38,511 | 38,511 | 2013 |
10. Income Taxes
The Company's current estimated annual effective income tax rate that has been applied to normal, recurring operations for the six months ended June 30, 2009 was 43.7%. The Company's effective income tax expense rate was 43.3% for the six months ended June 30, 2009. The effective tax rate for the three and six months ended June 30, 2009 differed from the Company's estimated annual effective tax rate due to the impact of discrete items on the Company's income before the provision for income taxes. These discrete items related to interest accrued on unrecognized tax benefits discussed below.
On January 1, 2008, the Company adopted FASB Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). As a result of the implementation of FIN 48, the Company had no material additions to reserves for uncertain tax positions. At June 30, 2009 and December 31, 2008, the Company had $3.2 million and $2.7 million of gross unrecognized tax benefits respectively, of
21
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
10. Income Taxes (Continued)
which $0.8 million and $0.3 million, respectively, would impact its effective income tax rate if recognized.
The Company expects an increase in the FIN 48 liability for unrecognized tax benefits in the next 12 months of approximately $2.3 million, the majority of which will affect its operating results. The Company is subject to U.S. federal income tax and multiple state tax jurisdictions. The 2003 through 2008 tax years remain open to examination by major taxing jurisdictions to which the Company is subject.
The Company's continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions as of June 30, 2009 and December 31, 2008 was $0.2 million and $0.2 million, respectively.
11. Regulatory
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act and the regulations promulgated thereunder by the U.S. Department of Education subject the Company to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act.
To participate in Title IV programs, an institution must be authorized to offer its programs of instruction by the relevant agency of the state in which it is located, accredited by an accrediting agency recognized by the U.S. Department of Education and certified as eligible by the U.S. Department of Education. The U.S. Department of Education will certify an institution to participate in Title IV programs only after the institution has demonstrated compliance with the Higher Education Act and the U.S. Department of Education's extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to the U.S. Department of Education on an ongoing basis. As of June 30, 2009 and December 31, 2008, management believes the Company is in compliance with the applicable regulations in all material respects.
The Higher Education Act requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.
Student Default Rate
For each federal fiscal year, the U.S. Department of Education calculates a rate of student defaults for each educational institution which is known as a "cohort default rate." An institution may lose its eligibility to participate in some or all Title IV programs if, for each of the three most recent federal fiscal years, 25% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its cohort default rate exceeds 40% in the most recent federal fiscal year for which default rates have been calculated by the U.S. Department of Education. Ashford University's cohort default rates for the 2005 and 2006
22
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
11. Regulatory (Continued)
federal fiscal years, the two most recent years for which information is available, were 4.1% and 4.1%, respectively. The cohort default rates for the University of the Rockies for the 2005 and 2006 federal fiscal years, the two most recent years for which information is available, were 0.0% and 0.0%, respectively.
The August 2008 reauthorization of the Higher Education Act includes significant revisions to the requirements concerning cohort default rates. Under the revised law, the period for which students' defaults on their loans are included in the calculation of an institution's cohort default rate has been extended by one additional year, which is expected to increase the cohort default rates for most institutions. That change will be effective with the calculation of institutions' cohort default rates for the federal fiscal year ending September 30, 2009, which rates are expected to be calculated and issued by the U.S. Department of Education in 2012. The U.S. Department of Education will not impose sanctions based on rates calculated under this new methodology until three consecutive years of rates have been calculated, which is expected to occur in 2014. Until that time, the U.S. Department of Education will continue to calculate rates under the old calculation method and impose sanctions based on those rates. The revised law also increases the threshold for ending an institution's participation in the relevant Title IV programs from 25% to 30%, effective in the federal fiscal year 2012. Ineligibility to participate in Title IV programs would have a material adverse effect on the Company's enrollments, revenue and results of operations.
Financial Responsibility
The U.S. Department of Education calculates an institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the U.S. Department of Education's minimum composite score may demonstrate its financial responsibility by posting a letter of credit in favor of the U.S. Department of Education and possibly accepting other conditions on its participation in the Title IV programs.
As of and for the year ended December 31, 2007, Ashford University did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 10% of total Title IV funds received in 2007, to accept provisional certification to participate in Title IV programs and to conform to the requirements of the heightened cash monitoring level one method of payment. Under the heightened cash monitoring level one method of payment, the Company may not draw down Title IV funds until they are disbursed to students. Ashford University has posted the required letter of credit in the amount of $12.1 million, which will remain in effect through September 30, 2009.
For the fiscal year ended July 31, 2007, the University of the Rockies did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 30% of total Title IV funds received in the fiscal year ending July 31, 2007, to accept provisional certification to participate in Title IV programs and to conform to the regulations of heightened cash monitoring level one method of payment. The University of the Rockies has posted the required letter of credit in the amount of $0.7 million, which will remain in effect through October 1, 2009.
23
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
11. Regulatory (Continued)
In July 2009, the U.S. Department of Education notified the Company that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
The "90/10" Rule
Pursuant to a provision of the Higher Education Act, as reauthorized in August 2008, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenue (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds for two consecutive fiscal years, commencing with the institution's first fiscal year that ends after the new law's effective date of August 14, 2008. This rule is commonly referred to as the "90/10 rule." Any institution that violates the 90/10 rule becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single year will be placed on provisional certification and may be subject to other enforcement measures. The Company is currently assessing what impact, if any, the U.S. Department of Education's revised formula and other changes in federal law will have on its 90/10 calculation.
In May 2008, the Ensuring Continued Access to Student Loans Act increased the annual loan limits on federal unsubsidized student loans by $2,000 for the majority of the Company's students enrolled in associates and bachelors degree programs, and also increased the aggregate loan limits (over the course of a student's education) on total federal student loans for certain students. This increase in student loan limits, together with increases in Pell grants, has increased the amount of Title IV program funds used by students to satisfy tuition, fees and other costs, which has increased the proportion of the Company's revenue deemed to be from Title IV programs. The Higher Education Opportunity Act provides temporary relief from the impact of these loan limit increases by allowing any amounts received between July 1, 2008 and July 1, 2011 that are attributable to the increased annual loan limits to be excluded from the 90/10 rule calculation. The implementing regulations for this temporary relief and other aspects of the 90/10 rule are being developed by the U.S. Department of Education and are expected to be published in final form by November 1, 2009. There remains uncertainty about the manner in which the temporary relief will be implemented. The Company continues to monitor the rulemaking process, as the resolution of interpretive issues will impact the benefit it derives from the temporary relief.
In 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenue (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds. In connection with the change by the University of the Rockies to a December 31 fiscal year end date, the U.S. Department of Education required the University of the Rockies to calculate its compliance with the 90/10 rule for the fiscal year ending July 31, 2008 and for the 5-month period ending December 31, 2008, and those percentages were 74.3% and 80.8%, respectively.
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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
11. Regulatory (Continued)
Return of Title IV Funds
An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under U.S. Department of Education regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit can result in an institution having to post a letter of credit in an amount equal to 25% of its prior year Title IV returns. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
For the year ended December 31, 2007, Ashford University exceeded the 5% threshold for late refunds sampled, due to human error. As a result, the Company is subject to the requirement to post a letter of credit in favor of the U.S. Department of Education equal to 25% of the total refunds in 2007. Ashford University notified the U.S. Department of Education of its intention to post this letter of credit, but was advised by the U.S. Department of Education that such posting was unnecessary because the Company had already posted a letter of credit due to its failure to meet the composite score standard for the year ended December 31, 2007, which letter of credit was in excess of the amount required for late refunds. Although the Company has taken steps to reduce late refunds, it cannot ensure that such steps will be sufficient to address this issue.
Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action. While there can be no assurance that regulatory agencies or third parties will not undertake investigations or make claims against the Company, or that such claims, if made, will not have a material adverse effect on the Company's business, results of operations or financial condition, management believes it has materially complied with all regulatory requirements.
12. Commitments and Contingencies
In the ordinary conduct of business, the Company is also subject to various lawsuits and claims covering a wide range of matters, including, but not limited to, claims involving students or graduates and routine employment matters. The Company does not believe that the outcome of any pending claims will have a material adverse impact on its consolidated financial position or results of operations or cash flows.
Settlement of Stockholder Dispute
In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against the Company, its directors and officers and Warburg Pincus regarding amendments to the Company's certificate of incorporation made in connection with financings in 2005 and certain stock options granted by the Company to its employees. The claimants represented 90% of the holders of common stock and 59% of the shares of common stock subject to warrants outstanding, in each case as of July 27, 2005. In March 2009, the Company reached a settlement with the claimants regarding these claims and recorded a total expense of $11.1 million related to the settlement during
25
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
12. Commitments and Contingencies (Continued)
the three months ended March 31, 2009, of which $10.6 million was a non-cash expense. After settling with the claimants, the Company notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, the Company reached settlement with the holders of 100% of the common stock and 100% of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time the Company ceased to be a potential obligor related to the claims asserted by these security holders. No additional expense was recorded in the three months ended June 30, 2009.
The settlement resulted in the issuance of an aggregate of 710,097 shares of common stock, with a total value of $10.6 million and cash payments totaling $433,000 which were paid in April 2009.
13. Initial Public Offering
On April 20, 2009, the Company closed its initial public offering of common stock, in which 15.5 million shares of common stock were sold to the public at an offering price of $10.50 per share. The offering included 3.5 million shares sold by the Company and 12.0 million shares sold by selling stockholders. The net proceeds to the Company from this offering were $28.8 million, after deducting underwriting discounts and commissions and offering expenses. The Company used the proceeds from the offering primarily to pay the accreted value of the redeemable convertible preferred stock ($27.7 million) upon the optional conversion of all outstanding shares of redeemable convertible preferred stock into 44.7 million shares of common stock at the closing of the offering.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this report.
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of financial resources. These forward-looking statements may include, without limitation, statements regarding: resilience of our enrollments during the economic downturn; the impact of the settlement of the stockholder dispute and the acceleration of exit options; the expected decrease in capital expenditures as a percentage of revenue; our institutions' ability to satisfy composite score requirements under Title IV; proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our enrollments, financial position, results of operations and our liquidity; projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; management's goals and objectives and other similar matters that are not historical facts. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in the future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. See "Risk Factors" in Part II, Item 1A of this report for a discussion of some of these risks and uncertainties. This discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report.
Overview
Background
We are a regionally accredited provider of postsecondary education services. We offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences.
We deliver programs online as well as at our traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado. As of June 30, 2009, we offered over 1,026 courses and 52 degree programs, 37 minors and 113 specializations. We had 45,504 students enrolled in our institutions as of June 30, 2009, 99% of whom were attending classes exclusively online.
In March 2005, we acquired the assets of The Franciscan University of the Prairies, located in Clinton, Iowa, and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs.
In September 2007, we acquired the assets of the Colorado School of Professional Psychology, located in Colorado Springs, Colorado, and renamed it the University of the Rockies. Founded as a non-profit organization in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology. At the time of the acquisition, the school had 75 students
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and did not offer any online courses or programs. In October 2008, through the University of the Rockies, we launched one online master's program with two specializations and our first online doctoral program.
Regulatory developments
In June 2009, the U.S. Department of Education held three public hearings focused on developing new Title IV regulations, including those related to satisfactory academic progress, incentive compensation paid by institutions to persons or entities engaged in student recruiting or admission activities, gainful employment in a recognized occupation, state authorization as a component of institutional eligibility, the definition of a credit hour for purposes of determining program eligibility status, verification of information included on student aid applications and the definition of a high school diploma as a condition of receiving federal student aid. The U.S. Department of Education has stated that it plans to convene negotiated rulemaking sessions in the fall of 2009 with the objective of developing regulations to address these and other issues raised at the public hearings. Additionally, the U.S. Department of Education is in the process of issuing new regulations to implement the amendments made to the Higher Education Act by the Higher Education Opportunity Act enacted in August 2008. The new regulations will emerge from five negotiated rulemaking sessions conducted and concluded earlier this year and will cover a broad range of topics including the 90/10 rule, cohort default rates and other matters. The first of five sets of new regulations was published in proposed form on July 23, 2009. The proposed regulations are subject to notice and comments from the public and are expected to be issued in final form no later than November 1, 2009. We are closely monitoring any policy or regulatory changes resulting from these rulemaking sessions which could impact our institutions and our business.
In July 2009, the House Committee on Education and Labor passed the Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221. This legislation, which was designed to address the goals outlined by the budget of the Obama Administration, would amend the Higher Education Act to prohibit new federally guaranteed loans from being made under the Federal Family Education Loan, or FFEL, Program, beginning on July 1, 2010, at which time all new federal education loans would be originated through the Federal Direct Loan Program. The legislation would also, among other matters, provide for automatic increases in the maximum amount of the Federal Pell Grant for which a student would be eligible (subject to appropriations), create a new Federal Direct Perkins Loan program (to replace the current Perkins loan program) and provide relief to for-profit institutions by amending the "90/10 rule" (i) to extend to July 2012 the ability of for-profit institutions to exclude from their Title IV revenues the additional $2,000 per student in certain annual federal student loan amounts that became available in June 2008, (ii) to exclude from the 90/10 rule calculation for the period July 1, 2010 through July 1, 2012 the revenue received from loans disbursed under the Federal Direct Perkins Loan program (iii) to give for-profit institutions three years (as opposed to two) to come into compliance with the 90/10 rule, and (iv) to give for-profit institutions two years (as opposed to one) of non-compliance with the 90/10 rule before they would be moved into provisional eligibility status. For more information about the 90/10 rule, see Note 11, "RegulatoryThe 90/10 Rule," to the condensed consolidated financial statements which are included in Part I, Item 1 of this report. The Student Aid and Fiscal Responsibility Act of 2009 has not been passed by Congress and is subject to further review and amendment. If the legislation passes, our institutions would be required to certify loans through the Federal Direct Loan Program, for which we are eligible to participate, rather than through the FFEL Program. We expect to be able to fully transition from the FFEL Program to the Federal Direct Loan Program by the proposed July 1, 2010 phase-out date, if necessary.
In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit
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in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
Initial public offering
On April 20, 2009, we closed our initial public offering of common stock, in which 15.5 million shares of common stock were sold to the public at an offering price of $10.50 per share. The offering included 3.5 million shares sold by us and 12.0 million shares sold by selling stockholders. The net proceeds to us from this offering were $28.8 million, after deducting underwriting discounts and commissions and offering expenses. We used the proceeds from the offering primarily to pay the accreted value of the Series A Convertible Preferred Stock ($27.7 million) upon the optional conversion of all outstanding shares of Series A Convertible Preferred Stock into 44.7 million shares of common stock at the closing of the offering. The balance of the proceeds was used for general corporate purposes.
Material weaknesses
In connection with the preparation of our consolidated financial statements included in the Registration Statement on Form S-1 (File No. 333-156408) we filed in connection with our initial public offering, we concluded there were matters that constituted material weaknesses in our internal control over financial reporting. See "Material weaknesses" in Part I, Item 4 of this report for more information about these material weaknesses and the measures we are implementing to remediate them.
Critical Accounting Policies and Use of Estimates
For a discussion of our critical accounting policies and estimates, see "Management's Discussion and Analysis of Financial Condition and Results of OperationCritical Accounting Policies and Use of Estimates" included in Part I, Item 2 of our quarterly report on Form 10-Q for the period ended March 31, 2009 filed with the SEC on May 21, 2009. Included below is an update for certain of our critical accounting policies and estimates as of June 30, 2009.
Stock-based compensation
We grant options to purchase our common stock to certain employees and directors under our equity incentive plans. The benefits provided under these plans are share-based payments subject to the provisions of revised SFAS No. 123, Share-Based Payments, or SFAS 123R. Effective January 1, 2006, we adopted the provisions of SFAS 123R. SFAS 123R, which is a revision of SFAS 123, Accounting for Stock-Based Compensation , replaces our previous accounting for share-based awards under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees . SFAS 123R requires all share-based payments to employees, including grants of stock options and the compensatory elements of employee stock purchase plans, to be recorded in our consolidated statement of income based upon their fair values.
Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date fair value of the award and is expensed over the vesting period. We estimate the fair value of stock options awards on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating our volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
Our computation of expected term was calculated using the simplified method, as permitted by SAB No. 107, Share-Based Payment , and SAB No. 110, Share-Based Payment . The risk-free interest rate
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is based on the United States Treasury yield of those maturities that are consistent with the expected term of the stock option in effect on the grant date of the award. Dividend rates are based upon historical dividend trends and expected future dividends. As we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future, a zero dividend rate is assumed in our calculation. Because our stock has historically not been publicly traded and we had no substantial historical data on the volatility of our stock as of June 30, 2009, our expected volatility is estimated by analyzing the historical volatility of comparable public companies, which we refer to as guideline companies. In evaluating the comparability of the guideline companies, we consider factors such as industry, stage of life cycle, size and financial leverage.
The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The effect of changes of the estimates to the inputs to the Black-Scholes option pricing model, such as estimated life or volatility, would not have a material impact to our consolidated financial statements.
Our board of directors estimated the fair value of the common stock underlying stock-based awards granted through April 14, 2009, the effective date of the registration statement we filed in connection with our initial public offering. The intent was for all options granted to be exercisable at a price per share not less than the per share fair market value of common stock on the date of grant. As a privately held company, our board of directors made a reasonable estimate of the then-current fair value of our common stock as of the date of each option grant. Our board of directors considered numerous objective and subjective factors in determining the fair value of our common stock at each option grant date, including the following: (i) the price of the Series A Convertible Preferred Stock we issued in arm's-length transactions and the rights, preferences and privileges of such stock relative to the common stock; (ii) our performance and the status of our business plan development and marketing efforts and (iii) our stage of development and business strategy.
In determining the fair value of our common stock, we used a combination of the income approach and the market approach to estimate our total enterprise value at each valuation date. We then used that enterprise value to estimate the fair value of the common stock in the context of our capital structure as of each valuation date.
As a public company, our board of directors will grant options with an exercise price that equals or exceeds the closing price of our common stock, as reported by the New York Stock Exchange, on the date of grant.
Recent Accounting Pronouncements
For recent accounting pronouncements, see Note 2, "Summary of Significant Accounting PoliciesRecent Accounting Pronouncements," to the condensed consolidated financial statements which are included in Part I, Item 1 of this report.
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Results of Operations
The following table sets forth the condensed consolidated statements of income data as a percentage of revenue for each of the periods indicated:
|
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Costs and expenses: |
|||||||||||||||
Instructional costs and services |
25.6 | 25.5 | 25.9 | 28.9 | |||||||||||
Marketing and promotional |
35.8 | 36.8 | 35.2 | 37.6 | |||||||||||
General and administrative |
37.0 | 15.9 | 34.3 | 17.0 | |||||||||||
Total costs and expenses |
98.4 | 78.2 | 95.4 | 83.5 | |||||||||||
Operating income |
1.6 | 21.8 | 4.6 | 16.5 | |||||||||||
Other income (expense), net |
0.0 | (0.1 | ) | 0.0 | (0.1 | ) | |||||||||
Income before income taxes |
1.6 | 21.7 | 4.6 | 16.4 | |||||||||||
Income tax expense |
0.5 | 5.6 | 2.0 | 2.9 | |||||||||||
Net income |
1.1 | % | 16.1 | % | 2.6 | % | 13.5 | % | |||||||
We have experienced significant growth in enrollments, revenue and operating income as well as improvement in liquidity since our acquisition of Ashford University in March 2005. We continue to grow in response to the increasing demand in the market for higher education. We believe our enrollment and revenue growth has been driven primarily by (i) our significant investment in enrollment advisors and online advertising which commenced immediately upon our acquisition of Ashford University and (ii) students' acceptance of our value proposition. Our significant growth in operating income is a result of leveraging our fixed costs with increased revenue.
Through 2008 and the first two quarters of 2009, we have seen enrollments and revenue continue to increase even though general economic conditions have deteriorated. During 2008 and the first two quarters of 2009, we did not see any unfavorable impact from the decline in general economic conditions on our liquidity, capital resources or results of operations. While we cannot guarantee that these trends will continue, we believe that the performance of our company, as well as the performance of other for-profit education providers generally, has been resilient in the current economic downturn due to (i) the continued availability of Title IV funds to finance student tuition payments, (ii) increased demand for postsecondary education resulting from a deteriorating labor market, (iii) lower advertising costs and (iv) decreased turnover in enrollment advisors and other personnel. To meet the challenges of the current economy, we plan to continue to invest significantly in enrollment advisors and online advertising, which actions we expect will result in our enrollments and operating income continuing to grow, though perhaps not at the same rate as in the past.
We expect certain expenses to have a significant effect on the comparability of recent and future results of operations. In particular, our operating results have been adversely impacted by the recording of expenses related to (i) the settlement of the stockholder dispute in the first quarter of 2009, an expense of $11.1 million (of which $10.6 million was a non-cash expense) and (ii) the acceleration of exit options in the second quarter of 2009, a non-cash expense of $30.4 million. See Note 8, "Stock-Based CompensationAcceleration of Exit Options," and Note 12, "Commitments and ContingenciesSettlement of Stockholder Dispute," to the condensed consolidated financial statements which are included in Part I, Item 1 of this report. In addition, we estimate that our incremental annual costs associated with being a publicly traded company will be between $2.5 million and $4.0 million per year.
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Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Revenue. Our revenue for the three months ended June 30, 2009 was $110.9 million, representing an increase of $61.0 million, or 122.1%, as compared to revenue of $49.9 million for the three months ended June 30, 2008. This increase was primarily due to enrollment growth of 101.3%, from 22,607 students at June 30, 2008 to 45,504 students at June 30, 2009. Enrollment growth is driven by various factors including the students' acceptance of our value proposition, the quality of lead generation efforts, the number of enrollment advisors and our ability to retain existing students. In addition to the increase in student enrollment, the revenue increase was also positively impacted by the 5% tuition increase effective April 1, 2009 and the decision to move to a single credit hour price for all Ashford University undergraduate students. The tuition increase and the move to a single credit hour price accounted for approximately 6.0% and 11.8%, respectively, of the revenue increase between periods. These increases were partially offset by an increase in institutional scholarships of 281.9% between periods.
Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended June 30, 2009 were $28.4 million, representing an increase of $15.7 million, or 122.7%, as compared to instructional costs and services expenses of $12.7 million for the three months ended June 30, 2008. This increase was primarily due to an increase in educational support services and increases in instructional costs as a result of the increase in enrollments, as well as a $2.1 million charge related to the instructional costs and services portion of the acceleration of exit options that occurred in the second quarter of 2009. Our instructional costs and services expenses as a percentage of revenue increased by 0.1% to 25.6% for the three months ended June 30, 2009, as compared to 25.5% for the three months ended June 30, 2008. This increase in 2009 was driven by the exit option charge offset by improvements in our variable cost structure due to ongoing work on process improvements, including more efficient course scheduling and use of faculty. Bad debt as a percentage of revenue was 4.1% for the three months ended June 30, 2009 as compared to 4.7% for the three months ended June 30, 2008, primarily due to the procedural improvements in the processing of receivables.
Marketing and promotional expenses. Our marketing and promotional expenses for the three months ended June 30, 2009 were $39.7 million, representing an increase of $21.3 million, or 115.9%, as compared to marketing and promotional expenses of $18.4 million for the three months ended June 30, 2008. This increase was driven by greater spending in targeted marketing and online media and an increase in recruitment and marketing staffing, as well as a $5.0 million charge related to the marketing and promotional portion of the acceleration of exit options that occurred in the second quarter of 2009. Our marketing and promotional expenses as a percentage of revenue decreased by 1.0% to 35.8% for the three months ended June 30, 2009, from 36.8% for the three months ended June 30, 2008, primarily due to improvements in our variable cost structure as they relate to advertising.
General and administrative expenses. Our general and administrative expenses for the three months ended June 30, 2009 were $41.1 million, representing an increase of $33.2 million, or 418.5%, as compared to general and administrative expenses of $7.9 million for the three months ended June 30, 2008. This increase was primarily attributable to a $23.3 million charge related to the general and administrative portion of the acceleration of exit options that occurred in the second quarter of 2009, as well as to increased wages of $4.1 million, increased rent of $3.6 million, increased legal and accounting expenses of $1.2 million, increased travel of $0.4 million and other costs of $0.6 million. Our general and administrative expenses as a percentage of revenue increased by 21.1% to 37.0% for the three months ended June 30, 2009, from 15.9% for the three months ended June 30, 2008, primarily due to the increased costs noted above.
Other income (expense), net. Other income was $44,000 for the three months ended June 30, 2009, as compared to other expense of $38,000 for the three months ended June 30, 2008, representing a
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change of $82,000. The increase was primarily due to increased levels of interest income on higher average cash balances.
Income tax expense. We recognized tax expense for the three months ended June 30, 2009 and 2008 of $0.6 million and $2.8 million, at effective tax rates of 31.8% and 26.0%, respectively. The increase in our effective tax rate in 2009 as compared to 2008 was primarily due to (i) an increase in our FIN 48 liability in 2009 and (ii) a nonrecurring benefit related to the release in 2008 of the valuation allowance existing at December 31, 2007. The higher effective tax also reflects the fact that the $11.1 million stockholder settlement charge recorded in the first quarter of 2009 is only partially deductible for tax purposes.
Net income. Net income was $1.3 million for the three months ended June 30, 2009, compared to net income of $8.0 million for the three months ended June 30, 2008, a decrease of $6.7 million, as a result of the factors discussed above.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Revenue. Our revenue for the six months ended June 30, 2009 was $195.2 million, representing an increase of $106.3 million, or 119.6%, as compared to revenue of $88.9 million for the six months ended June 30, 2008. This increase was primarily due to enrollment growth of 101.3%, from 22,607 students at June 30, 2008 to 45,504 students at June 30, 2009. Enrollment growth is driven by various factors including the students' acceptance of our value proposition, the quality of lead generation efforts, the number of enrollment advisors and our ability to retain existing students. In addition to the increase in student enrollment, the revenue increase was also positively impacted by the 5% tuition increase effective April 1, 2009 and the decision to move to a single credit hour price for all Ashford undergraduate students. The tuition increase and the move to a single credit hour price accounted for approximately 3.4% and 6.8%, respectively, of the revenue increase between periods. These increases were partially offset by an increase in institutional scholarships of 263.1% between periods.
Instructional costs and services expenses. Our instructional costs and services expenses for the six months ended June 30, 2009 were $50.5 million, representing an increase of $24.8 million, or 96.6%, as compared to instructional costs and services expenses of $25.7 million for the six months ended June 30, 2008. This increase was primarily due to an increase in educational support services and increases in instructional costs as a result of the increase in enrollments, as well as a $2.1 million charge related to the instructional costs and services portion of the acceleration of exit options that occurred in the second quarter of 2009. Our instructional costs and services expenses as a percentage of revenue decreased by 3.0% to 25.9% for the six months ended June 30, 2009, as compared to 28.9% for the six months ended June 30, 2008. This decrease in 2009 was driven by improvements in our variable cost structure due to ongoing work on process improvements, including more efficient course scheduling and use of faculty, offset partially by the exit option charge. Bad debt as a percentage of revenue was 4.7% for the six months ended June 30, 2009 as compared to 6.0% for the six months ended June 30, 2008, primarily due to the procedural improvements in the processing of receivables.
Marketing and promotional expenses. Our marketing and promotional expenses for the six months ended June 30, 2009 were $68.8 million, representing an increase of $35.4 million, or 105.7%, as compared to marketing and promotional expenses of $33.4 million for the six months ended June 30, 2008. This increase was driven by greater spending in targeted marketing and online media and an increase in recruitment and marketing staffing, as well as a $5.0 million charge related to the marketing and promotional portion of the acceleration of exit options that occurred in the second quarter of 2009. Our marketing and promotional expenses as a percentage of revenue decreased by 2.4% to 35.2% for the six months ended June 30, 2009, from 37.6% for the six months ended June 30, 2008, primarily due to improvements in our variable cost structure as they relate to advertising.
33
General and administrative expenses. Our general and administrative expenses for the six months ended June 30, 2009 were $67.0 million, representing an increase of $51.9 million, or 342.5%, as compared to general and administrative expenses of $15.1 million for the six months ended June 30, 2008. This increase was primarily attributable to (i) an $11.1 million charge related to the stockholder settlement in the first quarter of 2009 and (ii) a $23.3 million charge related to the general and administrative portion of the acceleration of exit options that occurred in the second quarter of 2009, as well as to increased wages of $7.3 million, increased rent of $6.0 million, increased legal and accounting expenses of $2.7 million, increased travel of $0.7 million and other costs of $0.8 million. Our general and administrative expenses as a percentage of revenue increased by 17.3% to 34.3% for the six months ended June 30, 2009, from 17.0% for the six months ended June 30, 2008, primarily due to the increased costs noted above.
Other income (expense), net. Other income was $0.1 million for the six months ended June 30, 2009, as compared to other expense of $0.1 million for the six months ended June 30, 2008, representing a change of $0.2 million. The increase was principally due to increased levels of interest income on higher average cash balances.
Income tax expense. We recognized tax expense for the six months ended June 30, 2009 and 2008 of $3.9 million and $2.5 million, at effective tax rates of 43.3% and 17.3%, respectively. The increase in our effective tax rate in 2009 as compared to 2008 was primarily due to (i) an increase in our FIN 48 liability in 2009 and (ii) a nonrecurring benefit related to the release in 2008 of the valuation allowance existing at December 31, 2007. The higher effective tax also reflects the fact that the $11.1 million stockholder settlement charge recorded in the first quarter of 2009 is only partially deductible for tax purposes.
Net income. Net income was $5.1 million for the six months ended June 30, 2009, compared to net income of $12.0 million for the six months ended June 30, 2008, a decrease of $6.9 million, as a result of the factors discussed above.
Liquidity and Capital Resources
We financed our operating activities and capital expenditures during the six months ended June 30, 2009 and 2008 primarily through cash provided by operating activities. Our cash and cash equivalents were $111.9 million at June 30, 2009 and $56.5 million at December 31, 2008. Our restricted cash was $0.7 million at June 30, 2009 and December 31, 2008. At June 30, 2009, we had marketable securities of $10.0 million.
Based on our current level of operations and anticipated growth in enrollments, we believe that our cash flow from operations, existing cash and cash equivalents and other sources of liquidity will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.
Credit Agreement
We have a credit agreement, which we refer to as the Credit Agreement, with Comerica Bank which provides for a maximum amount of borrowing under a revolving credit facility of $15.0 million, with a letter of credit sub-limit of $15.0 million. The Credit Agreement also provides for an equipment line of credit not to exceed $0.2 million. As of June 30, 2009, we used the availability under the revolving credit facility to issue letters of credit aggregating $14.3 million. We had no borrowings outstanding under the revolving credit facility as of June 30, 2009.
Under the Credit Agreement, we are subject to certain limitations including restrictions on our ability to incur additional debt, make certain investments or acquisitions and enter into certain merger and consolidation transactions, among other restrictions. The Credit Agreement also contains a material adverse change clause, and we are required to maintain compliance with a minimum tangible
34
net worth financial covenant. As of June 30, 2009 and December 31, 2008, we were in compliance with all financial covenants in our Credit Agreement. If we fail to comply with any of the covenants or experience a material adverse change, the lenders could elect to prevent us from borrowing or issuing letters of credit and declare the indebtedness to be immediately due and payable.
Title IV funding
A significant portion of our revenue is derived from tuition funded by Title IV programs. As such, the timing of disbursements under Title IV programs is based on federal regulations and our ability to successfully and timely arrange financial aid for our students. Title IV funds are generally provided in multiple disbursements before we earn a significant portion of tuition and fees and incur related expenses over the period of instruction. Students must apply for new loans and grants each academic year. These factors, together with the timing of our students beginning their programs, affect our operating cash flow.
Based on the financial statements for the fiscal year ended December 31, 2007, Ashford University and the University of the Rockies did not satisfy the composite score requirement of the financial responsibility test, which institutions must satisfy in order to participate in Title IV programs. As a result, (i) Ashford University posted a letter of credit in favor of the U.S. Department of Education in the amount of $12.1 million, remaining in effect through September 30, 2009, and (ii) the University of the Rockies posted a letter of credit in favor of the U.S. Department of Education in the amount of $0.7 million, remaining in effect through October 1, 2009. Additionally, we have posted an aggregate of $2.1 million in letters of credit related to our leased facilities and vehicles. The letters of credit related to Ashford University and to our leased facilities are issued under our Credit Agreement. The letter of credit on behalf of the University of the Rockies was issued by another financial institution and is secured by a cash deposit of $0.7 million.
In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education. Although we also expect Ashford University to satisfy the composite score requirement of the financial responsibility test under Title IV for the year ending December 31, 2008, and as a result would not be required to replace its outstanding letter of credit upon expiration, we expect to have sufficient cash on hand and availability of credit to replace or increase the letter of credit if necessary.
Operating activities
Net cash provided by operating activities was $76.5 million and $23.2 million for the six months ended June 30, 2009 and 2008, respectively. The increase from 2008 to 2009 was primarily due to an increase in net income (excluding the non-cash charges related to the stockholder settlement and the acceleration of exit options) and $42.7 million of deferred revenue related to our overall growth and timing of receivables. We expect to continue to generate cash from our operations for the foreseeable future.
Investing activities
Our cash used in investing activities is primarily related to the purchase of property and equipment. Net cash used in investing activities was $23.5 million and $2.5 million for the six months ended June 30, 2009 and 2008, respectively. Capital expenditures were $12.0 million and $1.8 million for the six months ended June 30, 2009 and 2008, respectively. The increase in 2009 from 2008 is primarily related to the purchase of property and equipment and leasehold improvements relating to a facility for which we began rental payments in the first quarter of 2009. We will continue to invest in computer equipment and office furniture and fixtures to support our increasing employee headcounts. We expect future capital expenditures to decrease as a percentage of revenue.
35
During the second quarter of 2009, we purchased $10.0 million of marketable securities. We manage our excess cash pursuant the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which was adopted by our audit committee and our board of directors in May 2009 and is managed by our chief financial officer, has the following primary objectives (in order of priority): preserving principal, meeting our liquidity needs, minimizing market and credit risk, and providing after-tax returns. Under the policy's guidelines, we invest our excess cash exclusively in high-quality, short-term, U.S.-dollar denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see "Quantitative and Qualitative Disclosures About Market Risk" in Part I, Item 3 of this report.
Financing activities
Net cash provided by financing activities was $2.4 million for the six months ended June 30, 2009 and used in financing was $3.0 million for the six months ended June 30, 2008. During the six months ended June 30, 2009, net cash provided by financing activities was generated primarily from the net proceeds of our initial public offering, after deducting underwriting discounts and commissions and offering expenses ($28.8 million), offset by the payment of the accreted value of the Series A Convertible Preferred Stock ($27.7 million) upon the optional conversion of all outstanding shares of Series A Convertible Preferred Stock into common stock at the closing of the offering.
We expect to continue to utilize commercial financing, lines of credit and term debt for the purpose of expansion of our online business infrastructure and to expand and improve our ground campuses in Clinton, Iowa and Colorado Springs, Colorado.
Seasonality
Although not apparent in our results of operations due to our rapid rate of growth, our operations are generally subject to seasonal trends. As our growth rate declines we expect to experience seasonal fluctuations in results of operations as a result of changes in the level of student enrollment. While we enroll students throughout the year, first and fourth quarter new enrollments and revenue generally are lower than other quarters due to the holiday break in December and January. We generally experience a seasonal increase in new enrollments in August and September of each year when most other colleges and universities begin their fall semesters.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market and credit risk
Pursuant to our cash investment policy (adopted in May 2009), we attempt to mitigate the exposure of our cash investments to market and credit risk by (i) diversifying concentration risk to ensure that we are not overly concentrated in a limited number of financial institutions, (ii) monitoring and managing the risks associated with the national banking and credit markets, (iii) investing in U.S. dollar-denominated assets and instruments only, (iv) diversifying account structures so that we maintain a decentralized account portfolio with numerous stable, highly-rated and liquid financial institutions and (v) ensuring that our investment procedures maintain a defined and specific scope such that we will not invest in higher-risk investment accounts, including long-term corporate bonds, financial swaps or derivative and corporate equities. Accordingly, under the guidelines of the policy, we invest our excess cash exclusively in high-quality, short-term, U.S.-dollar denominated financial instruments. All of our
36
marketable securities as of June 30, 2009 were certificates of deposit at financial institutions that maintain a rating of A1 or P1 or higher.
Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments and we may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline further in this time of economic uncertainty. In addition, unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.
We have no derivative financial instruments or derivative commodity instruments.
Interest rate risk
All of our capital lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates. However, to the extent we borrow funds under the Credit Agreement, we would be subject to fluctuations in interest rates. As of June 30, 2009, we had no borrowings under the Credit Agreement.
Our future investment income may fall short of expectations due to changes in interest rates. At June 30, 2009, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair value, or cash flows related to investments in cash equivalents or interest earning marketable securities.
Item 4. Controls and Procedures
Material weaknesses
In connection with the preparation of our consolidated financial statements included in the Registration Statement on Form S-1 (File No. 333-156408) we filed in connection with our initial public offering, we concluded that there were matters that constituted material weaknesses in our internal control over financial reporting. A material weakness is a control deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis by our employees in the normal course of performing their assigned functions.
In particular, we concluded that we did not have: (i) a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of GAAP, performance of supervisory review and analysis and application of sufficient analysis on significant contracts, judgments and estimates; or (ii) effective controls over the selection, application and monitoring of accounting policies related to redeemable convertible preferred stock, earnings per share, leasing transactions and stock-based compensation to ensure that such transactions were accounted for in conformity with GAAP.
We are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to our internal control over financial reporting. Our chief financial officer is responsible for implementing changes and improvements in our internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses. We have continued to implement a number of significant changes and improvements in our internal control over financial reporting during the first half of 2009, specifically:
37
Management plans to implement further process changes and conduct further training during 2009. We cannot assure you that the measures we have taken to date and plan to take will remediate the material weaknesses we have identified.
Evaluation of disclosure controls and procedures
We carried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective at the end of the period covered by this report because of the material weaknesses discussed above under "Material weaknesses."
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Other than the changes in internal control of financial reporting discussed above under "Material weaknesses," there were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
In the ordinary conduct of business, we are subject to various lawsuits and claims covering a wide range of matters, including, but not limited to, claims involving students or graduates and routine employment matters. We do not believe that the outcome of any pending claims will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
Settlement of stockholder dispute
In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against us, our officers and directors and Warburg Pincus based primarily on allegations of breach of fiduciary duty and violations of corporate governance requirements involving amendments to the certificate of incorporation made in connection with financings in 2005 and by certain stock options granted by us to our employees.
On March 29, 2009, we reached a settlement with the claimants regarding these claims. Upon the settlement in the first quarter of 2009, we recorded a total expense of $11.1 million related to the settlement, of which $10.6 million was non-cash.
The settlement did not constitute an admission of guilt or liability on our part or on the part of Warburg Pincus or any of our officers or directors. In exchange for a general release of claims against us, our directors and officers and Warburg Pincus, we and Warburg Pincus signed settlement agreements with the claimants pursuant to which we agreed:
After settling with the claimants, we notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, we reached settlement with the holders of 100% of the common stock and 100% of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time we ceased to be a potential obligor related to the claims asserted by these security holders. No additional expense was recorded in the second quarter of 2009 related to the settlement of the stockholder dispute.
39
Investing in our common stock involves risk. In addition to the updated risk factor set forth below, you should carefully consider the risk factors discussed in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended March 31, 2009 filed with the SEC on May 21, 2009. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
The Department of Education's Office of Inspector General has commenced a compliance audit of Ashford University which is ongoing, and which could result in repayment of Title IV funds, interest, fines, penalties, remedial action, damage to our reputation in the industry or a limitation on, or a termination of, our participation in Title IV programs.
The Department of Education's Office of Inspector General (OIG) is responsible for promoting the effectiveness and integrity of the Department of Education's programs and operations. With respect to educational institutions that participate in Title IV programs, the OIG conducts its work primarily through an audit services division and an investigations division. The audit services division typically conducts general audits of schools to assess their administration of federal funds in accordance with applicable rules and regulations. The investigation services division typically conducts focused investigations of particular allegations of fraud, abuse or other wrongdoing against schools by third parties, such as a lawsuit filed under seal pursuant to the federal False Claims Act.
The OIG audit services division is conducting a compliance audit of Ashford University which commenced in May 2008. The period under audit is March 10, 2005 through June 30, 2009, which is the end of the current Title IV award year of July 1, 2008 through June 30, 2009. The scope of the audit covers Ashford University's administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, award and disbursement of Title IV program funds, verification of awards, returns of unearned funds and compensation of financial aid and recruiting personnel. Based on our conversations with the OIG, we believe that the OIG is in the process of completing its field work, after which it is expected to issue a draft audit report to which we will have an opportunity to respond. We expect that the OIG will not issue a final audit report until several months thereafter. The final audit report would include any findings and any recommendations to the Department of Education's Federal Student Aid office based on those findings. If the OIG identifies findings of noncompliance in its final report, the OIG could recommend remedial actions to the office of Federal Student Aid, which would determine what action to take, if any. Such action could include requiring Ashford University to refund federal student aid funds or modify its Title IV administration procedures, imposing fines, limiting, suspending or terminating its Title IV participation or taking other remedial action. Because of the ongoing nature of the OIG audit, we cannot predict with certainty the ultimate extent of the draft or final audit findings or recommendations or the potential liability or remedial actions that might result. See "Risk FactorsRisks Related to the Extensive Regulation of Our BusinessIf our schools fail to comply with extensive regulatory requirements, we could face monetary liabilities or penalties, restrictions on our operations or growth or loss of access to federal loans and grants for our students on which we are substantially dependent" in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended March 31, 2009 filed with the SEC on May 21, 2009.
40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
On July 1, 2009, we issued an aggregate of 186,763 shares of common stock to three investors upon the conversion of warrants to purchase an aggregate of 199,999 shares of common stock at a weighted average exercise price of $1.125 per share. Pursuant to the cashless net exercise feature of the warrants, the warrants could be converted, in lieu of cash exercise, into a number of shares of common stock determined by multiplying the number of shares purchasable under the warrant by the difference between the fair market value of the common stock on the date of conversion and the warrant exercise price, and dividing such product by the fair market value of the common stock on the date of conversion. The fair market value of the common stock determined in accordance with the warrants on the date of conversion was $17.00 per share. The shares were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act. An appropriate legend was placed on the shares.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Use of Proceeds
Our initial public offering of common stock was effected through a Registration Statement on Form S-1 (File No. 333-156408) that was declared effective by the Securities and Exchange Commission on April 14, 2009. On April 20, 2009, we sold 3,500,000 shares of common stock and selling stockholders sold 10,000,000 shares of common stock at an initial public offering price of $10.50 per share for aggregate gross offering proceeds of $36.8 million to us and $105.0 million to selling stockholders. Credit Suisse and J.P.Morgan acted as co-book running managers. Additionally, on April 20, 2009, in connection with the exercise of the underwriters' over-allotment option, Warburg Pincus sold 2,025,000 additional shares of common stock at the initial public offering price of $10.50 per share for aggregate gross offering proceeds of $21.3 million. We received no proceeds from the sale of shares by selling stockholders. The offering terminated at the closing thereof.
We paid to the underwriters underwriting discounts totaling approximately $2.4 million in connection with the offering. In addition, we incurred additional costs of $5.6 million in connection with the offering which, when added to the underwriting discounts paid by us, resulted in total expenses of $8.0 million related to the offering. Accordingly, the net offering proceeds to us, after deducting underwriting discounts and offering expenses, were approximately $28.8 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
We used $27.7 million of the net proceeds from the offering to pay the accreted value of the Series A Convertible Preferred Stock, which the holders optionally converted immediately prior to the closing of the offering. The balance of the net proceeds was used for general corporate purposes in the second quarter of 2009.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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None.
Exhibit No. | Description | ||
---|---|---|---|
10.1 | Office Lease dated June 26, 2009 with Kilroy Realty, L.P. related to the premises located at 13520 Evening Creek North, San Diego, California. | ||
|
10.2 |
|
Second Amendment to Office Lease dated June 3, 2009 with Kilroy Realty L.P. related to the premises located at 13480 Evening Creek Drive North, San Diego, California. |
|
10.3 |
|
Ninth Amendment to Loan and Security Agreement with Comerica Bank dated May 1, 2009. |
|
10.4 |
|
Tenth Amendment to Loan and Security Agreement with Comerica Bank dated June 22, 2009. |
|
10.5 |
|
Addenda to Software License Agreement with Campus Management Corp. dated June 29, 2009. |
|
31.1 |
|
Certification of Andrew S. Clark, CEO and President, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification of Daniel J. Devine, Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Andrew S. Clark, CEO and President, and Daniel J. Devine, Chief Financial Officer. |
42
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BRIDGEPOINT EDUCATION, INC. | ||
August 11, 2009 |
|
/s/ DANIEL J. DEVINE Daniel J. Devine Chief Financial Officer (Principal financial officer and duly authorized to sign on behalf of the registrant) |
43
Exhibit 10.1
*** Confidential portions of this document have been redacted and filed separately with the Commission.
OFFICE LEASE
KILROY REALTY
KILROY SABRE SPRINGS
KILROY REALTY, L.P.,
a Delaware limited partnership,
as Landlord,
and
BRIDGEPOINT EDUCATION, INC .,
a Delaware corporation,
as Tenant.
TABLE OF CONTENTS
|
|
Page |
|
|
|
ARTICLE 1 |
PREMISES, BUILDING, PROJECT, AND COMMON AREAS |
5 |
|
|
|
ARTICLE 2 |
LEASE TERM; OPTION TERM |
7 |
|
|
|
ARTICLE 3 |
BASE RENT |
12 |
|
|
|
ARTICLE 4 |
ADDITIONAL RENT |
13 |
|
|
|
ARTICLE 5 |
USE OF PREMISES |
24 |
|
|
|
ARTICLE 6 |
SERVICES AND UTILITIES |
25 |
|
|
|
ARTICLE 7 |
REPAIRS |
28 |
|
|
|
ARTICLE 8 |
ADDITIONS AND ALTERATIONS |
29 |
|
|
|
ARTICLE 9 |
COVENANT AGAINST LIENS |
31 |
|
|
|
ARTICLE 10 |
INSURANCE |
32 |
|
|
|
ARTICLE 11 |
DAMAGE AND DESTRUCTION |
36 |
|
|
|
ARTICLE 12 |
NONWAIVER |
38 |
|
|
|
ARTICLE 13 |
CONDEMNATION |
39 |
|
|
|
ARTICLE 14 |
ASSIGNMENT AND SUBLETTING |
39 |
|
|
|
ARTICLE 15 |
SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES |
44 |
|
|
|
ARTICLE 16 |
HOLDING OVER |
45 |
|
|
|
ARTICLE 17 |
ESTOPPEL CERTIFICATES |
45 |
|
|
|
ARTICLE 18 |
SUBORDINATION |
46 |
|
|
|
ARTICLE 19 |
DEFAULTS; REMEDIES |
46 |
|
|
|
ARTICLE 20 |
COVENANT OF QUIET ENJOYMENT |
49 |
|
|
|
ARTICLE 21 |
LETTER OF CREDIT |
50 |
|
|
|
ARTICLE 22 |
SUBSTITUTION OF OTHER PREMISES |
52 |
|
|
|
ARTICLE 23 |
SIGNS |
53 |
i
ARTICLE 24 |
COMPLIANCE WITH LAW |
55 |
|
|
|
ARTICLE 25 |
LATE CHARGES |
56 |
|
|
|
ARTICLE 26 |
LANDLORDS RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT |
56 |
|
|
|
ARTICLE 27 |
ENTRY BY LANDLORD |
57 |
|
|
|
ARTICLE 28 |
TENANT PARKING |
58 |
|
|
|
ARTICLE 29 |
MISCELLANEOUS PROVISIONS |
59 |
ii
INDEX
|
Page(s) |
|
|
13480 Lease |
7 |
13480 Premises |
7 |
13500 Lease |
7 |
13500 Premises |
7 |
Abatement Event |
13 |
Accountant |
25 |
Actual Cost |
28 |
Additional Notice |
13 |
Additional Rent |
14 |
Advocate Arbitrators |
10 |
Alterations |
30 |
Applicable Laws |
56 |
Approved Assignee |
8 |
Approved Bank |
51 |
Arbitration Agreement |
11 |
Award |
12 |
Bank Prime Loan |
57 |
Base Building |
31 |
Base Rent |
13 |
Base Year |
14 |
BOMA |
6 |
Briefs |
11 |
Brokers |
65 |
BS/BS Exception |
29 |
Building |
1, 5 |
Building Common Areas, |
6 |
Building Common Areas |
6 |
Building Hours |
26 |
Building Structure |
29 |
Building Systems |
29 |
Building Top Sign Specifications |
55 |
Business Hours |
26 |
Cap |
19 |
CC&Rs |
26 |
Common Areas |
6 |
Communication Equipment |
69 |
Comparable Area |
2 |
Contract Rate Schedule |
9 |
Contract Rent |
9 |
Control, |
45 |
iii
|
Page(s) |
|
|
Controllable Expenses |
19 |
Cost Pools |
22 |
Damage Termination Date |
38 |
Damage Termination Notice |
38 |
Direct Expenses |
14 |
Eligibility Period |
13 |
Environmental Laws |
67 |
Estimate |
23 |
Estimate Statement |
23 |
Estimated Excess |
23 |
Excess |
22 |
Exercise Conditions |
8 |
Exercise Notice |
9 |
Expense Year |
14 |
First Rebuttals |
11 |
Force Majeure |
62 |
Hazardous Material(s) |
67 |
Holidays |
26 |
HVAC |
26 |
Identification Requirements |
67 |
Increases |
18 |
Interest Rate |
57 |
Kilroy Sabre Springs |
1, 5 |
Landlord |
1 |
Landlord Parties |
33 |
Landlord Repair Notice |
37 |
Landlord Response Date |
10 |
Landlord Response Notice |
9 |
Landlords Initial Statements |
12 |
Landlords Option Rent Calculation |
10 |
Landlords Rebuttal Statement |
12 |
L-C Amount |
51 |
L-C Expiration Date |
51 |
L-C Transfer Cap |
52 |
Lease |
1 |
Lease Commencement Date |
7 |
Lease Expiration Date |
7 |
Lease Term |
7 |
Lease Year |
7 |
Lines |
66 |
|
63 |
Market Rate Schedule |
8 |
iv
|
Page(s) |
|
|
Memorandum |
61 |
Neutral Appraiser |
10 |
Neutral Arbitrator |
10 |
New Services |
19 |
Nondisturbance Agreement |
47 |
Notices |
63 |
Objectionable Name |
55 |
Operating Expenses |
14 |
Option Rent |
8 |
Option Term |
8 |
Original Improvements |
35 |
Original Tenant |
8 |
Other Improvements |
69 |
Outside Agreement Date |
10 |
Permitted Chemicals |
68 |
Permitted Transferee |
45 |
Permitted Use |
3 |
Premises |
5 |
Project |
5 |
Project Common Areas |
6 |
Project Common Areas, |
6 |
Proposition 13 |
20 |
Reminder Notice |
9 |
Renovations |
66 |
Rent. |
14 |
Replacement Premises |
53 |
Review Period |
24 |
Right Holders |
8 |
Second Rebuttals |
11 |
Statement |
22 |
Subject Space |
41 |
Summary |
1 |
Tax Expenses |
19 |
TCCs |
5 |
Tenant |
1 |
Tenant Election Notice |
10 |
Tenant Parties |
33 |
Tenants Building-Top Signage |
55 |
Tenants Initial Statements |
12 |
Tenants Option Rent Calculation |
9 |
Tenants Rebuttal Statement |
12 |
Tenants Security System |
29 |
v
|
Page(s) |
|
|
Tenants Share |
21 |
Transfer |
44 |
Transfer Costs |
43 |
Transfer Notice |
41 |
Transfer Premium |
43 |
Transferee |
41 |
Transfers |
41 |
Unusable Area |
13 |
Utilities Costs |
21 |
Work Letter Agreement |
5 |
vi
KILROY SABRE SPRINGS
OFFICE LEASE
This Office Lease (the Lease ), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the Summary ), below, is made by and between KILROY REALTY, L.P., a Delaware limited partnership ( Landlord ), and BRIDGEPOINT EDUCATION, INC., a Delaware corporation ( Tenant ).
SUMMARY OF BASIC LEASE INFORMATION
*** Confidential portions of this document have been redacted and filed separately with the Commission.
4. |
Base Rent ( Article 3 ): |
|
|
Period during
|
|
Annualized Base
|
|
Monthly
|
|
Monthly
|
|
|||
May 7, 2009
|
|
$ |
656,712.00 |
|
$ |
54,726.00 |
|
$ |
3.000 |
|
June 1,
2010
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1,
2011
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1,
2012
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1, 2013
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1,
2014
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1,
2015
|
|
[***] |
|
[***] |
|
[***] |
|
|||
June 1,
2016
|
|
$ |
864,188.16 |
|
$ |
72,015.68 |
|
$ |
3.948 |
|
2
*** Confidential portions of this document have been redacted and filed separately with the Commission.
|
|
|
anything to the contrary set forth hereinabove, and as more particularly set forth in the Lease, Tenant shall be responsible for operating and maintaining the Premises pursuant to, and in no event may Tenants Permitted Use violate, (A) Landlords Rules and Regulations, as that term is set forth in Section 5.2 of this Lease, (B) all Applicable Laws, as that term is set forth in Article 24 of this Lease, (C) all applicable zoning, building codes and the CC&Rs, as that term is set forth in Section 5.3 of this Lease, and (D) the character of the Project as a first-class office building Project. |
|
|
|
|
8. |
Letter of Credit
|
|
$[***]. |
|
|
|
|
9. |
Parking Passes
|
|
A total of sixty-Three (63) parking passes, fifty-seven (57) of which shall be unreserved parking passes, and six (6) of which shall be for reserved parking spaces, as more particularly set forth in, and pursuant to the terms and conditions of, Article 28 . |
|
|
|
|
10. |
Address of Tenant
|
|
Bridgepoint
Education, Inc.
|
|
|
|
|
|
|
|
with copies to : |
|
|
|
|
|
|
|
Sheppard Mullin
Richter & Hampton LLC
|
|
|
|
|
11. |
Address of Landlord
|
|
See Section 29.18 of the Lease. |
3
*** Confidential portions of this document have been redacted and filed separately with the Commission.
12. |
Broker(s)
|
|
|
|
|
|
|
|
Representing Tenant :
Grubb & Ellis/BRE
Commercial
|
|
Representing Landlord :
None |
|
|
|
|
13. |
Improvement Allowance
|
|
An amount equal to $[***] per usable square foot of the Premises ( i.e. , an amount anticipated to total [***] ($[***] based upon 15,864 usable square feet in the Premises). |
4
*** Confidential portions of this document have been redacted and filed separately with the Commission.
5
*** Confidential portions of this document have been redacted and filed separately with the Commission.
6
*** Confidential portions of this document have been redacted and filed separately with the Commission.
7
*** Confidential portions of this document have been redacted and filed separately with the Commission.
8
*** Confidential portions of this document have been redacted and filed separately with the Commission.
9
*** Confidential portions of this document have been redacted and filed separately with the Commission.
10
11
12
13
14
15
16
[***] If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least [***] percent ( [***] %) occupied during all or a portion of the Base Year or any Expense
17
Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been [***] percent ( [***] %) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall include market-wide cost increases (including utility rate increases) due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, or amortized costs relating to capital improvements (collectively, Increases ); provided, however, that at such time as any such particularly Increases are no longer included in Operating Expenses, such Increase shall be excluded from the Base Year calculation of Operating Expenses. In no event shall the components of Direct Expenses for any Expense Year related to Utility Costs or Project services or Project insurance costs be less than the corresponding components of Direct Expenses related to Utility Costs, Project Services and Project insurance costs in the Base Year. Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlords right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Project in an amount in excess of what Landlord incurs for the items included in Operating Expenses. I f Landlord, in any Expense Year following the Base Year, begins providing any new category of services (as opposed to an expansion in scope of a service or a change in a type of service) (the New Services ), then for such period of time in which such New Services apply, Operating Expenses for the Base Year shall be increased by the amount that Landlord reasonably determines it would have incurred had Landlord provided such New Services during the same period of time during the Base Year as such New Services were provided during such subsequent Expense Year. Notwithstanding the foregoing, no adjustment to the Operating Expenses for the Base Year shall occur to the extent such New Services (1) are attributable to Tenants use of the Premises (as opposed to office use generally), in which case Landlord may elect (Y) to include the cost of such New Services in Operating Expenses, or (Z) to invoice Tenant directly for such costs, depending upon the nature of the New Services and the extent to which the need for such New Services is directly attributable to Tenants use, as determined in Landlords reasonable discretion, (2) is being offered by landlords in the majority of Comparable Buildings, or (3) is required by Applicable Laws, as that Term is set forth in Article 24 . If Landlord, in any Expense Year after the Base Year, discontinues any type or category of service then for such period of time in which such services are discontinued, Operating Expenses for the Base Year shall be decreased by the amount that Landlord reasonably determines it incurred for such type or category of service throughout the Base Year. In no event shall Tenant be responsible to pay any Controllable Expenses, as defined below, to the extent such Controllable Expenses exceed the amount that such Controllable Expenses would have been had they increased, from the amount of Controllable Expenses incurred during the first twelve (12) months of the Lease Term ( i.e. , May 7, 2009 through May 31, 2010), at a compounded rate of [***] percent ( [***] %) per Expense Year (the Cap ). As used herein Controllable Expenses shall mean any costs incurred by Landlord relating to services (not including utility services) provided to the Project, labor costs paid by Landlord, and maintenance contracts paid by Landlord; provided, however, Controllable Expenses shall not include Tax Expenses, costs relating to the HVAC systems of a Building, costs of insurance premiums, utility charges, or market-wide increases in labor costs due to extraordinary circumstances, including, without limitation, boycotts and strikes.
18
19
20
21
22
23
24
25
Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.
26
27
Landlord shall maintain in first-class condition and operating order and keep in good repair and condition the structural portions of the Building, including the foundation, floor/ceiling slabs, roof structure (as opposed to roof membrane), curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, parking areas, landscaping, exterior Project signage, stairwells, elevator cab, mens and womens washrooms, Building mechanical, electrical and telephone closets, and all common and public areas (collectively, Building Structure ) and the Base Building mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC systems which were not constructed by Tenant Parties (collectively, the Building Systems ) and the Project Common Areas. Notwithstanding anything in this Lease to the contrary, Tenant shall be required to repair the Building Structure and/or the Building Systems to the extent caused due to Tenants use of the Premises for other than normal and customary business office operations, unless and to the extent such damage is covered by insurance carries or required to be carried by Landlord pursuant to Article 10 and to which the waiver of subrogation is applicable (such obligation to the extent applicable to Tenant as qualified and conditioned will hereinafter be defined as the BS/BS Exception ). Tenant shall, at Tenants own expense, keep the Premises, including all improvements, fixtures and furnishings therein, and the floor or floors of the Building on which the Premises are located, in good order, repair and condition at all times during the Lease Term, but such obligation shall not extend to the Building Structure and the Building Systems except pursuant to the BS/BS Exception. In addition, Tenant shall, at Tenants own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, but such obligation shall not extend to the Building Structure and the Building Systems except pursuant to the BS/BS Exception, and/or (iii) for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlords option, or if Tenant fails to make such repairs, Landlord may, after written notice to Tenant and Tenants failure to repair within five (5) days thereafter, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project, and to be reasonably consistent with similar percentages paid for such services by tenant in the Comparable Buildings) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses paid to third parties arising from Landlords involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may
28
be required to do by governmental or quasi-governmental authority or court order or decree; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry into the Premises by Landlord shall be performed in a manner so as not to materially interfere with Tenants use of, or access to, the Premises; provided that, with respect to items (ii) and (iii) above, Landlord shall use commercially reasonable efforts to not materially interfere with Tenants use of, or access to, the Premises. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.
29
30
Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within ten (10) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlords title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlords option shall attach only against Tenants interest
31
in the Premises and shall in all respects be subordinate to Landlords title to the Project, Building and Premises.
32
33
Bodily Injury and Property Damage Liability |
|
$5,000,000 each occurrence or any combination of primary and excess/umbrella liability insurance |
|
|
|
Personal Injury and Auto Liability |
|
$5,000,000 each occurrence or any combination of primary and excess/umbrella liability insurance |
34
35
36
37
No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlords knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlords right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlords right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenants right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.
38
If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, in each case for a period in excess of one hundred eighty (180) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenants personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13 , in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.
39
40
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlords consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenants original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlords right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14 , their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenants business including, without limitation, loss of profits, however occurring) or a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenants proposed subtenant or assignee) who claim they were damaged by Landlords wrongful withholding or conditioning of Landlords consent.
41
42
43
44
If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to the product of (i) the Base Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) a percentage equal to [***] during the first two (2) months immediately following the expiration or earlier termination of the Lease Term, and [***] thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.
Within ten (10) business days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E , attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other factual information reasonably requested by Landlord or Landlords mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. Landlord hereby agrees to provide to Tenant an estoppel certificate signed by Landlord, containing the same types of information, and within the same periods of time, as set forth above, with such changes as are reasonably necessary to reflect that the
45
estoppel certificate is being granted and signed by Landlord to Tenant, rather than from Tenant to Landlord or a lender.
This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Landlords delivery to Tenant of a commercially reasonable non-disturbance agreement(s) (the Nondisturbance Agreement ) in favor of Tenant from any such ground lessor, mortgage holders or lien holders of Landlord who later come into existence at any time prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenants agreement to be bound by the terms and conditions of this Article 18. Subject to Tenants receipt of a Nondisturbance Agreement, Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to, subject to the terms of the applicable Nondisturbance Agreement, attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenants occupancy, so long as Tenant timely pays the rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant. Landlords interest herein may be assigned as security at any time to any lienholder. Tenant shall, within five (5) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.
46
The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.
47
The term rent as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(a) and (b) , above, the worth at the time of award shall be computed by allowing interest at the Interest Rate. As used in Section 19.2.1(c) , above, the worth at the time of award shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
48
Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the
49
Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.
50
51
At any time following the first anniversary of the Lease Commencement Date, upon no less than [***] notice to Tenant, Landlord shall have the one-time right to move Tenant to other space located on the fourth (4 th ) or sixth (6 th ) floors of the Building (the Replacement Premises ), and all terms hereof shall apply to the new space with equal force; provided, however, with regard thereto, (i) the size of such Replacement Premises shall be at least [***] of the size of the then-existing Premises, (ii) such Replacement Premises shall have substantially the same perimeter configuration as the Premises, (iii) such Replacement Premises shall have direct access to the interior elevator lobby, (iv) such Replacement Premises shall be contiguous, and (v) all of the terms of this Lease shall apply to the Replacement Premises with equal force; provided that Tenants then existing monetary obligations under this Lease shall not be increased as a result of such relocation of the Premises and Tenants then existing parking rights under this Lease shall not be reduced as a result of such relocation of the Premises; provided further, however, to the extent the rentable square footage of the Replacement Premises is less than Premises, the Base Rent and Tenants Share shall be proportionately adjusted. In such event, Landlord shall give Tenant prior notice, shall provide Tenant, at Landlords sole cost and expense, with improvements at least equal in quality to those in the Premises and shall move Tenants effects to the new space at Landlords sole cost and expense at such time and in such manner as to inconvenience Tenant as little as reasonably practicable. In addition, Landlord shall reimburse Tenant for the reasonable costs and expenses incurred by Tenant in connection with such relocation (specifically including, but not limited to, (x) Tenants actual, reasonable third-party expenses of moving its property, (y) Tenants actual, reasonable third-party expenses of removing, relocating and reinstalling Tenants security systems, voice and data cabling, telecommunications equipment and furniture systems in the Replacement Premises, and (z) the costs of reasonable supplies of replacement stationery and telephone installations), within fifteen (15) days of Landlords receipt of an reasonably detailed invoice therefor. Simultaneously with such relocation of the Premises, the parties shall immediately execute an amendment to this Lease stating the relocation of the Premises. Landlord shall not have the right to move Tenant to any Replacement Premises pursuant to the terms of this Article 22 following the sixth (6 th ) anniversary of the Lease Commencement Date. Moreover, in the event that Tenant is prevented from using, and does not use, the Premises, the Replacement Premises, or any portion thereof, solely and exclusively as a result of Landlords exercise of its rights under this Article 22 ( e.g. , it is not commercially reasonable to move all, or a defined portion [e.g., a department], of Tenants
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furniture, fixtures and equipment from the Premises to the Relocation Premises without Tenant losing the use of, and not using, either the Premises or the Relocation Premises, or portions thereof (as applicable), for more than one (1) day), then as Tenants sole remedy vis-à-vis such event, the Base Rent and Tenants Share of Direct Expenses shall be abated or reduced, as the case may be, after the date notice is given to Landlord, for such time that Tenant continues to be so prevented from using, and does not use, the Premises, the Replacement Premises, or a portion thereof (as applicable), in the proportion of the rentable area of the portion of the Premises that Tenant is prevented from using and does not use. Notwithstanding the foregoing, Tenant shall use commercially reasonable efforts to cause all removing, relocating and reinstalling work to be completed in an expedient manner so as not to increase or otherwise extend the amount of time that Tenant will be prevent from relocating to, and subsequently using, the Replacement Premises.
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Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, Applicable Laws ). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenants use of the Premises for non-general office use, (ii) the Alterations or Improvements in the Premises, or (iii) the Base Building, but, as to the Base Building, only to the extent such obligations are triggered by Tenants Alterations, the Improvements, or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. Landlord shall comply with all Applicable Laws relating to the Base Building and the Common Areas, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlords failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would expose Tenant to liability to any of its employees, subtenants, invitees or customers, or any governmental or quasi-governmental authority, or would unreasonably and materially affect the safety of Tenants employees, subtenants, invitees, or customers, or create a significant health hazard for Tenants employees. Landlord shall be permitted to include in Operating Expenses
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any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 4.2.4 , above.
If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlords designee when due, then Tenant shall pay to Landlord a late charge equal to [***] percent ( [***] %) of the overdue amount plus any reasonable attorneys fees incurred by Landlord by reason of Tenants failure to pay Rent and/or other charges when due hereunder; provided, however, with regard to the first [***] such failures in any [***] month period, Landlord will waive such late charge to the extent Tenant cures such failure within five (5) business days following Tenants receipt of written notice from Landlord that the same was not received when due . The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlords other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlords remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at the Interest Rate. For purposes of this Lease, the Interest Rate shall be an annual rate equal to the lesser of (i) the annual Bank Prime Loan rate cited in the Federal Reserve Statistical Release Publication H.15(519), published weekly (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.
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Landlord reserves the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty-four (24) hours prior notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Buildings systems and equipment; provided, however, Tenant may elect to have a representative accompany Landlord during any such entry; provided further, however, Landlord shall not be required to delay any such entry due to the unavailability of a Tenant representative. Notwithstanding anything to the contrary contained in this Article 27 , Landlord may enter the Premises at any time to (A) perform regularly scheduled services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes; provided, however, except for (w) taking possession of the Premises due to any breach of this Lease, (x) emergencies, (y) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (z) repairs which are the obligation of Tenant hereunder, any such entry shall be performed in a manner so as not to unreasonably interfere with Tenants use of the Premises and shall be performed after normal business hours if reasonably practical. With respect to items (y) and (z) above, Landlord shall use commercially reasonable efforts to not materially interfere with Tenants use of, or access to, the Premises. Except as otherwise set forth in Section 3.2 , Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenants business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenants vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.
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Tenant shall be entitled to utilize, [***] commencing on the Lease Commencement Date, the amount of parking passes set forth in Section 9 of the Summary, (provided that any visitor parking spaces and/or handicap parking spaces required by Applicable Laws due to Tenants occupancy shall be included as part of the number passes provided to Tenant) on a monthly basis throughout the Lease Term, which parking passes shall pertain to the Project parking facility. As identified in Section 9 of the Summary, Tenant shall rent six (6) parking passes on a monthly basis throughout the Lease Term (the Reserved Passes ), each relating to one (1) reserved parking space, three (3) of which shall be located on the second (2 nd ) level of that certain multi-tenant three (3) level parking structure located in the Project, and three (3) of which shall be located on the third (3 rd ) level of that same parking structure. The location of each of the foregoing Reserved Passes is identified on Exhibit J attached hereto. Tenant shall pay to Landlord for each Reserved Pass so rented and on a monthly basis, the then-prevailing rate charged from time to time at the location of such parking passes (the initial amount of which is acknowledged by the parties to be [***] . Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant. Tenants continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenants exercise of commercially reasonable efforts to cause Tenants employees and visitors to also comply with such rules and regulations and Tenant not being in default under this Lease. To the extent reasonably necessary to ensure Tenants parking rights and obligations hereunder are readily available to and maintained by Tenant and its employees, Landlord shall establish a sticker or other identification system for the Project; provided, however, to the extent the foregoing measures prove insufficient, Landlord shall additionally implement, at Tenants sole cost and expense, reasonable access control and/or other parking management services or systems with regard to such Project parking facilities. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease (except to the extent expressly set forth in Section 3.2 of this Lease, above), from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements. During any period of closure of or restricted access to the Project parking areas, Landlord shall be responsible to provide Tenant with reasonable replacement parking in reasonable proximity and with reasonable access to the Premises. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenants own personnel, employees, agents, contractors or invitees and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlords prior approval.
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Kilroy
Realty, L.P.
c/o Kilroy Realty Corporation
12200 West Olympic Boulevard, Suite 200
Los Angeles, California 90064
Attention: Legal Department
with copies to :
Kilroy Realty Corporation
12200 West Olympic
Boulevard, Suite 200
Los Angeles, California 90064
Attention: Mr. John Fucci
and
Kilroy Realty
Corporation
13520 Evening Creek Drive North, Suite 120
San Diego, California 92128
Attention: Mr. Michael Nelson
and
Allen Matkins Leck Gamble Mallory & Natsis LLP
1901 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
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*** Confidential portions of this document have been redacted and filed separately with the Commission.
Attention: Anton N. Natsis, Esq.
[signature page to follow]
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*** Confidential portions of this document have been redacted and filed separately with the Commission.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.
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71
EXHIBIT A
KILROY SABRE SPRINGS
OUTLINE OF PREMISES
1
EXHIBIT B
KILROY SABRE SPRINGS
WORK LETTER AGREEMENT
This Work Letter Agreement shall set forth the terms and conditions relating to the construction of the improvements in the Premises. This Work Letter Agreement is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Work Letter Agreement to Articles or Sections of this Lease shall mean the relevant portion of Articles 1 through 30 of the Office Lease to which this Work Letter Agreement is attached as Exhibit B and of which this Work Letter Agreement forms a part, and all references in this Work Letter Agreement to Sections of this Work Letter Agreement shall mean the relevant portion of Sections 1 through 5 of this Work Letter Agreement.
SECTION 1
BASE BUILDING AS CONSTRUCTED BY LANDLORD
Landlord has constructed, at its sole cost and expense, the Base Building. The Base Building shall consist of those portions of the Premises which were in existence prior to the construction of the improvements in the Premises for the prior tenant (if any) of the Premises. Upon the full execution and delivery of this Lease by and between Landlord and Tenant, Landlord shall deliver possession of the Premises and Base Building to Tenant, and Tenant shall accept the Premises and Base Building from Landlord in their presently existing, as-is condition.
SECTION 2
IMPROVEMENTS
2.1 Improvement Allowance . Tenant shall be entitled to a one-time improvement allowance (the Improvement Allowance ) in an amount of equal to [***] for the costs relating to the initial design and construction of the improvements made to the Premises pursuant to this Work Letter Agreement which are permanently affixed to the Premises (the Improvements ). In no event shall Landlord be obligated to (i) make disbursements pursuant to this Work Letter Agreement in the event that Tenant has not previously disbursed any applicable portion of the Over-Allowance Amount (defined in Section 4.2.1 ) in accordance with the terms and conditions of Section 4.2.1 of this Work Letter Agreement, (ii) pay a total amount which exceeds the Improvement Allowance, (iii) pay any A&E Costs, in excess of the cap set forth in Section 2.2.1 of this Work Letter Agreement, or (iv) pay any FF&E Costs in excess of the cap set forth in Section 2.2.5 of this Work Letter Agreement. Notwithstanding the foregoing or any contrary provision of this Lease, all Improvements shall be deemed Landlords property under the terms of this Lease. Any unused portion of the Improvement Allowance remaining as of [***] , shall remain with Landlord and Tenant shall have no further right thereto; provided,
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however, such foregoing [***] , date shall be extended on a day-for-day basis for each day of any Landlord Caused Delay (as that term is defined in Section 6.1 below).
2.2 Disbursement of the Improvement Allowance .
2.2.1 Improvement Allowance Items . Except as otherwise set forth in this Work Letter Agreement, the Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlords disbursement process, including, without limitation, Landlords receipt of invoices for all costs and fees described herein) for costs related to the construction of the Improvements (provided, however, except as expressly set forth in Sections 2.2.1.4 , 4 and 5 of this Work Letter, such costs related to the construction of the Improvements (identified in this Work Letter) shall in no event include (A) any costs incurred in connection with the cost of demising partitions between tenants (including, any studs, acoustical insulation and dry wall, and any necessary penetrations, fire dampers and sound traps), (B) any costs incurred in connection with the Base Building, or (C) any costs or fees incurred by Landlord or its consultants or agents in connection with the construction of the Improvements and the preparation and review of plans related thereto, all of which foregoing costs and fees shall be at Landlords sole cost and expense) and for the following items and costs (collectively, the Improvement Allowance Items ):
2.2.1.1 Payment of the fees of the Architect (as that term is defined in Section 3.4 below) and any engineers retained by Tenant in connection with its performance of the Improvements, which fees shall, notwithstanding anything to the contrary contained in this Work Letter Agreement, not exceed an aggregate amount equal to $ [***] per rentable square foot of the Premises (collectively, the A&E Costs );
2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Improvements;
2.2.1.3 The cost of construction of the Improvements, including, without limitation, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, and contractors fees and general conditions;
2.2.1.4 The cost of any changes in the Base Building when such changes are required by the Approved Working Drawings, as that term is defined in Section 3.4 of this Work Letter Agreement, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Approved Working Drawings or Improvements required by all applicable building codes (the Code );
2.2.1.6 The Coordination Fee, as that term is defined in Section 4.2.2.1 of this Work Letter Agreement;
2.2.1.7 intentionally omitted;
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2.2.1.8 The cost of installing Tenants furniture, fixtures, equipment, voice and data cabling, signage, and other similar costs (collectively, FF&E Costs ), not to exceed an aggregate amount equal to $ [***] per usable square foot of the Premises; and
2.2.1.9 Sales and use taxes.
2.2.2 Disbursement of Improvement Allowance . During the construction of the Improvements, Landlord shall make monthly disbursements of the Improvement Allowance for Improvement Allowance Items and shall authorize the release of monies as follows.
2.2.2.1 Monthly Disbursements . On or before the fifth (5 th ) day of each calendar month, as determined by Landlord, during the construction of the Improvements (or such other date as Landlord may designate), Tenant shall deliver to Landlord: (i) a request for payment of the Contractor, as that term is defined in Section 4.1.1 of this Work Letter Agreement, certified by Tenants Architect, in a form reasonably acceptable to Landlord, showing the schedule, by trade, of percentage of completion of the Improvements in the Premises, detailing the portion of the work completed and the portion not completed; (ii) invoices from all of Tenants Agents, as that term is defined in Section 4.1.2 of this Work Letter Agreement, for labor rendered and materials delivered to the Premises; (iii) executed mechanics lien releases from all of Tenants Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code Section 3262(d); and (iv) all other information reasonably requested by Landlord (a complete request containing or otherwise addressing the foregoing items (i), (ii), (iii) and (iv) shall be referred to as an Improvement Allowance Request ). Tenants delivery of an Improvement Allowance Request shall be deemed Tenants acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenants Improvement Allowance Request. Thereafter, Landlord shall, to the extent Tenant has delivered an Improvement Allowance Request to Landlord on or before the fifth (5 th ) day of an applicable calendar month, deliver a check to Tenant made jointly payable to Contractor and Tenant on or before the last day of such calendar month in payment of the lesser of: (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2.1 , above, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the Final Retention), and (B) the balance of any remaining available portion of the Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the Approved Working Drawings, or due to any substandard work, or for any other reason (the resulting monthly disbursement determined per the foregoing provisions of this Section 2.2.2.1 shall be referred to as the IAR Amount ). Landlords payment of such IAR Amounts shall not be deemed Landlords approval or acceptance of the work furnished or materials supplied as set forth in Tenants payment request. Notwithstanding any provision to the contrary contained in this Lease, to the extent (1) Landlord does not timely disburse any particular IAR Amount pursuant to the terms of this Section 2.2.2.1 , (2) Landlord receives an additional written notice from Tenant stating that such IAR Amount was not timely disbursed, and (3) Landlord fails to cure such non-payment of the IAR Amount within five (5) business days following its receipt of such additional written notice, then the Coordination Fee to be calculated on such IAR Amount shall be reduced by fifty percent (50%). The foregoing reduction in the Coordination Fee shall be in addition to any remedy Tenant may have pursuant to the terms of Section 19.6 of the Lease or otherwise for Landlords failure to timely disburse any applicable IAR Amount.
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2.2.2.2 Final Retention . Subject to the provisions of this Work Letter Agreement, a check for the Final Retention payable jointly to Tenant and Contractor shall be delivered by Landlord to Tenant within twenty (20) days following notice to Landlord of (1) the completion of construction of the Premises, and (2) Tenants delivery of a satisfactory request for payment, provided that in connection with such request (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both California Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenants use of such other tenants leased premises in the Building, and (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Improvements in the Premises has been substantially completed. Notwithstanding any provision to the contrary contained in this Lease, to the extent (A) Landlord does not timely disburse the Final Retention pursuant to the terms of this Section 2.2.2.2 , (B) Landlord has received an additional written notice from Tenant stating that the Final Retention was not timely disbursed, and (C) Landlord fails to cure such non-payment of the Final Retention within five (5) business days following its receipt of such additional notice, then the Coordination Fee to be calculated on such Final Retention shall be reduced by fifty percent (50%). The foregoing reduction in the Coordination Fee shall be in addition to any remedy Tenant may have pursuant to the terms of Section 19.6 of the Lease or otherwise for Landlords failure to timely disburse any the Final Retention.
2.2.2.3 Other Terms . Landlord shall only be obligated to make disbursements from the Improvement Allowance to the extent costs are incurred by Tenant for Improvement Allowance Items. All Improvement Allowance Items for which the Improvement Allowance has been made available shall be deemed Landlords property under the terms of this Lease.
Landlord and Tenant hereby acknowledge and agree that in no event shall the Improvement Allowance Items include, and Landlord shall be solely responsible for, any and all costs to the extent related to and arising from the negligence or willful misconduct of Landlord.
2.3 Building Standards . Landlord has established or may establish specifications for certain Building standard components, materials and finishes (collectively, Building Standards ) to be used in the construction of the Improvements in the Premises, which Building Standards are set forth on Schedule 2 attached hereto and made a part hereof to be used in the construction of the Improvements in the Premises. The quality of Improvements shall be equal to or of greater quality than the quality of such Building standards, provided that Landlord may, at Landlords option, require the Improvements to comply with certain Building standards. Landlord may make reasonable changes to said specifications for such Building Standards from time to time. Removal requirements for Improvements are addressed in Article 8 of this Lease.
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SECTION 3
CONSTRUCTION DRAWINGS
3.1 Intentionally Omitted .
3.2 Final Space Plan . The space plan attached hereto as Schedule 3 (the Final Space Plan ) has been approved by Landlord and Tenant.
3.3 Intentionally Omitted .
3.4 Approved Working Drawings . The term Approved Working Drawings shall mean those certain tenant improvement plans prepared by I.D. Studios (the Architect ), dated as of May 14, 2009, and approved by Landlord and Tenant. Tenant shall submit the same to the appropriate municipal authorities for all applicable building permits on or before the date set forth in Schedule 1 . Tenant hereby agrees that neither Landlord nor Landlords consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenants responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld, conditioned or delayed.
3.5 Time Deadlines . The applicable dates for approval of items, plans and drawings as described in this Section 3 , Section 4 , below, and in this Work Letter Agreement are set forth and further elaborated upon in Schedule 1 (the Time Deadlines ), attached hereto. Tenant agrees to comply with the Time Deadlines.
SECTION 4
CONSTRUCTION OF THE IMPROVEMENTS
4.1 Tenants Selection of Contractors .
4.1.1 The Contractor . Tenant shall retain a contractor reasonably acceptable to Landlord to construct the Improvements.
4.1.2 Tenants Agents . All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as Tenants Agents ) must be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, the parties hereto acknowledge and agree that it shall be reasonable for Landlord to withhold or condition its consent to such Tenants Agents to the extent Landlord requires Tenant to use a specific contractor to perform such work (as more particularly set forth in this Section 4.1.2 below). If Landlord does not approve any of Tenants proposed subcontractors, laborers, materialmen or suppliers, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlords written approval. The Electrical work must be
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performed by Berg Electrical. Fire / Life Safety work must be performed by Berg Electrical. Mechanical work must be performed by either ICS or Apex Mechanical. Mechanical Direct Digital Control work must be performed by Dynalectric.
4.2 Construction of Improvements by Tenants Agents .
4.2.1 Construction Contract; Cost Budget . Tenant shall engage the Contractor under an AIA A101 Stipulated Sum Agreement (1997 Electronic Version) accompanied by Landlords standard AIA A201 General Conditions (1997 Version) as modified by Landlord, or reasonably similar construction contracts (collectively, the Contract ). At least fifteen (15) business days prior to the commencement of the construction of the Improvements, and after Tenant has accepted all bids for the Improvements, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred, as set forth more particularly in Sections 2.2.1.1 through 2.2.1.9 , above, in connection with the design and construction of the Improvements to be performed by or at the direction of Tenant or the Contractor, which costs form a basis for the amount of the Contract (the Final Costs ). Concurrently with Tenants payment to the Contractor of the amount disbursed by Landlord to Tenant pursuant to Section 2.2.2.1 of this Work Letter Agreement, Tenant shall pay the Contractor, Tenants pro-rata share of the total amount then due and owing to the Contractor (which pro-rata share shall equal a fraction, the numerator of which shall equal the Over-Allowance Amount, as that term is defined below, and the denominator of which shall equal the Final Costs), and such payment by Tenant shall be a condition to Landlords obligation to pay any additional/future portions of the Improvement Allowance pursuant to the terms and conditions of Section 2.2 , above. The Over-Allowance Amount shall be equal to the difference between the amount of the Final Costs and the amount of the Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the commencement of construction of the Improvements). In the event that, after the Final Costs have been delivered by Tenant to Landlord, the costs relating to the design and construction of the Improvements shall change, any additional costs necessary to such design and construction in excess of the Final Costs, shall be paid by Tenant to Landlord immediately as an addition to the Over-Allowance Amount or at Landlords option, Tenant shall make payments for such additional costs out of its own funds, but Tenant shall continue to provide Landlord with the documents described in Sections 2.2.2.1(i) , (ii) , (iii) and (iv) of this Work Letter Agreement, above, for Landlords approval, prior to Tenant paying such costs.
4.2.2 Tenants Agents .
4.2.2.1 Landlords General Conditions for Tenants Agents and Improvement Work . Tenants and Tenants Agents construction of the Improvements shall comply with the following: (i) the Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenants Agents shall submit schedules of all work relating to the Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenants Agents of any changes which are necessary thereto, and Tenants Agents shall adhere to such corrected schedule; and (iii) Tenant shall abide by all rules made by Landlords Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Work Letter Agreement, including, without limitation,
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the construction of the Improvements. Tenant shall pay to Landlord, by means of a Landlord deduction from the Improvement Allowance, a logistical coordination fee (the Coordination Fee ) in an amount equal to [***] , which Coordination Fee shall be for services relating to the coordination of the construction of the Improvements. If, commencing on the date of the Landlord Caused Delay and ending on the Landlord Caused Delay Termination Date, the cost of any or all of the Improvement Allowance Items increase by more than [***] ( [***] ), and Tenant provides Landlord with reasonable back-up documentation evidencing the resulting increase in the total cost of the Improvement Allowance Items (which would not have occurred but for the Landlord Caused Delay), no Coordination Fee shall be calculated on the increase in the total cost of the Improvement Allowance Items which otherwise would have been payable by Tenant but for the Landlord Caused Delay.
4.2.2.2 Indemnity . Tenants indemnity of Landlord as set forth in this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenants Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenants non-payment of any amount arising out of the Improvements and/or Tenants disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in this Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlords performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises. Notwithstanding the foregoing terms of this Section 4.2.2.2 , in no event shall the terms hereof be deemed to expand or otherwise increase Tenants obligations under Section 10.1 of this Lease, but instead the provisions of this Section 4.2.2.2 shall be viewed as setting forth examples of some, but not all, of the items identified in Section 10.1 of this Lease for which Tenant is, pursuant to the terms of Section 10.1 , obligated to indemnify Landlord therefor. Moreover, in the event of any conflict between the terms of this Section 4.2.2.2 and the terms of Section 10.1 of this Lease, the terms of Section 10.1 shall supersede, control and be binding upon the parties hereto.
4.2.2.3 Requirements of Tenants Agents . Each of Tenants Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenants Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Lease Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Improvements, and/or the Building and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.
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4.2.2.4 Insurance Requirements .
4.2.2.4.1 General Coverages . All of Tenants Agents shall carry workers compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in this Section 4.2.2.4 .
4.2.2.4.2 Special Coverages . Tenant shall carry Builders All Risk insurance in an amount approved by Landlord covering the construction of the Improvements, and such other insurance as Landlord may require, it being understood and agreed that the Improvements shall be insured by Tenant pursuant to this Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenants Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $5,000,000 per incident, $5,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in this Lease.
4.2.2.4.3 General Terms . Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of the Improvements and before the Contractors equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenants sole cost and expense. Tenants Agents shall maintain all of the foregoing insurance coverage in force until the Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenants Agents. All insurance, except Workers Compensation, maintained by Tenants Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.2 of this Work Letter Agreement.
4.2.3 Governmental Compliance . The Improvements shall comply in all respects with the following: (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturers specifications.
4.2.4 Inspection by Landlord . Landlord shall have the right to inspect the Improvements at all times, provided however, that Landlords failure to inspect the
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Improvements shall in no event constitute a waiver of any of Landlords rights hereunder nor shall Landlords inspection of the Improvements constitute Landlords approval of the same. Should Landlord disapprove any portion of the Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Landlord of, the Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenants use of such other tenants leased premises, Landlord may, take such action as Landlord deems necessary, at Tenants expense and without incurring any liability on Landlords part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Improvements until such time as the defect, deviation and/or matter is corrected to Landlords satisfaction.
4.2.5 Meetings . Commencing upon the execution of this Lease, Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the construction of the Improvements, which meetings shall be held at a location designated by Landlord, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Landlords request, certain of Tenants Agents shall attend such meetings. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractors current request for payment.
4.3 Notice of Completion; Copy of Record Set of Plans . Within ten (10) days after completion of construction of the Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same as Tenants agent for such purpose, at Tenants sole cost and expense. At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the record-set of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.
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SECTION 5
MISCELLANEOUS
5.1 Tenants Representative . Tenant has designated Mr. Kenny Lin and Ms. Pattie Jensen as its representatives with respect to the matters set forth in this Work Letter Agreement, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter Agreement.
5.2 Landlords Representatives . Landlord has designated Mr. Richard Mount as its sole representative with respect to the matters set forth in this Work Letter Agreement, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter Agreement.
5.3 Time of the Essence in This Tenant Work Letter Agreement. Unless otherwise indicated, all references herein to a number of days shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.
5.4 Tenants Lease Default . Notwithstanding any provision to the contrary contained in this Lease or this Work Letter Agreement, if any default (beyond any applicable notice and cure periods) by Tenant under this Lease or this Work Letter Agreement (including, without limitation, any failure by Tenant to fund any portion of the Over-Allowance Amount) occurs at any time on or before the Substantial Completion of the Improvements, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold or condition payment of all or any portion of the Improvement Allowance and/or Landlord may, without any liability whatsoever, cause the cessation of construction of the Improvements (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Improvements and any costs occasioned thereby), and (ii) all other obligations of Landlord under the terms of this Lease and this Work Letter Agreement shall be forgiven until such time as such default is cured pursuant to the terms of this Lease.
SECTION 6
LANDLORD DELAY
6.1 Definitions . As used in this Lease and this Work Letter, a Landlord Caused Delay shall mean any actual delay to the Substantial Completion of the Improvements, resulting from the acts or omissions of Landlord or the Landlord Parties arising from, or attributable to, a failure of Landlord to provide Contractor and/or Tenant with reasonably adequate access to the Premises, provided that the foregoing shall not apply to the extent such failure is caused (in whole or in part) by any act, omission or occurrence that is beyond Landlords reasonable control, including, without limitation, power outages and utility related lockouts, strikes or other labor troubles. For purposes of this Section 6.1 , Substantial Completion of the Improvements shall mean completion of construction of the Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punch list items.
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6.2 Determination of Landlord Caused Delay . If Tenant contends that a Landlord Caused Delay has occurred, Tenant shall notify Landlord in writing of the event which constitutes such Landlord Caused Delay (the Delay Notice ). The date upon which such Landlord Caused Delay ends shall be referred to in this Section 6.2 as the Landlord Caused Delay Termination Date . If any actions, inaction or circumstances described in such Delay Notice are not cured by Landlord within five (5) business days after receipt of the Delay Notice, and if such actions, inaction or circumstances otherwise qualify as a Landlord Caused Delay, then a Landlord Caused Delay shall be deemed to have occurred commencing as of the date Landlord received such Delay Notice and ending as of the Landlord Caused Delay Termination Date.
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SCHEDULE 1 TO EXHIBIT B
TIME DEADLINES
Dates* |
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Actions to be Performed |
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A. June 15, 2009. |
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Tenant to submit the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits. |
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B. At least fifteen (15) business days prior to the commencement of the construction of the Improvements. |
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Tenant shall provide Landlord with a statement of the Final Costs. |
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C. At least ten (10) days prior to the start of construction in the Premises. |
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Tenant shall notify Landlord of its intent to start construction to allow Landlord to post a notice of non-responsibility. |
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D. Upon Tenants receipt of the Permits. |
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Tenant shall provide Landlord with copies of such Permits together with the applicable notice to proceed allowing Contractor to perform the Improvements in the Premises. |
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E. Upon Substantial Completion. |
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Tenant shall deliver to Landlord (a) a copy of the Architects certificate, in which Architect certifies Tenant has caused the Substantial Completion of the Improvements in the Premises, and (b) a copy of the signed off building card indicating Tenant is permitted to occupy the Premises or its equivalent permitting Tenant to occupy the Premises. |
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F. Within ten (10) days after Substantial Completion of the Improvements. |
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Tenant shall furnish Landlord with a copy of the Notice of completion recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 3090 of the Civil Code of the State of California or any successor statute. |
* Notwithstanding the outside dates set forth in items A through F above, Tenant hereby agrees to use commercially reasonable efforts to expedite its performance of the actions listed above.
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SCHEDULE 2 TO EXHIBIT B
BUILDING STANDARDS
The following Premise Improvements Standards and Construction Guidelines identify the minimum quality for items used in the construction of Premises Improvements at the property identified above.
All Premises Improvement work associated with the project identified above shall comply with this Building Standard for a minimum quality of material and general design guidelines for specific design criteria, product specifications and means and methods to be employed during the execution of the work.
STANDARD PARTITIONS
DEMISING PARTITION
a. 3-5/8 x 25 min. gauge metal studs @ 16 on center.
b. 1 layer each side 5/8 thick type x gypsum wallboard (where required).
c. From floor slab to underside of concrete and metal deck floor/roof structure.
d. R11 batt sound insulation in partition cavity (portion of walls corridor, bathrooms & some office).
e. Partition taped and sanded smooth to receive paint.
f. Fire caulk @ partition and metal deck as required by City of San Diego.
g. Provide minimum opening above ceiling as required for return air, with sound boots.
INTERIOR PARTITION
a. 2-1/2 x 25 gauge metal studs @ 24 on center.
b. 1 layer each side 5/8 thick type x gypsum wallboard. From floor slab to underside of ceiling grids as applicable. Height may vary.
c. Diagonal Bracing: 2-1/2 x 25 gauge metal studs at 45 degree diagonal to structure above staggered @ 4-0 on center, and at door openings.
d. Partition taped and sanded smooth to receive paint to a minimum of Level 4 finish.
e. Metal corner bead at terminations of partitions and at the ceiling.
f. All demising walls and tenant conference room walls to receive R-11 batt insulation within partition cavity and four foot on either side of partition over ceiling.
INTERIOR ONE-HOUR SEPARATION PARTITION
a. Same as demising partition with fire dampers as required for penetrations and return air.
b. Type X 5/8 wallboard shall be fire taped where fire ratings are required.
INTERIOR LOW PARTITION
a. 2-1/2 x 25 gauge metal studs @ 16 on center.
b. 1 layer each side and top 5/8 thick type x gypsum wallboard.
c. Heights vary to maximum of 68 above floor.
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d. Metal corner beads at all exposed corners.
e. Partition taped and sanded smooth to receive paint to a minimum of Level 4 finish.
f. Pipe support at free end within partition cavity and every 4 on center.
EXTERIOR WALL FURRING
a. Below glazing sill and above glazing head, 1 layer 5/8 thick gypsum wallboard.
b. Taped and sanded smooth to receive paint.
COLUMN FURRING
a. 2-1/2 x 25 gauge metal studs @ 24 on center.
b. 1 layer one side 5/8 thick type x gypsum wallboard.
c. From floor slab to 6 above ceiling grid or to deck above.
d. Partition taped and sanded smooth to receive paint to a minimum of Level 4 finish.
SINGLE CORRIDOR DOOR AND HARDWARE
a. Single leaf U.L. rated, 20-minute suite entry door label attached to hinge side of door, 1-3/4 x 3-0 x 8-10, solid core wood, clear plain sliced select white maple, book matched edges. Door shall be pre-finished and pre-mortised for hardware.
b. Frame: 3-0 x 8-10 Western Integrated prefinished satin aluminum with clear coat with squared edge, 20-minute fire rated.
c. Hardware: Butts: two pair per door, Hager 700; Door Hardware: Schlage L Series, Lever style #17, A- Wrought Rose- typ.; Entrance Lockset # L9453P-626, Latchset # L9010P-626, and Office Lockset # L9050-626; Door Stop: Hager 236W, concave wall stop; Closer: LCN #1461FC (where required); typical hardware finish: satin aluminum or satin stainless steel throughout unless otherwise noted.
d. Closer at entry doors and any rated doors required by code: LCN 1460 Series, 4111 cylinder for accessibility.
DOUBLE CORRIDOR DOOR AND HARDWARE
a. Double leaf U.L. rated 20-minute suite entry doors with label attached to hinge side of doors, 1-3/4 x 6-0 x 8-10, solid core wood, clear plain sliced select white maple, book matched edges. Door shall be pre-finished and pre-mortised for hardware. Book match face veneers with premium veneers grade of doors with matching veneer at vertical edge.
b. Door shall be pre-finished and mortised for hardware.
c. Frame: 6-0 x 8-10, Western Integrated prefinished satin aluminum with clear coat with squared edge, 20-minute fire rated.
d. Hardware: Same as above modified and supplemented for double doors.
SINGLE INTERIOR DOOR AND HARDWARE
a. Single leaf, 1-3/4 x 3-0 x 8-10, solid core wood, 5 ply, plain sliced maple veneer, clear finish and premium grade.
b. Matching veneer at vertical edges.
c. 20-minute rated with label attached to hinge side of door.
d. Door shall be prefinished and mortised for hardware.
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e. Frame: 3-0 x 8-10, Western Integrated flush trim clear anodized extruded aluminum, 20-minute fire rated.
f. Hardware: Schlage L Series: Lever style #17, A- Wrought Rose, finish 626 satin chrome. Corbin Russwin cylinders with an inter-changeable core and keyway. Hinges: AB700, 4.5 x 4.5, Hager, finish: stainless steel satin. Stop: Trimco 1211 series, finish 626.
g. Sidelights shall be provided at all private offices as applicable.
DOUBLE INTERIOR DOOR AND HARDWARE
a. Double leaf, 1-3/4 x 6-0 x 8-10, solid core wood, 5 ply, plain sliced maple veneer, clear finish and premium grade.
b. Match face veneers of doors. Matching veneer at vertical edges.
c. 20-minute rated with label attached to hinge side of the door.
d. Door shall be prefinished and mortised for hardware.
e. Frame: 6-0 x 8-10, Western Intgrated flush trim clear anodized extruded aluminum, 20-minute fire rated.
f. Hardware: Schlage L Series: , Lever style #17, A- Wrought Rose- typ, finish 626 hardware finish 626 satin chrome. Corbin Russwin cylinders with an inter-changeable core and D3 keyway. Hinges: AB700, 4.5 x 4.5, Hager, finish: stainless steel satin. Stop: Trimco 1211 series, finish 626. Auto flush bolts: DCI No. 942, finish to match 626. Coordinator: DCI No. 600 series, finish to match 626. Closer: LCN 4041 series, parallel arm-heavy duty, finish: to match 626. Closer: LCN 4041 series, parallel arm-heavy duty, finish to match 626. Astragal: Pemco 355CV.
OPTIONAL DOORS AS APPROVED BY LANDLORD
a. Optional Doors as Selected by the Tenant for the tenants interior space may be submitted as outlined below subject to Landlords Approval:
· Premium Grade wood doors with single glass lites with a stained and lacquered finish. Colors to match building standard, subject to Landlord Approval
· Herculite Glass Doors with Stainless Steel Styles at top and bottom and concealed hinges.
· Aluminum Storefront Doors with clear anodized finish set in Aluminum frames to match.
a. 2 X 2 x 9/16 Armstrong, Superfine XL 9/16 exposed tee system, finish: matte white, Steel T-bar grid system with wire suspension and seismic bracing per code.
b. Tile: 24 X 24 X 7/8 Armstrong acoustical tile; Pattern - Cirrus with beveled tegular edge detail: Color - white. NRC: .65, CAC:38.
c. Optional Ceiling Tile and Grid as Selected by the Tenant for the tenants interior space may be submitted as outlined below subject to Landlords Approval.
d. Premium Grade Architectural Ceiling Tile and Grid subject to code compliance with textures and finishes as selected by tenant, subject to Landlord Approval.
e. Tenant may elect to design an open ceiling plan subject to Landlords Approval.
f. Open Ceilings may incorporate the following:
· Floating Architectural Ceilings with Composo Edges and trims.
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· Floating Hard lid ceilings.
· Painted and Exposed Structure for Loft Style Architectural Impact.
The base building is served by a 277/480v 3ph. Main Distribution Section with 3000 amp meter section.
New 277v distribution, lighting panels, transformers and 120v convenience power panels shall be part of the Premise Improvements.
All electrical distribution shall be fully engineered in compliance with local building codes, the National Electric Code and California Title 24 and shall be subject to Landlords review and approval.
Tenant electrical drawings shall include a review of the base building electrical drawings to include all necessary metering, distribution and connections.
Tenant electrical design, fixtures and components shall be compliant with Kilroy Sabre Springs Construction Guidelines and subject to certification by Landlords consultant.
LIGHT FIXTURES
a. Recessed Lightolier or similar 2x2 and 2x4 Direct/Indirect Fluorescent Fixtures
· 5-1/2 Micro Perforated Mesh Lamp Shield.
· (2) T-5 lamps per fixture with electronic T-5 rapid start ballast
· Lamps: Phillips 32 Watt
· Color 741-4100K (cool white)
b. Delray Rocket II Pendant Hung Compact Fluorescent Light Fixtures
c. Verve II Suspended Linear Indirect Fixture
Tenant may elect to use additional or alternate Architectural Lighting subject to Landlords Approval of Plans and Specs.
Corridors General Lighting: Lithonia Lighting Avante 2 x 2, 2 lamp Linear T8 indirect recessed luminaire, model #2AV-G-2-17-MDR-277-GEB.
a. Novitas Sensors.
b. Wall - #01-DL401.
c. Ceiling: One Way 01-100.
d. Ceiling: Two Way 01-110
a. Specification Grade, Leviton 15A, 125V, Decora/single switch.
b. Color - White.
c. Mounted vertically.
d. Outlet height at 15 above finish floor to centerline of outlet U.O.N. as required for ADA compliance.
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TELEPHONE WALL OUTLET
a. Mud ring cut into wall - mounted vertically.
b. ¾ metal conduit stub above ceiling with 6 pigtail at top of wall.
c. Cover plate and wiring by Tenants telephone vendor.
EXIT SIGN LIGHTS
a. Alkco Edge-Glo Exit /Directional signs, recessed ceiling mounted LED housing, green letters on a clear panel background or equivalent.
b. Provide exit lights with battery back up at all exits required by code.
c. All life safety items including horns & strobes and speaker shall have white covers.
AUTOMATIC FIRE SPRINKLERS
a. Fully fire sprinklered building with main and branch distribution lines available for tenant modification.
b. Reliable sprinkler model G pendant semi-recessed sprinkler with white sprinkler and escutcheon.
· 165 degree Fahrenheit temperature rating.
c. Reliable sprinkler model G4 concealed sprinkler head with white cover plate. (To be used in all public areas).
· 165 degree Fahrenheit temperature rating.
HEATING AND AIR CONDITIONING DISTRIBUTION
All mechanical design shall be fully engineered in compliance with local building codes, the Uniform Mechanical Code and California Title 24.
All new mechanical fixtures and components shall be compliant with Kilroy Sabre Springs Construction Guidelines and subject to certification by Landlords consultant.
An Indoor Air Quality Management Plan shall be prepared in compliance with the Kilroy Sabre Springs Construction Guidelines prior to construction.
AIR DISTRIBUTION FOR TYPICAL FLOORS
VAVs with DDC Controls and hot water reheat at exterior zones, designed and sized by a licensed Mechanical Engineer approved by Landlord, shall be supported by base building AHUs and High-pressure ducts on a per floor basis.
Each zone shall be controlled by an electronic thermostats tied back to existing base building energy management system.
Tenant may elect to design an open ceiling plan with existing exposed galvanized rigid ductwork configured as required for tenant distribution of conditioned air.
Air delivery above concealed ceiling spaces may be via low pressure, insulated ducting with air diffusers as described below. [***]
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PLUMBING
All plumbing design shall be fully engineered in compliance with local building codes, the Uniform Plumbing Code and California Title 24.
All new plumbing fixtures shall be compliant with Kilroy Sabre Springs construction guidelines and subject to certification by Landlords consultant.
Approved plumbing fixtures include:
a. Elkay Pacemaker sink # PSR-1720 - stainless steel, two faucet holes, or equivalent.
b. Hi-Arc Dual Handle bar faucet by Elkay # LK-2437-BH or equivalent.
c. Undercounter Dishwasher: Asko model #D1706, suitable for ADA requirements.
d. Garbage Disposal: Insinkerator, Model #77, ¾ horsepower, stainless steel construction.
FINISHES
G LAZING / WINDOW FRAMES AT OFFICES & CONFERENCE ROOM:
a. Shall be Western Integrated aluminum, 3-3/4 or 4-7/8 throat, pre-finished satin aluminum w/ clear coat with squared edge- to match standard door frames style and color.
b. ¼ glazing, clear, tempered where required by code.
c. Side-lite glazing, size: 1-6 wide by full height (inside window frame to window frame)
d. All private office shall have side-lites.
PAINT
a. Manufacturer: To Be Determined, As approved Landlord consultant in compliance with the Kilroy Sabre Springs construction guidelines.
b. Two coats minimum semi-gloss interior latex washable paint.
c. Include paint on tenant side of demising partition, both sides of interior partition, above and below exterior glazing as required and all column fur outs and perimeter walls.
FLOOR COVERING/LOBBY & COMMON AREAS
a. Carpet: Loop: 28 oz. or equal, Manufacture To Be Determined, As approved Landlord consultant in compliance with the Kilroy Sabre Springs construction guidelines.
b. Direct glue down installation for all carpet.
c. 12 x 12 Vinyl Tile shall be Armstrong or approved equal.
d. Optional architectural flooring as approved by Landlord
TILE FLOORING
a. Ceramic tile or Natural stone as selected by tenant subject to Landlords approval.
BASE
a. 2-1/2Rubber Base by Roppe
b. 2 ½ tile base in tiled areas as approved by Landlord.
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PLASTIC LAMINATE
a. Formica, Wilsonart or approved equal.
WINDOW COVERINGS
a. Exterior window covering to be PVC Perforated Vertical Blinds.
b. Blinds to be sized to fit inside window module.
c. MechoShade With Landlords prior approval, manually operated units are to receive ThermoVeil 0900 Series Privacy Weave ShadeCloth with an approximate openness factor of 0-1%. Color is to match (0910 Light Grey) the fabric used on the shades.
FIRE/LIFE SAFETY
a. As required by code.
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SCHEDULE 3 TO EXHIBIT B
FINAL SPACE PLAN
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EXHIBIT C
KILROY SABRE SPRINGS
NOTICE OF LEASE TERM DATES
To:
Re: Office Lease dated , 200 between , a (Landlord), and , a (Tenant) concerning Suite on floor(s) of the office building located at , , California.
Ladies and Gentlemen:
In accordance with the Office Lease (the Lease), we wish to advise you and/or confirm as follows:
1. The Lease Term shall commence on or has commenced on for a term of ending on .
2. Rent commenced to accrue on , in the amount of .
3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.
4. Your rent checks should be made payable to at .
5. The exact number of rentable/usable square feet within the Premises is square feet.
6. Tenants Share as adjusted based upon the exact number of usable square feet within the Premises is %.
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EXHIBIT D
KILROY SABRE SPRINGS
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project; provided, however, in no event shall Landlord enforce such Rules and Regulations in a discriminatory manner to the detriment of Tenant. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.
1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlords prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.
2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the San Diego, California area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other similar commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord reasonably designates. Landlord shall have the right, in its reasonable discretion, to prescribe the weight,
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size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is reasonable necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.
5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be reasonably designated by Landlord.
6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.
7. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.
8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.
9. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlords prior written consent, except in connection with the installation of wall hangings that are customarily permitted in first-class office buildings (including, without limitation, picture frames). Tenant shall not purchase spring water, ice, towel, linen, maintenance or other like services from any person or persons not approved by Landlord.
10. Except for vending machines intended for the sole use of Tenants employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material, except in compliance with applicable law. Tenant shall maintain material safety data sheets for any Hazardous Material used or kept on the Premises (provided that Landlord acknowledges that Tenant will maintain products in the Premises which are incidental to the operation of its offices, such as photocopy supplies, secretarial supplies and limited janitorial supplies, which products
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may violate the foregoing terms, and that the use of such products in the Premises in the manner in which such products are designed to be used and in compliance with Applicable Laws shall not be a violation by Tenant of this Rule 11).
12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.
14. Tenant shall not bring into or keep within the Project, the Building or the Premises any firearms, animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. Notwithstanding the terms of this Rule 15, Tenant shall be permitted to maintain for its own use a customary office kitchen, subject to the terms of the Lease and Applicable Laws.
16. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord. Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.
17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises. Furthermore, in no event shall Tenant, its employees or agents smoke tobacco products within the Building or within seventy-five feet (75) of any entrance into the Building or into any other Project building.
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19. Tenant shall use commercially reasonable efforts not to waste electricity, water or air conditioning and agrees to use commercially reasonable efforts to cooperate fully with Landlord to ensure the most effective operation of the Buildings heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.
20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in San Diego, California without violation of any law or ordinance governing such disposal; provided, however, Tenant may, subject to all of the terms and conditions of this Lease, including but not limited to Rules 11 and 13 above, maintain separate trash enclosures for the storage of non-conforming disposal items to the extent Tenant satisfies and complies with applicable laws or other governmental regulations relating to the storage and disposal thereof. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. If the Premises is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith, at Tenants expense, cause the Premises to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.
21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.
22. Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.
23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, which consent shall not be unreasonably withheld, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenants sole cost and expense. Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlords regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.
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24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.
25. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord vis-à-vis the operation of the Project which are not inconsistent with the TCCs of the Lease.
26. Tenant must comply with any City of San Diego NO-SMOKING ordinances. If Tenant is required under the ordinance to adopt a written smoking policy, a copy of said policy shall be on file in the office of the Building.
27. Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.
28. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises to absorb or prevent any vibration, noise and annoyance.
29. Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.
30. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.
31. No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.
32. Intentionally Omitted.
33. If required by law, Tenant shall install and maintain, at Tenants sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.
Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlords judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the
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preservation of good order therein, as well as for the convenience of other occupants and tenants therein; provided, however, Landlord shall not make any new Rules and/or Regulations, or change any Rule and/or Regulation, which would materially and adversely affect Tenants use, occupancy or access to the Premises, the Building, or the Project parking areas. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project; provided, however, in no event shall Landlord enforce such Rules and Regulations in a discriminatory manner to the detriment of Tenant. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.
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EXHIBIT E
KILROY SABRE SPRINGS
FORM OF TENANTS ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the Lease) made and entered into as of , 200 by and between as Landlord, and the undersigned as Tenant, for Premises on the floor(s) of the office building located at , , California , certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.
2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on , and the Lease Term expires on , and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.
3. Base Rent became payable on .
4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A .
5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:
6. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlords mortgagee.
7. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through . The current monthly installment of Base Rent is $ .
8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.
9. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.
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10. As of the date hereof, there are no existing defenses or offsets, or, to the undersigneds knowledge, claims or any basis for a claim, that the undersigned has against Landlord.
11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.
12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.
13. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.
14. To the undersigneds knowledge, all improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any improvement work have been paid in full.
The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.
Executed at on the day of , 200 .
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EXHIBIT F
KILROY SABRE SPRINGS
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
ALLEN MATKINS LECK GAMBLE
& MALLORY LLP
1901 Avenue of the Stars, 18th Floor
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
RECOGNITION OF COVENANTS,
CONDITIONS, AND RESTRICTIONS
This Recognition of Covenants, Conditions, and Restrictions (this Agreement ) is entered into as of the day of , 200 , by and between (Landlord), and (Tenant), with reference to the following facts:
A. Landlord and Tenant entered into that certain Office Lease Agreement dated , 200 (the Lease). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the Premises ) located in an office building on certain real property described in Exhibit A attached hereto and incorporated herein by this reference (the Property ).
B. The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately ( ) acres of real property located in the City of , California (the Project ), as more particularly described in Exhibit B attached hereto and incorporated herein by this reference.
C. Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the Declaration ), dated , 200 , in connection with the Project.
D. Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same.
NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows,
1. Tenants Recognition of Declaration . Notwithstanding that the Lease has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration.
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2. Miscellaneous .
2.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives, successors, and assigns.
2.2 This Agreement is made in, and shall be governed, enforced and construed under the laws of, the State of California.
2.3 This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing. The parties confirm and acknowledge that there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein.
2.4 This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto.
2.5 In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys fees, in such amount as may be determined by the court or other tribunal having jurisdiction, including matters on appeal.
2.6 All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to in any way in connection with the interpretation or enforcement of this Agreement.
2.7 If any provision of this Agreement, as applied to any party or to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different form those adjudged by the court, or the validity or enforceability of this Agreement as a whole.
2.8 Time is of the essence of this Agreement.
2.9 The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement.
2.10 As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates.
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SIGNATURE PAGE OF RECOGNITION OF
COVENANTS, CONDITIONS AND RESTRICTIONS
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
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EXHIBIT G
KILROY SABRE SPRINGS
MARKET RENT DETERMINATION FACTORS
When determining Market Rent, the following rules and instructions shall be followed.
1. RELEVANT FACTORS . The Comparable Transactions shall be the Net Equivalent Lease Rates per rentable square foot, at which tenants, are, pursuant to transactions consummated within twelve (12) months prior to the commencement of the Option Term, leasing non-sublease, non-encumbered space comparable in location and quality to the Premises containing a square footage comparable to that of the Premises for a term of [***] The terms of the Comparable Transactions shall be calculated as a Net Equivalent Lease Rate pursuant to the terms of this Exhibit G , and shall take into consideration only the following terms and concessions: (i) the rental rate and escalations for the Comparable Transactions, (ii) the amount of parking rent per parking permit paid in the Comparable Transactions, if any, (iii) operating expense and tax protection granted in such Comparable Transactions such as a base year or expense stop (although for each such Comparable Transaction the base rent shall be adjusted to a triple net base rent using reasonable estimates of operating expenses and taxes as determined by Landlord for each such Comparable Transaction); (iv) rental abatement concessions, if any, being granted such tenants in connection with such comparable space, (v) any Renewal Allowance, as defined herein below, to be provided by Tenant in connection with the Option Term as compared to the improvements or allowances provided or to be provided in the Comparable Transactions, taking into account the contributory value of the existing improvements in the Premises, such value to be based upon the age, design, quality of finishes, and layout of the existing improvements, and (vi) all other monetary concessions. [***]
2. TENANT SECURITY . The Market Rent shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as an enhanced security deposit, a letter of credit or guaranty, for Tenants Rent obligations during the Option Term. [***]
3. RENEWAL IMPROVEMENT ALLOWANCE . Notwithstanding anything to the contrary set forth in this Exhibit G , once the Market Rent for the Option Term is determined as a Net Equivalent Lease Rate, if (i) in connection with such determination, it is deemed that Tenant is entitled to an improvement or comparable allowance for the improvement of the Premises (the total dollar value of such allowance, the Renewal Allowance ), Landlord shall disburse the Renewal Allowance pursuant to a reasonable disbursement procedure (consistent with the terms of Section 2.2.1 of the Work Letter Agreement) and the terms of Article 8 of this Lease, and, as set forth in Section 5 , below, of this Exhibit G , the rental rate component of the Market Rent shall be increased to be a rental rate which takes into consideration that Landlord will fund a Renewal Allowance and, accordingly, such payment with interest shall be factored into the base rent component of the Market Rent.
4. COMPARABLE BUILDINGS . For purposes of this Lease, the term Comparable Buildings shall mean first-class multi-tenant occupancy office buildings
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comparable to the Building in terms of age (based upon the date of completion of major renovation), quality of construction, level of services and amenities (including the type ( e . g ., surface, structured, subterranean) and amount of parking), ingress and egress, freeway access and visibility, which Comparable Buildings are located in comparably sized office projects and are located in the Comparable Area , which is [***].
5. METHODOLOGY FOR REVIEWING AND COMPARING THE COMPARABLE TRANSACTIONS . In order to analyze the Comparable Transactions based on the factors to be considered in calculating Market Rent, and given that the Comparable Transactions may vary in terms of length of term, rental rate, concessions, etc., the following steps shall be taken into consideration to adjust the objective data from each of the Comparable Transactions. By taking this approach, a Net Equivalent Lease Rate for each of the Comparable Transactions shall be determined using the following steps to adjust the Comparable Transactions, which will allow for an apples to apples comparison of the Comparable Transactions.
5.1. The contractual rent payments for each of the Comparable Transactions should be arrayed monthly or annually over the lease term. All Comparable Transactions should be adjusted to simulate a net rent structure, wherein the tenant is responsible for the payment of all property operating expenses in a manner consistent with this Lease. This results in the estimate of Net Equivalent Rent received by each landlord for each Comparable Transaction being expressed as a periodic net rent payment.
5.2 Any free rent or similar inducements received over time should be deducted in the time period in which they occur, resulting in the net cash flow arrayed over the lease term.
5.3 The resultant net cash flow from the lease should be then discounted (using an [***] percent ( [***] %) annual discount rate) to the lease commencement date, resulting in a net present value estimate.
5.4 From the net present value, up front inducements (improvements allowances and other concessions) and leasing commissions should be deducted. These items should be deducted directly, on a dollar for dollar basis, without discounting since they are typically incurred at lease commencement, while rent (which is discounted) is a future receipt.
5.5 The net present value should then amortized back over the lease term as a level monthly or annual net rent payment using the same annual discount rate of [***] percent ( [***] %) used in the present value analysis. This calculation will result in a hypothetical level or even payment over the option period, termed the Net Equivalent Lease Rate (or constant equivalent in general financial terms).
6. USE OF NET EQUIVALENT LEASE RATES FOR COMPARABLE TRANSACTIONS . The Net Equivalent Lease Rates for the Comparable Transactions shall then be used to reconcile, in a manner usual and customary for a real estate appraisal process, to a conclusion of Market Rent which shall be stated as a Base Year lease rate applicable to each year of the Option Term.
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An example of the application of using the process set forth on this Exhibit G to arrive at the Market Rent is attached hereto as Schedule 1 .
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SCHEDULE 1 TO EXHIBIT G
KILROY SABRE SPRINGS
DETERMINATION OF MARKET RENT EXAMPLE
As an example of the determination of the Market Rent, assume that there is a 10,000 rentable square foot Comparable Transaction with a five (5) year term, Base Rent of $75.00 per rentable square foot with One Dollar ($1) annual increases, a tenant improvement allowance of $25.00 per rentable square foot, three (3) months of free rent, and Base Year Operating Expenses and Tax Expenses of $12.00 per rentable square foot. Based on the foregoing, the Net Equivalent Lease Rate analysis would be as follows.
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EXHIBIT 2 TO EXHIBIT G
KILROY SABRE SPRINGS
Determination of Market Rent - Example
Premises (RSF) |
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10,000 |
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Initial Annual Rental Rate per RSF |
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75.00 |
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Annual Escalation |
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$ |
12.00 |
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Abatement (months) |
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3 |
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Tenant Improvement Allowance per rsf |
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$ |
25.00 |
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Period |
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Monthly
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Monthly
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Monthly
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1 |
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$ |
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$ |
10,000.00 |
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$ |
(10,000.00 |
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2 |
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$ |
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$ |
10,000.00 |
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$ |
(10,000.00 |
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3 |
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$ |
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$ |
10,000.00 |
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$ |
(10,000.00 |
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4 |
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$ |
62,500.00 |
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$ |
10,000.00 |
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$ |
52,500.00 |
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5 |
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$ |
62,500.00 |
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$ |
10,000.00 |
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$ |
52,500.00 |
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6 |
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$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
7 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
8 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
9 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
10 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
11 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
12 |
|
$ |
62,500.00 |
|
$ |
10,000.00 |
|
$ |
52,500.00 |
|
13 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
14 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
15 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
16 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
17 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
18 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
19 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
20 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
21 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
22 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
23 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
24 |
|
$ |
63,333.33 |
|
$ |
10,000.00 |
|
$ |
53,333.33 |
|
25 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
26 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
27 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
28 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
29 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
1
30 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
31 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
32 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
33 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
34 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
35 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
36 |
|
$ |
64,166.67 |
|
$ |
10,000.00 |
|
$ |
54,166.67 |
|
37 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
38 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
39 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
40 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
41 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
42 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
43 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
44 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
45 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
46 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
47 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
48 |
|
$ |
65,000.00 |
|
$ |
10,000.00 |
|
$ |
55,000.00 |
|
49 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
50 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
51 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
52 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
53 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
54 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
55 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
56 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
57 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
58 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
59 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
60 |
|
$ |
65,833.33 |
|
$ |
10,000.00 |
|
$ |
55,833.33 |
|
2
Net Present Value @ 8% |
|
$ |
2,479,851.66 |
|
Up-front inducements (Tenant Improvements & Other) |
|
$ |
250,000.00 |
|
Net Present Value net of inducements |
|
$ |
2,229,851.66 |
|
Monthly Amortization @ 8% |
|
$ |
45,213.35 |
|
Net Monthly Rent Payment pre rentable square foot |
|
$ |
4.52 |
|
Rentable Square Footage of Premises |
|
18,242 |
|
|
Net Monthly Rent Payment for the Premises during the applicable Term |
|
$ |
82,453.84 |
|
3
EXHIBIT H
KILROY SABRE SPRINGS
FORM OF LETTER OF CREDIT
(Letterhead of a money center bank
acceptable to the Landlord)
LADIES AND GENTLEMEN:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. IN YOUR FAVOR FOR THE ACCOUNT OF [Insert Tenants Name], A [Insert Entity Type] (TENANT), UP TO THE AGGREGATE AMOUNT OF USD[Insert Dollar Amount] ([Insert Dollar Amount] U.S. DOLLARS) EFFECTIVE IMMEDIATELY AND EXPIRING ON (Expiration Date) AVAILABLE BY PAYMENT UPON PRESENTATION OF YOUR DRAFT AT SIGHT DRAWN ON [Insert Bank Name] WHEN ACCOMPANIED BY THE FOLLOWING DOCUMENT(S):
1. THE ORIGINAL OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT AND AMENDMENT(S), IF ANY.
2. BENEFICIARYS SIGNED STATEMENT PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE OF [Insert Landlords Name], A [Insert Entity Type] (LANDLORD) STATING THE FOLLOWING:
THE UNDERSIGNED HEREBY CERTIFIES THAT FUNDS IN THE AMOUNT OF USD ARE NOW DUE AND OWING BY TENANT UNDER THE LANDLORD UNDER THE LEASE (DEFINED BELOW) AND BENEFICIARY HAS THE RIGHT TO DRAW DOWN THE AMOUNT OF USD IN ACCORDANCE WITH THE TERMS OF THAT CERTAIN OFFICE LEASE DATED [Insert Lease Date], AS AMENDED (COLLECTIVELY, THE LEASE),
1
BY AND BETWEEN [Insert Landlords Name], A [Insert Entity Type] (LANDLORD), AND [Insert Tenants Name], A [Insert Entity Type] (TENANT, AS AMENDED (COLLECTIVELY, THE LEASE), OR SUCH AMOUNT CONSTITUTES DAMAGES OWING BY TENANT THE TENANT UNDER SUCH LEASE TO BENEFICIARY RESULTING FROM THE TENANTS BREACH OF THE SUCH LEASE BY THE TENANT THEREUNDER, AND SUCH AMOUNT REMAINS UNPAID AT THE TIME OF THIS DRAWING.
OR
THE UNDERSIGNED HEREBY CERTIFIES THAT WE HAVE RECEIVED A WRITTEN NOTICE OF [Insert Bank Name]S ELECTION NOT TO EXTEND ITS STANDBY LETTER OF CREDIT NO. AND HAVE NOT RECEIVED A REPLACEMENT LETTER OF CREDIT WITHIN AT LEAST SIXTY (60) DAYS PRIOR TO THE PRESENT EXPIRATION DATE.
OR
THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. AS THE RESULT OF TENANTS FILING OF A VOLUNTARY PETITION UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE BY THE TENANT UNDER THAT CERTAIN OFFICE LEASE DATED [Insert Lease Date], AS AMENDED (COLLECTIVELY, THE LEASE), , WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING.
OR
THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. AS THE RESULT OF AN INVOLUNTARY PETITION HAVING BEEN FILED AGAINST TENANT UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE AGAINST THE TENANT UNDER THAT CERTAIN OFFICE LEASE DATED [Insert Lease Date], AS AMENDED (COLLECTIVELY, THE LEASE), , WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING.
SPECIAL CONDITIONS:
PARTIAL DRAWINGS AND MULTIPLE PRESENTATIONS MAY BE MADE UNDER THIS STANDBY LETTER OF CREDIT, PROVIDED, HOWEVER, THAT EACH SUCH DEMAND THAT IS PAID BY US SHALL REDUCE THE AMOUNT AVAILABLE UNDER THIS STANDBY LETTER OF CREDIT.
ALL INFORMATION REQUIRED WHETHER INDICATED BY BLANKS, BRACKETS OR OTHERWISE, MUST BE COMPLETED AT THE TIME OF DRAWING. [Please Provide The Required Forms For Review, And Attach As Schedules To The Letter Of Credit.]
ALL SIGNATURES MUST BE MANUALLY EXECUTED IN ORIGINALS.
2
ALL BANKING CHARGES OTHER THAN ISSUING BANKS ARE FOR THE APPLICANTS ACCOUNT.
IT IS A CONDITION OF THIS STANDBY LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR A PERIOD OF ONE YEAR FROM THE PRESENT OR ANY FUTURE EXPIRATION DATE, UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE EXPIRATION DATE WE SEND YOU NOTICE BY NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE THAT WE ELECT NOT TO EXTEND THIS CREDIT FOR ANY SUCH ADDITIONAL PERIOD. SAID NOTICE WILL BE SENT TO THE ADDRESS INDICATED ABOVE, UNLESS A CHANGE OF ADDRESS IS OTHERWISE NOTIFIED BY YOU TO US IN WRITING BY RECEIPTED MAIL OR COURIER. ANY NOTICE TO US WILL BE DEEMED EFFECTIVE ONLY UPON ACTUAL RECEIPT BY US AT OUR DESIGNATED OFFICE. IN NO EVENT, AND WITHOUT FURTHER NOTICE FROM OURSELVES, SHALL THE EXPIRATION DATE BE EXTENDED BEYOND A FINAL EXPIRATION DATE OF (Expiration Date).
THIS LETTER OF CREDIT MAY BE TRANSFERRED SUCCESSIVELY IN WHOLE OR IN PART ONLY UP TO THE THEN AVAILABLE AMOUNT IN FAVOR OF A NOMINATED TRANSFEREE (TRANSFEREE), ASSUMING SUCH TRANSFER TO SUCH TRANSFEREE IS IN COMPLIANCE WITH ALL APPLICABLE U.S. LAWS AND REGULATIONS. AT THE TIME OF TRANSFER, THE ORIGINAL LETTER OF CREDIT AND ORIGINAL AMENDMENT(S) IF ANY, MUST BE SURRENDERED TO US TOGETHER WITH OUR TRANSFER FORM (AVAILABLE UPON REQUEST) AND PAYMENT OF OUR CUSTOMARY TRANSFER FEES BY BENEFICIARY. IN CASE OF ANY TRANSFER UNDER THIS LETTER OF CREDIT, THE DRAFT AND ANY REQUIRED STATEMENT MUST BE EXECUTED BY THE TRANSFEREE AND WHERE THE BENEFICIARYS NAME APPEARS WITHIN THIS STANDBY LETTER OF CREDIT, THE TRANSFEREES NAME IS AUTOMATICALLY SUBSTITUTED THEREFOR.
ALL DRAFTS REQUIRED UNDER THIS STANDBY LETTER OF CREDIT MUST BE MARKED: DRAWN UNDER [Insert Bank Name] STANDBY LETTER OF CREDIT NO. .
WE HEREBY AGREE WITH YOU THAT IF DRAFTS ARE PRESENTED TO [Insert Bank Name] UNDER THIS LETTER OF CREDIT AT OR PRIOR TO [Insert Time ( e.g. , 11:00 AM)], ON A BUSINESS DAY, AND PROVIDED THAT SUCH DRAFTS PRESENTED CONFORM TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SUCCEEDING BUSINESS DAY. IF DRAFTS ARE PRESENTED TO [Insert Bank Name] UNDER THIS LETTER OF CREDIT AFTER [Insert Time ( e.g. , 11:00 AM)], ON A BUSINESS DAY, AND PROVIDED THAT SUCH DRAFTS CONFORM WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SECOND SUCCEEDING BUSINESS DAY. AS USED IN THIS LETTER OF CREDIT, BUSINESS DAY SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A DAY ON WHICH BANKING INSTITUTIONS IN THE STATE OF CALIFORNIA ARE AUTHORIZED OR REQUIRED BY LAW TO CLOSE. IF THE EXPIRATION DATE FOR THIS LETTER OF CREDIT SHALL EVER FALL ON A DAY WHICH IS NOT A BUSINESS DAY THEN SUCH EXPIRATION DATE SHALL AUTOMATICALLY BE EXTENDED TO THE DATE WHICH IS THE NEXT BUSINESS DAY.
PRESENTATION OF A DRAWING UNDER THIS LETTER OF CREDIT MAY BE MADE ON OR PRIOR TO THE THEN CURRENT EXPIRATION DATE HEREOF BY HAND DELIVERY, COURIER SERVICE, OVERNIGHT MAIL, OR FACSIMILE. PRESENTATION BY FACSIMILE
3
TRANSMISSION SHALL BE BY TRANSMISSION OF THE ABOVE REQUIRED SIGHT DRAFT DRAWN ON US TOGETHER WITH THIS LETTER OF CREDIT TO OUR FACSIMILE NUMBER, [Insert Fax Number ( ) - ], ATTENTION: [Insert Appropriate Recipient], WITH TELEPHONIC CONFIRMATION OF OUR RECEIPT OF SUCH FACSIMILE TRANSMISSION AT OUR TELEPHONE NUMBER [Insert Telephone Number ( ) - ] OR TO SUCH OTHER FACSIMILE OR TELEPHONE NUMBERS, AS TO WHICH YOU HAVE RECEIVED WRITTEN NOTICE FROM US AS BEING THE APPLICABLE SUCH NUMBER. WE AGREE TO NOTIFY YOU IN WRITING, BY NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, OF ANY CHANGE IN SUCH DIRECTION. ANY FACSIMILE PRESENTATION PURSUANT TO THIS PARAGRAPH SHALL ALSO STATE THEREON THAT THE ORIGINAL OF SUCH SIGHT DRAFT AND LETTER OF CREDIT ARE BEING REMITTED, FOR DELIVERY ON THE NEXT BUSINESS DAY, TO [Insert Bank Name] AT THE APPLICABLE ADDRESS FOR PRESENTMENT PURSUANT TO THE PARAGRAPH PRECEDING THIS ONE.
WE HEREBY ENGAGE WITH YOU THAT ALL DOCUMENT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS STANDBY LETTER OF CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT OUR OFFICE LOCATED AT [Insert Bank Name], [Insert Bank Address], ATTN: [Insert Appropriate Recipient], ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT, (Expiration Date).
IN THE EVENT THAT THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT IS LOST, STOLEN, MUTILATED, OR OTHERWISE DESTROYED, WE HEREBY AGREE TO ISSUE A DUPLICATE ORIGINAL HEREOF UPON RECEIPT OF A WRITTEN REQUEST FROM YOU AND A CERTIFICATION BY YOU (PURPORTEDLY SIGNED BY YOUR AUTHORIZED REPRESENTATIVE) OF THE LOSS, THEFT, MUTILATION, OR OTHER DESTRUCTION OF THE ORIGINAL HEREOF.
EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS STANDBY LETTER OF CREDIT IS SUBJECT TO INTERNATIONAL STANDBY PRACTICES (ISP 98) INTERNATIONAL CHAMBER OF COMMERCE (PUBLICATION NO 590).
|
|
|
|
Very truly yours, |
|
|
|
|
|
(Name of Issuing Bank) |
|
|
|
|
|
By: |
|
4
EXHIBIT I
SHORT FORM OF MEMORANDUM OF LEASE
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Sheppard
Mullin Richter & Hampton LLP
12275 El Camino Real, Suite 200
San Diego, CA 92130
Attention:
Michael R. Leake, Esq.
SHORT FORM OF MEMORANDUM OF LEASE
THIS SHORT FORM OF MEMORANDUM OF LEASE is entered into as of the day of , 20 , by and between KILROY REALTY, L.P., a Delaware limited partnership ( Landlord ), and BRIDGEPOINT EDUCATION, INC., a Delaware corporation ( Tenant ), who agree as follows.
1. Terms and Premises . Landlord leases to Tenant, and Tenant leases from Landlord, approximately 18,242 rentable (15,864 usable) square feet of space on the fifth (5 th ) floor of that certain building (the Building ) located at 13520 Evening Creek Drive North, San Diego, California 92128 (the Premises ), for the term and in accordance with the provisions of that certain Lease by and between Landlord and Tenant, dated as of May 22, 2009 (the Lease ). The provisions of the Lease are hereby incorporated herein.
2. Certain Express Lease Terms . As more particularly set forth in the referenced sections of the Lease, Tenant enjoys the following rights pursuant to the terms and conditions of the Lease: (i) an initial Lease Term of approximately seven (7) years and ten (10) months, which initial Lease Term shall commence on May 7, 2009, as more particularly set forth in the Lease, and (ii) one (1) option to extend the Lease Term for the entire Premises by a period of five (5) years, as more particularly set forth in the Lease.
3. Provisions Binding on Parties . The provisions of the Lease to be performed by Landlord or Tenant, whether affirmative or negative in nature, are intended to and shall bind or benefit the respective parties hereto and their assigns or successors, as applicable, at all times.
1
4. Purpose of Short Form of Memorandum of Lease . This Short Form of Memorandum of Lease is prepared solely for purposes of recordation, and in no way modifies the provisions of the Lease.
2
EXHIBIT J
KILROY SABRE SPRINGS
LOCATION OF RESERVED PASSES
1
2
EXHIBIT K
KILROY SABRE SPRINGS
LOCATION OF BUILDING TOP SIGNAGE
1
Exhibit 10.2
*** Confidential portions of this document have been redacted and filed separately with the Commission.
SECOND AMENDMENT TO OFFICE LEASE
This SECOND AMENDMENT TO OFFICE LEASE ( Second Amendment ) is made and entered into as of the 3 rd day of June, 2009, by and between KILROY REALTY, L.P., a Delaware limited partnership ( Landlord ), and BRIDGEPOINT EDUCATION, INC., a Delaware corporation ( Tenant ).
R E C I T A L S :
A. Landlord and Tenant entered into that certain Office Lease dated as of January 31, 2008 (the Office Lease ), as amended by that certain First Amendment to Office Lease dated as of December 1, 2008 (the First Amendment ) (The Office Lease and the First Amendment are hereinafter referred to collectively as the Lease ), whereby Landlord leases to Tenant and Tenant leases from Landlord the entirety of the building (the Premises ) located and addressed at 13480 Evening Creek Drive North, San Diego, California (the Building ). The Building is part of the office building project commonly known as Kilroy Sabre Springs . The Premises is identified in the Lease as containing approximately 147,533 rentable square feet of space.
B. The Premises has been remeasured in accordance with Section 1.2 of the Office Lease. In connection therewith, and pursuant to the terms of such Section 1.2 of the Office Lease, Landlord notified Tenant in writing on November 26, 2008, of Landlords space planner/architects determination as to the total rentable square footage of the entire Premises (the Landlord Determination ).
C. Tenant failed within fifteen (15) days thereafter to deliver written notice to Landlord objecting to such Landlord Determination, and therefore, pursuant to the terms of Section 1.2 of the Office, such failure to object shall be deemed to constitute Tenants acceptance of the Landlord Determination.
D. Accordingly, Landlord and Tenant desire to amend the Lease to reflect the correct rentable square footage for the Premises, and to otherwise amend the Lease on the terms and conditions contained herein.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Capitalized Terms . All undefined terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Second Amendment.
*** Confidential portions of this document have been redacted and filed separately with the Commission.
2. Remeasurement of Premises . Landlord and Tenant hereby acknowledge and agree that the Premises has been remeasured pursuant to Section 1.2 of the Office Lease, and Landlord and Tenant agree that, notwithstanding any contrary provision contained in the Lease, the Premises shall be deemed to contain 149,817 rentable (131,101 usable) square feet of space, which measurement shall be applied retroactively to the Lease Commencement Date as contemplated by Section 1.2 of the Office Lease. Accordingly, except where the relevant section (or portion thereof) of the Office Lease or the First Amendment is expressly amended pursuant to the terms of this Second Amendment, all references to 147,533 rentable square feet shall hereby be deemed to reference 149,817 rentable square feet. Landlord and Tenant further acknowledge and agree that the rentable square footage of each portion of the Premises is as follows:
Floor 6: |
|
22,147 rentable square feet |
Floor 5: |
|
25,787 rentable square feet |
Floor 4: |
|
25,787 rentable square feet |
Floor 3: |
|
25,787 rentable square feet |
Floor 2: |
|
24,387 rentable square feet |
Floor 1: |
|
25,280 rentable square feet |
Rentable Area of the Rooftop of the Building*: 642 rentable square feet
* Pursuant to the BOMA standard applicable to single-tenant buildings, the rentable area of the rooftop of the subject building is added to the rentable area of the remainder of such building in determining the total rentable area of the entirety of such building.
3. Rent . Further to the updated rentable square footage documented above, Landlord and Tenant hereby acknowledge and agree that Section 4 of the Summary, as amended and restated in its entirety in Exhibit B attached to the First Amendment, is hereby amended and restated in its entirety with the following:
4. Base Rent (Article 3):
Lease Year |
|
Applicable
|
|
Monthly
|
|
Annual
|
|
||
September 2, 2008 through October 31, 2008 |
|
N/A |
|
$ |
[***] |
|
N/A |
|
|
November 1, 2008 through November 30, 2008 |
|
48,576 |
|
$ |
[***] |
|
$ |
[***] |
|
December 1, 2008 through February 28, 2009 |
|
74,363 |
|
$ |
[***] |
|
$ |
[***] |
|
2
*** Confidential portions of this document have been redacted and filed separately with the Commission.
March 1, 2009 through May 31, 2009 |
|
100,150 |
|
$ |
[***] |
|
$ |
[***] |
|
June 1, 2009 through June 6, 2009 |
|
124,537 |
|
$ |
[***] |
|
$ |
[***] |
|
June 7, 2009 through August 31, 2010 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2010 through August 31, 2011 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2011 through August 31, 2012 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2012 through August 31, 2013 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2013 through August 31, 2014 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2014 through August 31, 2015 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2015 through August 31, 2016 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2016 through August 31, 2017 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
September 1, 2017 through September 30, 2018 |
|
149,817 |
|
$ |
[***] |
|
$ |
[***] |
|
** The Monthly Installment of Base Rent for the period during the Lease Term from November 1, 2008 through May 31, 2009 was calculated by multiplying $[***] by the Applicable Square Footage, and then adding the Additional Monthly Base Rent pursuant to the First Amendment. The Monthly Installment of Base Rent for the period during the Lease Term from June 1, 2009 through August 31, 2010 was calculated by multiplying $[***] by the Applicable Square Footage (the Base Amount ), and then adding the Additional Monthly Base Rent pursuant to the First Amendment. In all subsequent Lease Years, the calculation of Monthly Installment of Base Rent reflects an annual increase of [***] of the Base Amount, and then adding the Additional Monthly Base Rent pursuant to the First Amendment.
3
*** Confidential portions of this document have been redacted and filed separately with the Commission.
4. Base Rent Payment/Credit . Concurrently with Tenants execution of this Second Amendment, Tenant shall pay to Landlord the difference (if any) between (A) the amount of Base Rent actually paid by Tenant for the period commencing on the Lease Commencement Date and ending on the date of Tenants most recent payment of Base Rent, which does not reflect the increase in the rentable square footage of the Premises set forth herein, and (B) the amount of Base Rent due for such period based on the schedule set forth above. Alternatively, in the event Tenant has previously paid to Landlord Base Rent for any period during the Lease Term prior to the date of this Second Amendment in excess of the Base Rent which was due for such period ( i.e. , per the schedule set forth above), Landlord shall credit any such difference against the monthly installment of Base Rent next due and owing under the Lease, as amended.
5. Improvement Allowance .
5.1 Initial Improvement Allowance . Notwithstanding any provision to the contrary set forth in the Lease, the amount of the Improvement Allowance set forth in Section 13 of the Summary and Section 2.1 of the Tenant Work Letter attached to the Lease as Exhibit B (the Work Letter ) is hereby revised to be the total amount of [***].
5.2 Second Amendment Additional Allowance . Notwithstanding any provision to the contrary set forth in Section 2.3 of the Work Letter, and in place of any increase in the Additional Allowance (as that term is defined in Section 2.3 of the Work Letter), Tenant may, upon written notice to Landlord given on or before the date which is thirty (30) days following the date of this Second Amendment, elect to cause the Improvement Allowance for the initial Premises to be increased by an amount (the Second Amendment Additional Allowance ) set forth in such notice. Any such resulting Second Amendment Additional Allowance shall (i) be an amount equal to an even number of United States Dollars (as opposed to fractions of United States Dollars), and (ii) in no event exceed the product of (A) [***], and (B) the number of rentable square feet of the Premises in excess of the number of rentable square feet of the Premises set forth in the Office Lease ( i.e. , an amount equal [***] based upon 2,284 rentable square feet). In the event Tenant exercises its right to use all or any portion of the Second Amendment Additional Allowance, the Monthly Installment of Base Rent for the Premises shall be retroactively increased by an amount equal to the Second Amendment Additional Monthly Base Rent, as that term is defined below, in order to repay the Second Amendment Additional Allowance to Landlord. The Second Amendment Additional Monthly Base Rent shall be determined as the missing component of an annuity, which annuity shall have (w) the amount of the Second Amendment Additional Allowance which Tenant elects to utilize as the present value amount, [***]. If Tenant elects to utilize all or a portion of the Second Amendment Additional Allowance, then (i) all references in the Work Letter to the Improvement Allowance, shall be deemed to include the Second Amendment Additional Allowance which Tenant elects to utilize, and (ii) the parties shall promptly execute an amendment (the Second Amendment Additional Allowance Amendment ) to the Office Lease setting forth the new amount of the Base Rent and Improvement Allowance computed in accordance with this Section 5.2 .
4
*** Confidential portions of this document have been redacted and filed separately with the Commission.
5.3 Mid-Term Improvement Allowance . The amount of the Mid-Term Improvement Allowance set forth in Section 14 of the Summary and referred to in Section 8.6 of the Office Lease is hereby revised to be the total amount of [***].
6. Brokers . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment, excepting only the real estate brokers or agents specified in Section 12 of the Summary (collectively, the Brokers ), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Second Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying partys dealings with any real estate broker or agent other than the Brokers. The terms of this Section 6 shall survive the expiration or earlier termination of the Lease Term.
7. Conflict . In the event of any conflict between the Lease and this Second Amendment, the terms of this Second Amendment shall prevail.
8. No Further Modification . Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full and effect.
[Signatures follow on next page]
5
*** Confidential portions of this document have been redacted and filed separately with the Commission.
IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above-written.
LANDLORD |
KILROY REALTY, L.P., |
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a Delaware limited partnership |
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Kilroy Realty Corporation, |
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a Maryland corporation, |
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General Partner |
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/s/ Jeffrey C. Hawken |
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Its: |
EVP |
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By: |
/s/ John T. Fucci |
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Its: |
Sr. VP |
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TENANT |
BRIDGEPOINT EDUCATION, INC., |
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a Delaware corporation |
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By: |
/s/ Andrew Clark |
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CEO |
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/s/ Daniel J. Devine |
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CFO |
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6
Exhibit 10.3
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Ninth Amendment to Loan and Security Agreement (this Amendment) is entered into as of May 1, 2009, by and between COMERICA BANK (Bank) and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each a Borrower and collectively, Borrowers).
RECITALS
Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007, that certain Fourth Amendment to Loan and Security Agreement dated as of March 12, 2007, that certain Fifth Amendment to Loan and Security Agreement dated as of October 1, 2007, that certain Sixth Amendment to Loan and Security Agreement dated as of March 9, 2008, that certain Seventh Amendment to Loan and Security Agreement dated as of June 12, 2008 and that certain Eighth Amendment to Loan and Security Agreement dated as of October 3, 2008 (collectively, the Agreement). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
Letter of Credit Sublimit means a sublimit for Letters of Credit under the Revolving Line not to exceed Fifteen Million Dollars ($15,000,000).
[ Balance of Page Intentionally Left Blank ]
2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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BRIDGEPOINT EDUCATION, INC |
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By: |
/s/ Dan Devine |
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Title: |
CFO |
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BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC |
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By: |
/s/ Dan Devine |
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Title: |
CFO |
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COMERICA BANK |
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By: |
/s/ Greg Park |
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Title: |
VP |
[ Signature Page to Ninth Amendment to Loan and Security Agreement ]
3
Exhibit 10.4
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Tenth Amendment to Loan and Security Agreement (this Amendment) is entered into as of June 22, 2009, by and between COMERICA BANK (Bank) and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a Borrower and collectively, Borrowers).
RECITALS
Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007, that certain Fourth Amendment to Loan and Security Agreement dated as of March 12, 2007, that certain Fifth Amendment to Loan and Security Agreement dated as of October 1, 2007, that certain Sixth Amendment to Loan and Security Agreement dated as of March 9, 2008, that certain Seventh Amendment to Loan and Security Agreement dated as of June 12, 2008, that certain Eighth Amendment to Loan and Security Agreement dated as of October 3, 2008 and that certain Ninth Amendment to Loan and Security Agreement dated as of May 1, 2009 (collectively, the Agreement). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Section 6.12 of the Agreement hereby is amended and restated in its entirety to read as follows:
6.12 Accounts . Subject to Section 6.8 hereof, Borrowers may maintain accounts at financial institutions outside of Bank, provided that such accounts are subject to account control agreements in favor of Bank and in form and content reasonably acceptable to Bank.
2. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Banks failure at any time to require strict performance by a Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
3. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
4. Each Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
5. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) an amendment fee in the amount of Two Hundred Fifty Dollars ($250), which may be debited from any of Borrowers accounts;
(c) all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrowers accounts; and
(d) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
6. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[ Balance of Page Intentionally Left Blank ]
2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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BRIDGEPOINT EDUCATION, INC |
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By: |
/s/ Dan Devine |
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Dan Devine |
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Title: |
Chief Financial Officer |
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BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC |
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By: |
/s/ Dan Devine |
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Dan Devine |
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Title: |
Chief Financial Officer |
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COMERICA BANK |
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By: |
/s/ Greg Park |
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Title: |
VP |
[ Signature Page to Tenth Amendment to Loan and Security Agreement ]
Exhibit 10.5
ADDENDUM TO THE SOFTWARE LICENSE AGREEMENT BETWEEN
CAMPUS MANAGEMENT CORP® AND
BRIDGEPORT EDUCATION INC.
Purpose of Addendum: Increase ASRs
This Addendum, effective upon the mutual execution by the parties hereunder, is incorporated into and made a part of the Software License Agreement (the License Agreement) between Campus Management Corp. (CMC) and Bridgeport Education Inc. (Customer), dated as of March 2, 2004. All capitalized terms not otherwise defined herein shall have the meaning set forth in the License Agreement. The License Agreement shall be amended, as follows:
1. Customer is hereby licensed to use the Licensed Program, including those set forth in Section 2 below, for an additional [***] ASRs, for a total of up to [***] ASRs, at the following licensed Campuses:
Institution Name |
|
Campus Address |
Bridgeport Education, Inc. |
|
13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
Ashford University (AU-TR) |
|
400 North Bluff Road, Clinton, Iowa 52732 |
Ashford University Online (AUO) (AU-AC) |
|
400 North Bluff Road, Clinton, Iowa 52732 |
University of the Rockies-Online |
|
13500 Evening Creek Drive, Suite 600, San Diego. CA 92128 |
Ashford University- Evening Accelerated (AU-EA) |
|
400 North Bluff Road. Clinton, Iowa 52732 |
Ashford Audit |
|
13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
Instructor Campus |
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13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
University of the Rockies (TR) |
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555 East Pikes Peak Ave., Colorado Springs, CO 80903 |
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|
Total Campuses - 8 |
*** Confidential portions of this document have been redacted and filed separately with the Commission.
2. The incremental License Fees for the additional ASRs, at the above licensed Campuses, are as follows:
License |
|
Cost |
|
|
CampusVue |
|
$ |
[***] |
|
CampusPortal |
|
$ |
[***] |
|
CampusLink AppCreator |
|
$ |
[***] |
|
CampusLink Communicator |
|
$ |
[***] |
|
CampusLink eLead |
|
$ |
[***] |
|
CampusLink eLearning |
|
$ |
[***] |
|
TOTAL |
|
$ |
[***] |
|
3. Full payment of the non-refundable fee is due and payable on or before July 1, 2009.
This Addendum is deemed effective upon acceptance at CMCs principal offices. Except as expressly stated herein, all other terms of the License Agreement, as amended, remain unchanged and in full force and effect.
BRIDGEPOINT EDUCATION, INC. |
|
CAMPUS MANAGEMENT CORP. |
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By: |
/s/ |
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By: |
/s/ |
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Print: |
Daniel J. Devine |
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Print: |
Anders Nessen |
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Title: |
CFO |
|
Title: |
CFO |
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Date: |
6-29-09 |
|
Date: |
6-29-09 |
*** Confidential portions of this document have been redacted and filed separately with the Commission.
2
ADDENDUM TO THE SOFTWARE LICENSE AGREEMENT BETWEEN
CAMPUS MANAGEMENT CORP® AND
Bridgeport Education Inc.
Purpose of Addendum: Unlimited Record Count License
This Addendum, effective upon the mutual execution by the parties hereunder, is incorporated into and made a part of the Software License Agreement (the License Agreement) between Campus Management Corp. (CMC) and Bridgeport Education Inc. (Customer), dated as of March 2, 2004. All capitalized terms not otherwise defined herein shall have the meaning set forth in the License Agreement. The License Agreement shall be amended, as follows:
1. Whereas Customer has [***] ASRs licensed and desires to obtain an unlimited Record Count (ASRs). Subject to the terms and conditions of the License Agreement and this Addendum, including CMCs receipt of the initial payment below, Customer shall be licensed to use the Licensed Programs (see products set forth in Section 2 below), for an unlimited Record Count (ASRs), at the following licensed Campuses:
Institution Name |
|
Campus Address |
Bridgeport Education, Inc. |
|
13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
Ashford University (AU-TR) |
|
400 North Bluff Road, Clinton, Iowa 52732 |
Ashford University Online (AUO) (AU-AC) |
|
400 North Bluff Road, Clinton, Iowa 52732 |
University of the Rockies-Online |
|
13500 Evening Creek Drive, Suite 600, San Diego. CA 92128 |
Ashford University- Evening Accelerated (AU-EA) |
|
400 North Bluff Road. Clinton, Iowa 52732 |
Ashford Audit |
|
13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
Instructor Campus |
|
13500 Evening Creek Drive, Suite 600, San Diego, CA 92128 |
University of the Rockies (TR) |
|
555 East Pikes Peak Ave., Colorado Springs, CO 80903 |
|
|
Total Campuses - 8 |
2. For clarification, Customer acknowledges and agrees that the unlimited Record Count does not apply to any non-organic Record Count increases (i.e., as a result of Customers acquisition of additional Record Count or Campuses resulting from a change of control, merger or acquisition by or of Customer or its affiliates).
*** Confidential portions of this document have been redacted and filed separately with the Commission.
3
3. The incremental License Fees for the following License Programs for the unlimited Record Count, at the above licensed Campuses, are as follows:
License |
|
Cost |
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|
CampusVue |
|
|
|
|
CampusPortal |
|
|
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|
CampusLink AppCreator |
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CampusLink Communicator |
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CampusLink eLead |
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CampusLink eLearning |
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TOTAL |
|
$ |
[***] |
|
4. Payment of the non-refundable License Fees above is due and payable in four (4) equal installments, with payments due on or before July 15, 2009; October 15, 2009, January 15, 2010; and April 15, 2010, respectively. Payment for additional Campuses is due in accordance with the License Agreement.
5. For each additional Campus beyond the eight (8) Campuses set forth above, Customer shall pay one-time fees per Campus as follows: (a) $[***] per Campus and (b) $[***] per online (i.e., more than 50% of the students are enrolled in online programs) Campus. Such Campus license pricing will not be subject to increase through December 31, 2011.
6. Customer shall promptly pay, indemnify and hold CMC harmless from all sales, use, gross receipts, GST, value-added, personal property or other tax or levy (including interest and penalties) imposed on the Licensed Program(s) provided hereunder, other than taxes on the net income or profits of CMC. Subject to any applicable laws, the foregoing shall not apply to the extent Customer is formed as a not for profit organization and promptly provides CMC an applicable tax exempt certificate. All prices quoted are net of taxes.
This Addendum is deemed effective upon acceptance at CMCs principal offices. Except as expressly stated herein, all other terms of the License Agreement, as amended, remain unchanged and in full force and effect.
BRIDGEPOINT EDUCATION, INC. |
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CAMPUS MANAGEMENT CORP. |
||
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By: |
/s/ |
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By: |
/s/ |
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Print: |
Daniel J. Devine |
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Print: |
Anders Nessen |
|
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|
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Title: |
CFO |
|
Title: |
CFO |
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Date: |
6-29-09 |
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Date: |
6-29-09 |
*** Confidential portions of this document have been redacted and filed separately with the Commission.
4
ADDENDUM TO THE CAMPUSCARE® SUPPORT AGREEMENT BETWEEN
CAMPUS MANAGEMENT CORP® AND
BRIDGEPORT EDUCATION, INC.
Purpose of Addendum; Dedicated Account Manager,
Service Representative and/or Support Representative
This Addendum, effective upon the mutual execution by the parties hereunder, is incorporated into and made a part of the CampusCare Support Agreement (the CampusCare Agreement) between Campus Management Corp. (CMC) and Bridgeport Education, Inc. (Customer), dated as of February 15, 2005. All capitalized terms not otherwise defined herein shall have the meaning set forth in the CampusCare Agreement. The CampusCare Agreement shall be amended, as follows:
1. Customer has licensed the following Licensed Programs in accordance with the License Agreement and Addenda:
CampusVue
CampusPortal
CampusLink eLead
CampusLink AppCreator
CampusLink Communicator
CampusLink eLearnlng
2. For the Licensed Programs set forth above, the following dedicated account resources shall be assigned based on the active ASR tiers as of the beginning of each calendar year and subject to increases based on calculations conducted by CMC on the first day of each calendar quarter.*
· [***] ASRs: ½ Time Dedicated Account Manager - Assigned Now (Option to convert to full time: $[***], may be pro-rated); and
· [***] ASRs: 1 Dedicated Client IT Services Representative; and
· [***] ASRs: 1 Dedicated Level 2 Support Representative; and
· [***] ASRs: Full-time Dedicated Account Manager (replaced 1/2 Time Dedicated Account Manager); and
· Additional Level 1 Dedicated Support Representative will be assigned every [***] ASR thereafter.
*** Confidential portions of this document have been redacted and filed separately with the Commission.
5
* Note that incremental headcount for support and /or IT services also may be contracted for in advance of these ASR thresholds for an annual fee of $[***] per resource (pricing valid for 2009-2010). When the ASR thresholds are met, the fees paid will be applied for the new ASR count.
3. Customer shall pay CampusCare on an annual basis in accordance with the CampusCare Agreement. Customers Record Count will be reviewed by CMC as of the first day of each calendar quarter, commencing on October 1, 2009. If Customer exceeds any ASR threshold (per table below), then CMC shall invoice Customer, and Customer shall promptly pay (net 30 days) additional CampusCare fees (pro-rated for the remainder of the then current calendar year) for the additional ASRs in accordance with the following rate table:
ASR |
|
Effective
|
|
|
[***] |
|
$ |
[***] |
|
[***] |
|
$ |
[***] |
|
[***] |
|
$ |
[***] |
|
[***] |
|
$ |
[***] |
|
[***] |
|
$ |
[***] |
|
4. No payment is due at the time of execution of this Addendum, and if Customer increases ASRs between the date of this Addendum and September 30, 2009, no additional CampusCare fees shall be due for such period. Pricing is subject to increases for additional Licensed Programs, services and in accordance with the CampusCare Agreement.
This Addendum is deemed effective upon acceptance at CMCs principal offices. Except as expressly stated herein, all other terms of the CampusCare Agreement, as amended, remain unchanged and in full force and effect.
BRIDGEPOINT EDUCATION, INC. |
|
CAMPUS MANAGEMENT CORP. |
||
|
|
|
|
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By: |
/s/ |
|
By: |
/s/ |
|
|
|
|
|
Print: |
Daniel J. Devine |
|
Print: |
Anders Nessen |
|
|
|
|
|
Title: |
CFO |
|
Title: |
CFO |
|
|
|
|
|
Date: |
6-29-09 |
|
Date: |
6-29-09 |
*** Confidential portions of this document have been redacted and filed separately with the Commission.
6
ADDENDUM TO THE CAMPUSCARE® SUPPORT AGREEMENT BETWEEN
CAMPUS MANAGEMENT CORP® AND
BRIDGEPORT EDUCATION, INC.
Purpose of Addendum: Increase ASRs
This Addendum, effective upon the mutual execution by the parties hereunder, is incorporated into and made a part of the CampusCare Support Agreement (the CampusCare Agreement) between Campus Management Corp. (CMC) and Bridgepoint Education, Inc. (Customer), dated as of February 15, 2005. All capitalized terms not otherwise defined herein shall have the meaning set forth in the CampusCare Agreement. The CampusCare Agreement shall be amended, as follows:
1. Contemporaneously with this Addendum, Customer is executing the Addendum to the Software License Agreement in order to add an additional [***] ASRs, for a total Record Count of up to [***] ASRs. Accordingly, the incremental Premium CampusCare fees For the Licensed Programs, based on the addition of [***] ASRs, for the period June 1, 2009, through December 31, 2009, are as follows:
License |
|
Cost |
|
|
CampusVue |
|
$ |
[***] |
|
CampusPortal |
|
$ |
[***] |
|
CampusLink AppCreator |
|
$ |
[***] |
|
CampusLink Communicator |
|
$ |
[***] |
|
CampusLink eLead |
|
$ |
[***] |
|
CampusLink eLearning |
|
$ |
[***] |
|
TOTAL |
|
$ |
[***] |
|
2. Full payment of the non-refundable fee is due and payable on or before July 1, 2009.
This Addendum is deemed effective upon acceptance at CMCs principal offices. Except as expressly stated herein, all other terms of the CampusCare Agreement, as amended, remain unchanged and in full force and effect.
BRIDGEPOINT EDUCATION, INC. |
|
CAMPUS MANAGEMENT CORP. |
||
|
|
|
|
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By: |
/s/ |
|
By: |
/s/ |
|
|
|
|
|
Print: |
Daniel J. Devine |
|
Print: |
Anders Nessen |
|
|
|
|
|
Title: |
CFO |
|
Title: |
CFO |
|
|
|
|
|
Date: |
6-29-09 |
|
Date: |
6-29-09 |
*** Confidential portions of this document have been redacted and filed separately with the Commission.
7
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANESOXLEY ACT OF 2002
I, Andrew S. Clark, certify that:
Date: August 11, 2009
/s/ ANDREW S. CLARK
Andrew S. Clark CEO and President |
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANESOXLEY ACT OF 2002
I, Daniel J. Devine, certify that:
Date: August 11, 2009
/s/ DANIEL J. DEVINE
Daniel J. Devine Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bridgepoint Education, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 11, 2009 | ||||
|
|
/s/ ANDREW S. CLARK Andrew S. Clark, CEO and President (Principal Executive Officer) |
|
|
Dated: August 11, 2009 |
|
|
||
|
|
/s/ DANIEL J. DEVINE Daniel J. Devine, Chief Financial Officer (Principal Financial Officer) |
|
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This certification shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by the Company into such filing.
A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.