<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 8221
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
52-1975978
(I.R.S. EMPLOYER IDENTIFICATION NO.)
1025 15TH STREET, N.W.
WASHINGTON, D.C. 20005
(202) 408-2400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RON K. BAILEY
PRESIDENT
STRAYER EDUCATION, INC.
1025 15TH STREET, N.W.
WASHINGTON, D.C. 20005
(202) 408-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
WALTER G. LOHR, JR. STUART A. SHELDON
HOGAN & HARTSON L.L.P. DOW, LOHNES & ALBERTSON, PLLC
111 S. CALVERT STREET 1200 NEW HAMPSHIRE AVENUE, N.W.
SUITE 1600 SUITE 800
BALTIMORE, MD 21202 WASHINGTON, DC 20036
(410) 659-2700 (202) 776-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE(2) OFFERING PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value...... 1,322,500 $24.00 $31,740,000 $9,618.00
================================================================================================================
</TABLE>
(1) Includes 172,500 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, and based upon
the average high and low sales prices of the Common Stock on March 14, 1997,
as reported on the Nasdaq National Market System.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 19, 1997
PROSPECTUS
1,150,000 SHARES
[STRAYER LOGO]
STRAYER EDUCATION, INC.
COMMON STOCK
------------------
Of the 1,150,000 shares of common stock (the "Common Stock") offered hereby
(the "Offering"), 600,000 shares are being sold by Strayer Education, Inc. (the
"Company") and 550,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders."
The Common Stock is listed on the Nasdaq National Market (the "Nasdaq")
under the trading symbol "STRA." The last sales price of the Common Stock as
reported on the Nasdaq on March 18, 1997 was $24.75 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
==================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. For information regarding
indemnification of the Underwriters, see "Underwriting."
(2) Before deducting expenses of the Offering, estimated at $350,000, which
are payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 172,500 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. Proceeds to Selling Stockholders will not be
affected.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SMITH BARNEY INC. LEGG MASON WOOD WALKER
INCORPORATED
, 1997
<PAGE> 3
[MAP OF GREATER WASHINGTON D.C. AND SURROUNDING AREA INDICATING
CAMPUS LOCATIONS INSERTED HERE]
------------------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND OTHER SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
EXCHANGE ACT. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise indicated herein,
(i) the information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and (ii) all references to the Company in this Prospectus
include Strayer Education, Inc. and its wholly-owned subsidiaries, Strayer
College, Inc., a Maryland corporation ("Strayer" or the "College"), and
Education Loan Processing, Inc., a Virginia corporation ("ELP"). This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" as well as
those discussed elsewhere in this Prospectus.
THE COMPANY
Strayer is a regional proprietary institution of higher education offering
undergraduate and graduate courses to more than 8,000 students at eight campuses
in Washington, D.C. and Northern Virginia. In early 1996, the College received
state approval to operate its first degree-granting campus in Maryland and the
College will begin offering classes at its ninth campus in Prince George's
County, Maryland in the 1997 Spring quarter. The College is accredited by the
Commission on Higher Education of the Middle States Association of Colleges and
Schools ("Middle States"), one of the six regional collegiate accrediting
agencies recognized by the U.S. Department of Education. The majority of Strayer
students are working adults pursuing their first college degree to improve their
job skills and advance their careers. Of students enrolled in Strayer programs
at the beginning of the 1996 Fall quarter, approximately 60% were age 30 or
over, and approximately 64% were engaged in a part-time course of study. The
College believes it attracts working adults by offering a business-oriented
curriculum, convenient campus locations, flexible class schedules, a wide
variety of information technology courses and an experienced teaching faculty.
To accommodate the scheduling requirements of working students, Strayer offers
classes seven days a week at hours ranging from 6:00 a.m. to midnight. In
addition, Strayer operates throughout the year on a quarter system, which
enables many of its students to attend classes all year. Many employers of
Strayer students, including major corporations and governmental agencies,
provide full or partial tuition reimbursement for Strayer courses.
The College was founded as Strayers Business College in 1892. Strayer began
a program of significant expansion in 1989 when its current President, Ron K.
Bailey, acquired ownership of the College. Since 1989, the number of campuses
has increased from three to nine, enrollment has increased from approximately
2,900 students at the beginning of the 1990 Fall quarter to approximately 8,200
students at the beginning of the 1996 Fall quarter, and annual revenues have
increased from approximately $11.3 million for the year ended December 31, 1990
to approximately $45.0 million for the year ended December 31, 1996. During the
same period, the College focused its attention on its degree programs by
broadening its course offerings, increasing the number of faculty members with
doctoral and other terminal degrees, expanding its library and other learning
resources and investing in information systems.
The College designs its educational offerings to meet the practical needs
of its student body. Strayer regularly revises its curriculum in consultation
with area employers to respond to changing business trends and workplace
requirements. The College offers associate's, bachelor's and master's degree
programs in accounting, business administration, and computer information
systems, as well as undergraduate degree programs in related fields, such as
marketing and economics. The College has expanded and upgraded its
computer-related course offerings as business and governmental organizations
have increased their use of information technology. The College offers an
intensive twelve-month diploma program in computer information systems to
instruct students in new information technologies. Strayer has equipped each of
its campuses with computer and networking laboratories containing up-to-date
hardware and software for instructional use.
Students finance their Strayer education in a variety of ways. A
significant number of students utilize federal financial aid programs. In
addition, many of Strayer's working adult students finance their own education
or receive full or partial tuition reimbursement from their employers. Since
1995, the Company has
3
<PAGE> 5
extended educational loans through an internal program, the Strayer Education
Loan Program (the "SEL Program"), to eligible students seeking an alternative to
federal programs. The SEL Program enables students to finance their education
through monthly payments of between $200 and $300 while they attend college and
after they graduate. The administrative costs of the SEL Program to the College
are substantially less than those of the federal loan programs. In addition, the
SEL Program reduces the College's dependence on the receipt of federal financial
aid funds.
The College believes that the demand of working adults for
business-oriented higher education in Strayer's market area will continue to
increase as the result of a number of demographic and economic trends. According
to the American Council on Education, older students are more likely to pursue
postsecondary education in professional fields, including business-related
studies, than in the arts and sciences. The U.S. National Center for Educational
Statistics estimates that by the year 2005 approximately 42% of the 16.1 million
students projected to be enrolled in institutions of higher education will be
adults over the age of 24. Management expects that the number of adult
candidates for business and computer-related education will increase due to the
continuing restructuring of businesses and federal governmental agencies and the
rapid growth and change in information technology.
BUSINESS STRATEGY
Strayer's objective is to strengthen its position in its region as the
leading degree-granting proprietary institution offering business-oriented
education to working adults. The Company seeks to achieve continued revenue and
earnings growth primarily by increasing enrollment through (i) the establishment
of new campuses in its current market and contiguous areas, (ii) the development
of new delivery formats, such as offering distance learning programs over the
Internet, (iii) the expansion and upgrade of existing curricula, (iv) the
development of new course offerings, and (v) the further development of on-site
training programs for governmental and corporate employers. As an additional
attraction to potential students, Strayer also intends to expand the SEL Program
to give students greater flexibility in financing their education. The Company
believes that it is strongly positioned to capitalize on projected demographic
and market trends, including the projected increase in the number of high school
graduates, the projected increase in the number of adults seeking further
education and the expected increase in demand for business-oriented courses.
RECENT DEVELOPMENTS
The Company completed an initial public offering of its Common Stock in
July 1996, the proceeds of which were used to make an S Corporation distribution
to the College's former stockholder, to acquire ELP and expand the SEL Program,
to acquire the College's Loudoun campus facilities in Virginia, to establish its
Prince George's County, Maryland campus, and to expand its distance learning
programs. In 1996, the College originated 1,263 SEL Program loans aggregating
$3.2 million. This program is designed to reduce the College's administrative
costs, lessen its dependence on federal student financial aid programs and
enhance its ability to attract and retain qualified students.
The College will begin offering classes at its Prince George's County,
Maryland campus in April 1997 and is developing a proposal to establish a campus
in Montgomery County, Maryland in 1998. In addition, the College has offered its
graduate program in computer information systems at the Southern Maryland Higher
Education Center in California, Maryland since the 1996 Fall quarter and,
subject to regulatory approvals, expects to be able to offer upper level
undergraduate courses in its bachelor's programs in computer information systems
and business administration at that site beginning in the 1997 Fall quarter. The
College is also exploring alternative educational delivery systems to broaden
its student base, and has submitted a proposal for approval of a distance
learning program called "Strayer ONLINE" to the District of Columbia Education
Licensure Commission. Under the proposal, the College would increase its online
course offerings from selected master's courses presently offered to include the
College's entire curriculum. The College is establishing facilities for Strayer
ONLINE at a Distance Learning Center in Lorton, Virginia.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..... 600,000 shares
Common Stock offered by the Selling
Stockholders(1)....................... 550,000 shares
Total......................... 1,150,000 shares
Common Stock to be outstanding after the
Offering(2)........................... 10,050,000 shares
Use of proceeds by the Company.......... To provide funds to increase the SEL Program, to
purchase the College's Alexandria, Virginia campus,
to expand the College's distance learning programs
and its operations in Maryland and for other
corporate purposes. The Company will not receive
any proceeds from the sale of the shares of Common
Stock by the Selling Stockholders.
Nasdaq National Market symbol........... "STRA"
</TABLE>
- ---------------
(1) Includes 100,000 shares of Common Stock owned by Strayer College Educational
Foundation, a 501(c)(3) corporation. See "Business -- Strayer College
Educational Foundation."
(2) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's stock option plan, of which options for 646,674 shares of Common
Stock were outstanding as of March 18, 1997. See "Management and
Directors -- Stock Option Plan."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $23,793 $29,368 $34,257 $38,196 $45,005 $45,005
Costs and expenses(1).................. 21,298 25,124 29,055 32,020 29,014 29,014
------- ------- ------- ------- ------- -------
Income from operations................. 2,495 4,244 5,202 6,176 15,991 15,991
Investment and other income............ 184 180 350 875 1,061 1,061
------- ------- ------- ------- ------- -------
Income before taxes.................... 2,679 4,424 5,552 7,051 17,052 17,052
Provision for income taxes(2).......... -- -- -- -- 2,740 6,649
------- ------- ------- ------- ------- -------
Net income............................. $ 2,679 $ 4,424 $ 5,552 $ 7,051 $14,312 $10,403
======= ======= ======= ======= ======= =======
PRO FORMA DATA:(3)
Income before income taxes............. $17,052
Income taxes........................... 6,649
-------
Net income............................. $10,403
=======
Net income per share................... $ 1.24
=======
Weighted average shares
outstanding(4)...................... 8,410
=======
OPERATING DATA:
Enrollment(5).......................... 5,600 6,200 6,800 7,400 8,200
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 3,609 $ 2,191 $ 5,564 $ 8,992 $11,777
Working capital........................ 3,063 5,195 5,934 8,327 15,574
Total assets........................... 14,396 16,279 19,824 25,878 47,822
Long-term liabilities.................. 62 -- -- -- 189
Total liabilities...................... 10,146 9,651 10,487 10,539 12,411
Total stockholders' equity............. 4,250 6,628 9,337 15,339 35,411
</TABLE>
- ---------------
(1) Includes bonus payments to the former stockholder of the College (the "S
Corporation Stockholder") of $0.9 million in 1992, $3.5 million in 1993,
$5.5 million in 1994, and $6.2 million in 1995 for the payment of income
taxes by that stockholder on undistributed S Corporation income. In
connection with the Company's initial public offering, effective July 25,
1996, the Company acquired the College and ELP, as a result of which the
College and ELP changed their tax status from S Corporations to C
Corporations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Background and Overview."
(2) Historical data for 1992 through 1995 do not reflect any provision for
income taxes. The College and ELP were S Corporations during such periods
and therefore were not subject to income tax.
(3) Reflects the formation of the Company and the acquisition of the College by
the Company as if those events had taken place on January 1, 1996. Following
the termination of their status as S Corporations prior to completion of the
Company's initial public offering, the College and ELP became subject to
federal and state income tax. The pro forma data reflects the application of
statutory corporate income tax rates to net income as if the termination of
the S Corporation status of the College and ELP had occurred on January 1,
1996. The effective pro forma income tax rate for the year ended December
31, 1996 was 39%.
6
<PAGE> 8
(4) Shares have been adjusted to reflect the acquisition of the College by the
Company and the issuance of 1,401,000 shares of Common Stock which, when
multiplied by the net per share proceeds of the initial public offering,
would have been necessary to fund distributions to the S Corporation
Stockholder during the 12 months ended July 1996, to the extent such
distributions exceeded net income during the same period. These
distributions included those made subsequent to the closing of the initial
public offering to the S Corporation Stockholder in respect of earnings
previously subject to income tax during the College's period as an S
Corporation.
(5) Reflects student enrollment as of the beginning of the Fall academic quarter
for each year indicated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality."
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. Certain statements included in this Prospectus
concerning the Company's future financial condition and performance are forward-
looking statements and the factors discussed below, as well as those discussed
elsewhere in this Prospectus, could cause actual results and developments to be
materially different from those expressed in or implied by such statements.
POTENTIAL ADVERSE EFFECTS OF REGULATION
The College is subject to extensive regulation by governmental agencies and
licensing and accrediting bodies. In particular, the Higher Education Act of
1965, as amended (the "HEA"), and the regulations issued thereunder subject to
significant regulatory scrutiny the College and all other higher education
institutions that participate in the various federal student financial aid
programs under Title IV of the HEA ("Title IV Programs"). The HEA mandates
specific regulatory responsibilities for each of the following components of the
higher education regulatory triad: (i) the federal government through the United
States Department of Education (the "Department" or "Department of Education");
(ii) the accrediting agencies recognized by the Department of Education; and
(iii) state higher education regulatory bodies. In addition, the regulations,
standards and policies of these regulatory agencies frequently change, and
changes in, or new interpretations of, applicable laws, regulations or standards
could have a material adverse effect on the College's accreditation,
authorization to operate in various states, permissible activities, receipt of
funds under Title IV Programs or costs of doing business. The College's failure
to maintain or renew any required regulatory approvals, accreditations or
authorizations would have a material adverse effect on the College. For the year
ended December 31, 1996, the College derived approximately 48% of its revenues
from Title IV Programs. See "Licensing, Accreditation and Financial Aid
Regulation."
Certain significant regulatory factors that could adversely affect the
College are discussed below:
Loss of State Authorization and Accreditation. The College is dependent on
the authorization of the applicable agency of each state where the College is
offering educational programs to allow it to operate and to grant degrees or
diplomas. State authorization and accreditation by an accrediting agency
recognized by the Secretary of Education are also required in order for an
institution to become and remain eligible to participate in Title IV Programs.
The College is subject to extensive regulation by its accrediting agency, Middle
States, and by its state licensing agencies, the District of Columbia Education
Licensure Commission, the Virginia State Council of Higher Education and the
Maryland Higher Education Commission. The loss of accreditation would, among
other things, render the College ineligible to participate in Title IV Programs
and would have a material adverse effect on the College. Similarly, the loss of
state authorization by the College or an existing campus would, among other
things, render the College ineligible to participate in Title IV Programs for
students in that state or at that location and would have a material adverse
effect on the College. See "Licensing, Accreditation and Financial Aid
Regulation -- State Licensure" and "-- Accreditation."
Student Loan Defaults; Loss of Eligibility to Participate in Title IV
Programs. Under the HEA, an educational institution may lose its eligibility to
participate in some or all Title IV Programs if the rate of student defaults on
the repayment of federally guaranteed student loans (known as "cohort default
rates") exceeds certain rates. Any institution that has a cohort default rate
equal to or exceeding 25% for three consecutive years is subject to immediate
loss of eligibility to participate in certain Title IV Programs for a period of
up to three federal fiscal years. The College's cohort default rates on
federally guaranteed student loans for the 1992, 1993 and 1994 federal fiscal
years, the most recent federal fiscal years for which this information is
available, were 10.6%, 16.6% and 16.0%, respectively.
In addition, if an institution's cohort default rate for federally
guaranteed student loans equals or exceeds 25% for any of the three most recent
federal fiscal years, or if its cohort default rate for loans under the Federal
Perkins loan program exceeds 15% for any federal award year, the Department may
determine that the institution lacks administrative capability and may place the
institution on provisional certification status or take other remedial actions.
Provisional certification does not limit an institution's access to Title IV
Program
8
<PAGE> 10
funds, but does subject the institution to closer review by the Department of
Education and may subject the institution to summary adverse action if it
violates other Title IV Program requirements. The College's cohort default rates
under the Perkins loan program in federal award years 1994, 1995 and 1996 were
4.0%, 11.6% and 18.6%, respectively. Based on its Perkins loan cohort default
rate for 1996, the College could be placed on provisional certification status
or subject to other remedial actions. See "Licensing, Accreditation and
Financial Aid Regulation -- Financial Aid Regulation -- Student Loan Defaults."
Failure to Demonstrate Administrative Capability. Department of Education
regulations specify extensive criteria an institution must satisfy to establish
that it has the requisite "administrative capability" to participate in Title IV
Programs. The failure by an institution to satisfy any of the criteria may lead
the Department of Education to determine that the institution lacks
administrative capability and, therefore, to require the repayment of Title IV
Program funds, to transfer the institution from the "advance" system of payment
of Title IV Program funds to the "reimbursement" system of payment, to place the
institution on provisional certification status, or to commence a proceeding to
impose a fine or to limit, suspend or terminate the participation of the
institution in Title IV Programs.
Based on an inspection conducted by the Office of Inspector General of the
Department of Education in mid-1992, the Department of Education concluded that
there were serious deficiencies at that time in the College's administration of
federal student financial aid programs. Because of these deficiencies, the
Department of Education transferred the College from the advance system of
payment to the reimbursement system of payment. The College disputed various of
the Department of Education's findings, but took steps to correct certain
institutional weaknesses identified in the report and repaid to the government
certain Title IV funds. Following these remedial actions, the Department of
Education returned the College to the advance system of payment, effective
December 7, 1995. See "Licensing, Accreditation and Financial Aid
Regulation -- Financial Aid Regulation -- Administrative Capability."
Failure to Demonstrate Financial Responsibility. The HEA and the
regulations issued thereunder impose specific standards of financial
responsibility on eligible higher education institutions. These standards
require, among other things, that a proprietary institution such as the College
meet an "acid test" ratio (defined as the ratio of cash, cash equivalents and
current accounts receivable to current liabilities) of at least 1-to-1 at the
end of the institution's most recent fiscal year. For the fiscal year ended
December 31, 1996, the College's "acid test" ratio was equal to 1.69-to-1.
Failure of the College to meet the financial responsibility standards would,
among other things, render the College ineligible to participate in Title IV
Programs and would have a material adverse effect on the College. See
"Licensing, Accreditation and Financial Aid Regulation -- Financial Aid
Regulation -- Financial Responsibility."
Regulatory Consequences of a Change in Ownership Resulting in a Change of
Control. A change in ownership resulting in a change of control of the College
may have significant regulatory consequences for the College. The HEA provides
that an institution which undergoes a change in ownership resulting in a change
of control loses its eligibility to participate in the Title IV Programs and
must apply to the Department of Education in order to re-establish such
eligibility. For a publicly-traded corporation required to be registered with
the Securities and Exchange Commission ("SEC"), such as the Company, the
Department of Education regulations implementing the HEA define a change in
ownership resulting in a change of control as occurring when a change of control
of the corporation takes place that gives rise to the obligation on the part of
the corporation to file a Form 8-K with the SEC notifying that agency of the
change of control. The Company has determined that the Offering and related
transactions will not give rise to the obligation to file a Form 8-K with the
SEC. The College's accrediting agency and state licensing agencies utilize
somewhat different standards from the Department of Education, and the Company
does not believe the Offering and related transactions require any approvals by
any of these entities. However, if the College undergoes a change in ownership
and is not recertified by the Department of Education, does not obtain
reauthorization from the necessary state agencies or has its accreditation
withdrawn, or experiences significant delay in obtaining approval from any of
these bodies, the change would have a material adverse effect on the College.
Because of the control position of Ron K. Bailey and Beverly Bailey, as joint
tenants with rights of survivorship, any disposition of Common Stock by them
that results in a loss of control by them may have material adverse consequences
for the Company under applicable federal and state regulations and accrediting
agency
9
<PAGE> 11
requirements, including potential loss of eligibility to participate in the
Title IV Programs. There can be no assurance that Mr. and Mrs. Bailey will
maintain their ownership interests in the Company or as to the manner or timing
of the sale of any Common Stock by them. See "Licensing, Accreditation and
Financial Aid Regulation -- Change in Ownership Resulting in a Change of
Control."
Legislative Action. The HEA was most recently reauthorized by the U.S.
Congress in 1992, at which time funding for the Title IV Programs was authorized
through September 30, 1997, with an automatic one-year extension if the HEA were
not reauthorized by that date. The Congress has commenced the reauthorization
process, which is expected to be completed in late 1997 or during 1998. Although
there is no present indication that the Congress will decline to reauthorize the
Title IV Programs, at this time it is not possible to predict the outcome of the
reauthorization process. There can be no assurance that federal funding will
continue to be available for any or all Title IV Programs for proprietary
institutions such as the College, that such funding will be maintained at
current levels for any or all such programs, that current requirements for
student and institutional participation will be unchanged, or that one or more
present Title IV Programs will not be replaced by other programs with materially
different student or institutional eligibility requirements or benefits. Given
the significant percentage of the Company's revenues that are indirectly derived
from the Title IV Programs, the loss of or a significant reduction in Title IV
Program funds available to the College's students would have a material adverse
effect on the Company.
LACK OF EXPERIENCE IN OPERATING CAMPUSES IN MARYLAND
The College's business strategy includes the establishment of new campuses
in the State of Maryland pursuant to approval granted in early 1996 by the
Maryland Higher Education Commission. See "Business -- Business Strategy."
Although the College formerly operated a campus in Baltimore, Maryland, oriented
toward secretarial and clerical training, the College closed that campus in
1992, and management has no experience in operating a degree-granting higher
education institution under Maryland state regulatory requirements. There can be
no assurance that the College will be successful in establishing any campuses in
Maryland, or that any campus established in Maryland will be profitable.
COMPETITION
Postsecondary education in the College's market area is highly competitive.
The College competes with traditional public and private two-year and four-year
colleges, other for-profit schools and alternatives to higher education, such as
employment and military service. Public colleges may offer programs similar to
those of the College at a lower tuition level as a result of government
subsidies, government and foundation grants, tax-deductible contributions and
other financial sources not available to proprietary institutions. See
"Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The College is highly dependent on certain of its personnel, particularly
Ron K. Bailey, the College's President. The loss of Mr. Bailey's services or
those of one or more of the College's other significant employees could have a
material adverse effect on the College's financial condition and results of
operations. The College believes that its future success will depend upon its
ability to continue to attract, motivate and retain highly skilled, managerial,
recruitment and marketing, and academic personnel. The College does not carry
key-man life insurance on its key personnel. There can be no assurance that the
College will continue to be successful in attracting and retaining the personnel
it requires. See "Management and Directors."
RISKS RELATING TO SEL PROGRAM
In 1995, Strayer began originating educational loans under the SEL Program
to eligible students as part of its strategy to reduce its administrative
expenses, lessen its dependence on federal student financial aid programs and
attract and retain qualified students. The amount of these loans originated in
1996 was approximately $3.2 million. See "Business -- SEL Program." The College
intends to further expand the SEL
10
<PAGE> 12
Program following completion of the Offering. The Company will be exposed to the
risk of losses associated with this type of unsecured lending. The College has
operated the SEL Program only for a limited period and for this reason is unable
to evaluate fully its underwriting standards.
ABILITY TO MANAGE GROWTH
The College experienced a period of rapid growth from 1989 to 1992 that
strained the College's financial and management information systems and other
resources. See "Licensing, Accreditation and Financial Aid Regulation -- State
Licensure" and "-- Financial Aid Regulation -- Administrative Capability."
Although the Company has made a substantial investment in augmenting these
systems and resources to support future growth, there can be no assurance that
the Company will be able to manage any further expansion effectively. Failure to
do so would have a material adverse effect on the Company's financial condition,
results of operations and regulatory compliance.
CONCENTRATION OF SHARE OWNERSHIP; ANTI-TAKEOVER EFFECT
Upon completion of the Offering, Ron K. Bailey, jointly with his spouse,
will beneficially own approximately 54.2% of the outstanding Common Stock (51.0%
on a fully-diluted basis). As a result, Mr. Bailey will have the ability to
elect all of the Company's directors and to determine the outcome of corporate
actions requiring stockholder approval. These facts may have the effect of
delaying or preventing a change in control of the Company or causing a change in
control of the Company which may not be favored by the Company's other
stockholders. The Company is authorized to issue up to 5,000,000 shares of
Preferred Stock in one or more series, having terms fixed by the Board of
Directors without stockholder vote. Issuance of these shares could also be used
as an anti-takeover device. The Board of Directors has no current intentions or
plans to issue any Preferred Stock. See "Principal and Selling Stockholders" and
"Description of Capital Stock." In addition, a change in ownership resulting in
a change of control of the Company would trigger a requirement for
recertification of the College by the Department of Education, a review of the
College's accreditation by Middle States and reauthorization by certain state
licensing agencies. These factors may tend to discourage attempts to acquire
control of the Company from Mr. Bailey. See "Licensing, Accreditation and
Financial Aid Regulation -- Change in Ownership Resulting in a Change of
Control."
DIVIDEND POLICY
Although the Company has established a policy of declaring cash dividends,
there can be no assurances that dividends will continue to be paid. The payment
and rate of future dividends are subject to the discretion of the Board of
Directors and will depend upon the Company's earnings, financial condition,
capital needs and regulatory considerations. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, there will be 10,050,000 shares of Common Stock of
the Company outstanding (excluding 646,674 shares issuable upon exercise of
options outstanding as of March 18, 1997). Of these shares, all of the 1,150,000
shares of Common Stock sold in the Offering will be freely transferable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act, generally
may be resold only in compliance with applicable provisions of Rule 144. Of the
remaining 8,900,000 shares of Common Stock, 5,450,000 shares are held by Mr. Ron
K. Bailey and his spouse and are "restricted securities" as that term is defined
in Rule 144. The Company and Mr. and Mrs. Bailey have agreed not to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into or exercisable or exchangeable for shares of Common Stock (subject, in the
case of the Company, to an exception for the exercise of options granted under
the Company's stock option plan), for a period of 180 days after the date of
this Prospectus without the consent of Smith Barney Inc. Commencing 90 days
after the date of this Prospectus, and subject to such consent, all but 1,000 of
the 5,450,000 shares owned by Mr. and Mrs. Bailey will be eligible for sale in
the public market subject to compliance with the volume limitations and other
restrictions of Rule 144. See "Shares Eligible for Future Sale."
11
<PAGE> 13
THE COMPANY
The College is a regional proprietary institution of higher education
accredited by Middle States that offers business-oriented undergraduate and
graduate courses at nine campuses in Washington, D.C., Northern Virginia and
Maryland. At the beginning of the 1996 Fall quarter, approximately 8,200 Strayer
students were pursuing studies in accounting, business administration, computer
information systems, economics, marketing and general studies.
The Company was formed in Maryland in May 1996, and acquired 100% of the
outstanding capital stock of the College from Mr. and Mrs. Ron K. Bailey in
anticipation of the Company's initial public offering in July 1996. The Company
used a portion of the net proceeds of that offering to purchase 100% of the
outstanding capital stock of ELP from Mr. Bailey. The Company's business is
operated solely through its subsidiaries and the Company has no other
operations.
The College has provided educational services for over 100 years since it
began operations in Baltimore, Maryland in 1892 with the founding of Strayers
Business College of Baltimore City by Dr. S. Irving Strayer. The College was
incorporated under Maryland law in April 1898. In 1904, Dr. Strayer and his
business partner, Thomas W. Donoho, started a business school in the District of
Columbia. In 1928, the Strayer College of Accountancy was founded and was
licensed to confer associate's and professional degrees by the District of
Columbia Board of Higher Education. The Business College and the College of
Accountancy operated concurrently, in the same building, until 1958, when the
two institutions began to offer instruction as Strayer Junior College of
Finance. Shortly thereafter, the two schools were incorporated as Strayer Junior
College, Inc. The schools principally provided clerical and secretarial training
until 1969, when Strayer was first licensed to grant bachelor's degrees at its
Washington, D.C. campus. Strayer College, Inc. and Strayer Junior College, Inc.
merged in 1973, and the College was accredited in that year as a Senior College
of Business by the Accrediting Commission of the Association of Independent
Colleges and Schools.
The Donoho family transferred ownership of the College in 1980 to Dr.
Charles Palmer. In 1981, the College obtained Middle States accreditation and
received approval from the Virginia State Council of Higher Education to offer
programs at a campus in Arlington, Virginia. The Middle States accreditation did
not extend to the Baltimore campus, which remained a clerical and secretarial
institution. The College was authorized to award master's degrees in 1987, and
opened a campus in Alexandria, Virginia in 1988.
In 1989, Mr. Ron K. Bailey, jointly with his wife, acquired all of the
outstanding capital stock of the College. Under Mr. Bailey's management, Strayer
closed the Baltimore campus and inaugurated a program of significant expansion
in the greater Washington, D.C. area that resulted in the opening of five new
campuses by the end of 1992: Woodbridge in 1989; Manassas in 1990; Loudoun in
1991; and Fredericksburg and Takoma Park in 1992. Student enrollment more than
tripled from approximately 2,150 students at the beginning of the 1989 Fall
quarter to approximately 8,200 students at the beginning of the 1996 Fall
quarter. During the same period, the College focused its attention on its degree
programs by broadening its course offerings, increasing the number of faculty
members with doctoral and other terminal degrees, expanding its library and
other learning resources and investing in information systems.
The Company's executive offices are located at 1025 Fifteenth Street, N.W.,
Washington, D.C. 20005. Its telephone number is (202) 408-2400.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the Offering at an assumed public
offering price of $24.00 per share (after deduction of estimated underwriting
discounts and commissions and Offering expenses) are expected to be
approximately $13.3 million (approximately $17.2 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of the shares of Common Stock by the Selling
Stockholders.
Net proceeds of the Offering of approximately $6.0 million will be used to
increase the SEL Program, approximately $3.1 million will be used for the
possible acquisition of the Alexandria campus facilities from an unaffiliated
party, and the balance will be used for expansion of the College's distance
learning programs and Maryland expansion and for other corporate purposes. See
"Business -- Business Strategy." As of the date of this Prospectus, the College
has not exercised its purchase option under the lease for the Alexandria campus
facility.
Pending their application, the net proceeds of the Offering will be
invested in short-term, investment-grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq under the trading symbol "STRA."
The following table sets forth, for the periods indicated, the high and low
prices of the Company's Common Stock, as reported on the Nasdaq. The initial
public offering price on July 25, 1996 was $10.00 per share.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996:
Third Quarter (July 25 through September 30)............... $17.88 $10.25
Fourth Quarter............................................. 23.00 16.38
1997:
First Quarter (through March 18)........................... $27.25 $22.75
</TABLE>
The last sales price of the Common Stock on March 18, 1997, as reported on
the Nasdaq, was $24.75 per share. As of March 17, 1997, there were approximately
7 holders of record. The Company believes that there are a number of other
holders of Common Stock whose shares are held in nominee accounts by brokers.
DIVIDEND POLICY
The Company has established a policy of declaring quarterly cash dividends
at the rate of $0.0625 per share ($0.25 annually) on the Company's Common Stock.
The amount of dividends payable in the future will be reviewed periodically by
the Company's Board of Directors in light of the Company's earnings, financial
condition, capital needs and regulatory considerations. There is no requirement
or assurance that dividends will be paid.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the receipt of the estimated net
proceeds of the Offering by the Company of $13.3 million (based upon an assumed
public offering price of $24.00 per share). See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................... $ -- $ --
------- -------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no shares
issued or outstanding............................................... -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; 9,450,000
and 10,050,000 shares issued and outstanding, respectively.......... 95 101
Additional paid-in capital............................................. 31,192 44,444
Retained earnings...................................................... 3,893 3,893
Net unrealized gains on investments.................................... 231 231
------- -------
Total stockholders' equity..................................... 35,411 48,669
------- -------
Total capitalization........................................... $35,411 $ 48,669
======= =======
</TABLE>
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA AMOUNTS)
The following table sets forth, for the periods and at the dates indicated,
selected consolidated financial data for the Company. The financial information
as of December 31, 1993, 1994, 1995 and 1996 and for each of the years then
ended has been derived from the Company's consolidated financial statements,
which statements have been audited by Coopers & Lybrand L.L.P., independent
public accountants. The financial information as of December 31, 1992 and for
the year then ended has been derived from the College's financial statements,
which statements have been audited by other independent public accountants. The
information set forth below is qualified by reference to and should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
PRO FORMA
INCOME STATEMENT DATA: 1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Tuition...................................... $22,961 $28,545 $33,238 $36,934 $42,775 $42,775
Fees and other............................... 832 823 1,019 1,262 2,230 2,230
------- ------- ------- ------- ------- -------
23,793 29,368 34,257 38,196 45,005 45,005
------- ------- ------- ------- ------- -------
Costs and expenses
Instruction and education support............ 9,262 14,185 14,740 16,168 17,808 17,808
Selling and promotion........................ 2,758 3,092 3,667 4,281 4,457 4,457
General and administration(1)................ 9,278 7,847 10,648 11,571 6,749 6,749
------- ------- ------- ------- ------- -------
21,298 25,124 29,055 32,020 29,014 29,014
------- ------- ------- ------- ------- -------
Income from operations......................... 2,495 4,244 5,202 6,176 15,991 15,991
Investment and other income.................... 184 180 350 875 1,061 1,061
------- ------- ------- ------- ------- -------
Income before taxes............................ 2,679 4,424 5,552 7,051 17,052 17,052
Provision for income taxes(2).................. -- -- -- -- 2,740 6,649
------- ------- ------- ------- ------- -------
Net income..................................... $ 2,679 $ 4,424 $ 5,552 $ 7,051 $14,312 $10,403
======= ======= ======= ======= ======= =======
Cash dividends per common share................ $0.0625
=======
PRO FORMA DATA:(3)
Income before income taxes..................... $17,052
Income taxes................................... 6,649
-------
Net income..................................... $10,403
=======
Net income per share........................... $ 1.24
=======
Weighted average shares outstanding(4)......... 8,410
=======
OPERATING DATA:
Enrollment(5).................................. 5,600 6,200 6,800 7,400 8,200
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 3,609 $ 2,191 $ 5,564 $ 8,992 $11,777
Working capital................................ 3,063 5,195 5,934 8,327 15,574
Total assets................................... 14,396 16,279 19,824 25,878 47,822
Long-term liabilities.......................... 62 -- -- -- 189
Total liabilities.............................. 10,146 9,651 10,487 10,539 12,411
Total stockholders' equity..................... 4,250 6,628 9,337 15,339 35,411
</TABLE>
15
<PAGE> 17
- ---------------
(1) Includes bonus payments to the S Corporation Stockholder of $0.9 million in
1992, $3.5 million in 1993, $5.5 million in 1994, and $6.2 million in 1995
for the payment of income taxes by the S Corporation Stockholder on
undistributed S Corporation income. In connection with the Company's initial
public offering, effective July 25, 1996, the Company acquired the College
and ELP, as a result of which the College and ELP changed their tax status
from S Corporations to C Corporations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Background and
Overview."
(2) Historical data for 1992 through 1995 do not reflect any provision for
income taxes. The College and ELP were S Corporations during such periods
and therefore were not subject to income tax.
(3) Reflects the formation of the Company and the acquisition of the College by
the Company as if those events had taken place on January 1, 1996. Following
the termination of their status as S Corporations prior to completion of the
Company's initial public offering, the College and ELP became subject to
federal and state income tax. The pro forma data reflects the application of
statutory corporate income tax rates to net income as if the termination of
the S Corporation status of the College and ELP had occurred on January 1,
1996. The effective pro forma income tax rate for the year ended December
31, 1996 was 39%.
(4) Shares have been adjusted to reflect the acquisition of the College by the
Company and the issuance of 1,401,000 shares of Common Stock which, when
multiplied by the net per share proceeds of the initial public offering,
would have been necessary to fund distributions to the S Corporation
Stockholder during the 12 months ended July 1996, to the extent such
distributions exceeded net income during the same period. These
distributions included those made subsequent to the closing of the initial
public offering to the S Corporation Stockholder in respect of earnings
previously subject to income tax during the College's period as an S
Corporation.
(5) Reflects student enrollment as of the beginning of the Fall academic quarter
for each year indicated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND OVERVIEW
The College is a regional proprietary institution of higher education
offering undergraduate and graduate degree programs at nine campuses in the
greater Washington, D.C. area. The Company was incorporated in May 1996 to
acquire all of the outstanding capital stock of the College and ELP from Mr. and
Mrs. Ron K. Bailey, the previous sole stockholder of the College. Upon
completion of the Company's initial public offering in July 1996, the College
and ELP, which administers the SEL Program, became direct subsidiaries of the
Company.
Revenues, operating income and net income have increased in each of the
last three years. From 1994 through 1996, revenues increased approximately
31.4%, operating income increased 207%, and net income increased 157.8%. Over
the three-year period, tuition revenue accounted for approximately 96% of total
revenue. The number of students increased approximately 20.9% from 6,760 at the
beginning of the 1994 Fall quarter to 8,172 at the beginning of the 1996 Fall
quarter, and tuition rates increased approximately 14% over the last three
years.
Since 1993, the Company relocated three campuses to larger facilities,
expanded information technology course offerings, added more weekend classes,
increased its marketing programs, and began the SEL Program. In 1995, the
Company added personnel in the areas of human resources, facilities management
and administration to support its plans for expansion. In addition, in 1996, the
Company purchased its Loudoun, Virginia campus facility, leased a facility in
Maryland for the opening of its Prince George's County campus and added course
offerings through the Internet.
The College's principal source of revenue is tuition collected from its
students. The academic year of the College is divided into four quarters which
approximately coincide with the four quarters of the calendar year. Students
generally must pay the entire tuition for each course prior to the beginning of
the quarter. If a student withdraws from a course prior to completion, the
College refunds a portion of the tuition. When students register for courses,
tuition is recorded as unearned tuition, which is recognized as courses are
taught through the academic quarter. Revenues also consist in part of fees and
other revenues derived principally from application fees, "no show" fees and
bookstore sales. When a student registers for a course but does not attend any
classes, which can have the effect of denying a place in the course to another
student, the College imposes a "no show" fee. Student enrollment information
presented herein reflects enrollment as of the beginning of the Fall academic
quarter for the applicable year, which is the beginning of the academic year and
the industry practice for measuring enrollments at educational institutions.
The College records tuition receivable when students register for the
academic quarter, generally prior to the end of the previous academic quarter.
Because the College's academic quarters coincide with the calendar quarters,
tuition receivable at the end of any calendar quarter largely represents student
tuition for the following academic quarter which is included in current
liabilities as unearned tuition. Based upon past experience and judgment, the
College establishes an allowance for doubtful accounts with respect to accounts
receivable not included in unearned tuition. Any uncollected account more than
six months past due is charged against the allowance. The College's historical
bad debt expense as a percentage of revenue for the year ended December 31,
1994, 1995 and 1996 was 1.9%, 1.7% and 1.8%, respectively.
The College's expenses consist of instruction and educational support
expenses, selling and promotional expenses and general and administration
expenses. Instruction and educational support expenses generally contain items
of expense directly attributable to the educational activity of the College.
This expense category includes salaries and benefits of faculty, academic
administrators, and student support personnel, including financial aid officers,
registrars and career counselors. Instruction and educational support expenses
also include cost of educational supplies and facilities, including rent on
campus leases, certain costs of establishing and maintaining computer
laboratories and all other physical plant and occupancy costs with the exception
of costs attributable to one floor of the Arlington campus used for
administrative purposes.
17
<PAGE> 19
Selling and promotional expenses include salaries and benefits of personnel
engaged in recruitment, admissions, promotion and development, as well as costs
of advertising and production of marketing materials.
General and administration expenses include salaries and benefits of
personnel engaged in accounting, personnel, compliance and other business
functions and plant and occupancy costs attributable to such functions. Further,
as discussed below, general and administration expenses prior to 1996 reflect
payments made to the S Corporation Stockholder for taxes payable by that
stockholder with respect to the College's income.
Prior to 1996, the College each year paid the S Corporation Stockholder
amounts sufficient to pay the income tax liabilities of the College for income
earned under Subchapter S of the Internal Revenue Code of 1986. These amounts
were paid as bonuses (subject to payroll taxes and benefits) and were reflected
in general and administration expenses. These bonus payments totaled $5.5
million and $6.2 million for the fiscal years ended 1994 and 1995, respectively.
Amounts paid to the stockholder from January 1, 1996 through July 25, 1996 (the
date of completion of the Company's initial public offering of Common Stock)
with respect to the College's income were paid as distributions to the
stockholder and not to the stockholder as a bonus. Unlike bonuses, such
distributions are not reflected as general and administration expenses. As of
July 25, 1996, the Company terminated the College's S Corporation status and
became subject to corporate income taxation on a consolidated basis.
Investment and other income consist primarily of earnings on investments.
RESULTS OF OPERATIONS
The following table sets forth certain combined income statement data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues:
Tuition................................................... 97.0% 96.7% 95.0%
Fees and other............................................ 3.0 3.3 5.0
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Instruction and educational support....................... 43.0 42.3 39.6
Selling and promotional................................... 10.7 11.2 9.9
General and administration................................ 31.1 30.3 15.0
----- ----- -----
Income from operations...................................... 15.2 16.2 35.5
Investment and other income................................. 1.0 2.3 2.4
----- ----- -----
Income before taxes......................................... 16.2 18.5 37.9
Provision for income taxes.................................. 0.0 0.0 6.1
----- ----- -----
Net income.................................................. 16.2% 18.5% 31.8%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Tuition revenues increased approximately 15.8% from $36.9
million in 1995 to $42.8 million in 1996 due to a 9.6% increase in the number of
students in 1996 and a 6% tuition increase for 1996. Fees and other revenue
increased approximately 76.7% from $1.3 million in 1995 to $2.2 million in 1996,
primarily as a result of the increased activity in ELP, the Company's
wholly-owned financing subsidiary.
Instruction and educational support expenses. Instruction and educational
support expenses increased approximately 10.1% from $16.2 million in 1995 to
$17.8 million in 1996 due to an increase in the number of personnel to support
increased enrollment, salary increases and the upgrading of campus computer
laboratories.
18
<PAGE> 20
Selling and promotional expenses. Selling and promotional expenses
increased approximately 4.1% from $4.3 million in 1995 to $4.5 million in 1996,
due principally to increased advertising costs.
General and administration expenses. General and administration expenses
decreased 41.7% from approximately $11.6 million in 1995 to $6.8 million in
1996. The primary reason for the decrease was the fact that the Company did not
pay a bonus to its stockholder in respect of income taxes in 1996. Excluding the
$6.2 million bonus in 1995, general and administration expenses would have
increased approximately 25% due to increases in expenses associated with being a
public company and increases in the number of administrative personnel to
support increased enrollment.
Income from operations. Income from operations increased approximately
159% from $6.2 million in 1995 to $16 million in 1996. This increase was due to
the increase in student enrollment in 1996 and due to the fact that the College
did not pay bonuses to its stockholder, as discussed above.
Net income. Net income increased approximately 103% from $7.1 million in
1995 to $14.3 million in 1996 because of the factors discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Tuition revenue increased 11.1% from $33.2 million in 1994 to
$36.9 million in 1995, due to an 8.8% increase in the number of students in 1995
and a 7.1% tuition increase effective for 1995. Average course credits per
student were lower in 1995 than in 1994. Fees and other revenue increased 23.8%
from $1.0 million in 1994 to $1.3 million in 1995, primarily as a result of the
enrollment growth, an increase in "no show" fees, which the College first
imposed in 1994, and interest income on student loans.
Instruction and educational support expenses. Instruction and educational
support expenses increased 9.7% from $14.7 million in 1994 to $16.2 million in
1995. Salaries and benefits for instructional personnel in all of the College's
educational programs were higher as a result of salary increases, the addition
of personnel to support increased enrollments and the hiring of full-time
managers for the computer laboratory at each campus. Physical plant and
occupancy costs also increased substantially in 1995 because of the relocation
of the Manassas and Woodbridge campuses to new and larger facilities with higher
lease rates. Partially offsetting those increases were reduced expenditures for
student financial aid in 1995.
Selling and promotional expenses. Selling and promotional expenses
increased 16.7% from $3.7 million in 1994 to $4.3 million in 1995, due
principally to increased advertising costs, particularly for television
advertising.
General and administration expenses. General and administration expenses
increased 8.7% from $10.6 million in 1994 to $11.6 million in 1995, due
principally to an increase in the bonus paid to the S Corporation Stockholder in
respect of income taxes. Excluding the bonuses in both years, general and
administration expenses would have increased 4.4% from $5.2 million in 1994 to
$5.4 million in 1995. The increase was primarily attributable to higher
personnel costs incurred by the addition of new administrative staff to support
expansion of the College's on-site programs and graduate enrollment. The effect
of the increase was partially offset by lower financing costs resulting from the
College's return in 1995 to full access to Title IV Programs. In 1993 and 1994,
regulatory action prevented the College from making full use of Title IV Program
student financial aid for its students. In order to make loans available on
terms comparable to federally guaranteed student loans, the College contracted
with a private company, which purchased loans made by the College to students at
a substantial discount from their face value. The discount was recorded as a
cost of financing reflected in general and administration expenses. In 1995,
there was no comparable cost of financing expense.
Income from operations. Income from operations increased 18.7% from $5.2
million in 1994 to $6.2 million in 1995 because of the factors discussed above.
Net income. Net income increased 27.0% from $5.6 million in 1994 to $7.1
million in 1995 because of the factors discussed above.
19
<PAGE> 21
SEASONALITY
The Company's quarterly results of operations tend to vary significantly
within a year because of student enrollment patterns. Enrollment generally is
highest in the fourth, or Fall, quarter, and lowest in the third, or Summer,
quarter. In 1996, enrollments at the beginning of the Winter, Spring, Summer and
Fall academic quarters were 7,096, 7,100, 4,851 and 8,172, respectively. Costs
are generally not affected by the seasonal factors and do not vary significantly
on a quarterly basis. To some extent, however, instructional and educational
support expenses are lower in the third quarter because fewer part-time faculty
are needed.
The following table sets forth the Company's revenues on a quarterly basis
for the years ended December 1994, 1995 and 1996.
QUARTERLY REVENUE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
THREE MONTHS ENDED AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31.................... $ 9,169 26% $10,635 28% $12,415 28%
June 30..................... 8,427 25 9,702 25 11,614 26
September 30................ 7,501 22 7,221 19 8,305 18
December 31................. 9,160 27 10,638 28 12,671 28
------- --- ------- --- ------- ---
Total for Year.............. $34,257 100% $38,196 100% $45,005 100%
======= === ======= === ======= ===
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to the initial public offering of its Common Stock, the Company
financed its operating and capital requirements through cash generated from
operating activities or, in the case of ELP, capital contributions from ELP's
stockholder. The Company realized net proceeds of approximately $31.3 million
from the initial public offering, of which it used $19.8 million to fund S
Corporation distributions, $1.1 million to fund the acquisition of ELP and $3.1
million to fund the purchase of the Loudoun campus. The remaining $7.3 million
was used to fund the SEL Program and for working capital purposes, including
improvements to the College's computer laboratories.
The Company expects to realize net proceeds from the Offering, after
deduction of estimated underwriting discounts and commissions and offering
expenses, of approximately $13.3 million (approximately $17.2 million if the
Underwriters' over-allotment option is exercised in full). Of that amount, the
Company intends to use approximately $6.0 million to increase funding for the
SEL Program, $3.1 million for the possible acquisition of the Alexandria campus,
and the balance for expansion of the College's distance learning programs and
Maryland expansion and for other corporate purposes.
During 1996, the Company generated cash from operating activities of $13.6
million. This cash and the remaining proceeds from the Company's initial public
offering resulted in an increase in cash and cash equivalents and marketable
securities from $12.6 million at December 31, 1995 to $26.9 million at December
31, 1996. In addition, the Company is negotiating a credit facility from a bank
in an amount not to exceed $10.0 million. Interest on any borrowings under such
a facility would accrue at an annual rate not to exceed 2 1/2% above the London
Interbank Offered Rate. The Company would not pay a fee for this facility, but
in the event of any borrowings, an origination fee of 1% would be due on the
amounts borrowed from time to time thereunder.
The Company believes that the cash available from the proceeds of the
Offering, existing cash and cash equivalents, cash generated from operating
activities and, if necessary, cash borrowed under the credit facility will be
sufficient to meet the Company's requirements for at least the next 24 months.
If the College decides to purchase a campus facility, it may finance the
acquisition with indebtedness.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
20
<PAGE> 22
BUSINESS
OVERVIEW
Strayer is a regional proprietary institution of higher education offering
undergraduate and graduate courses to more than 8,000 students at nine campuses
in Washington, D.C., Northern Virginia and Maryland. The College is accredited
by Middle States, one of the six regional collegiate accrediting agencies
recognized by the U.S. Department of Education. The majority of Strayer students
are working adults pursuing their first college degree to improve their job
skills and advance their careers. Of students enrolled in Strayer programs at
the beginning of the 1996 Fall quarter, approximately 60% were age 30 or over,
and approximately 64% were engaged in a part-time course of study. The College
considers a full-time student to be one who carries 13.5 course credits in an
academic quarter or who is enrolled in a master's degree program. In the 1996
Fall quarter, Strayer students completed an average of 9.1 course credits.
Since 1989, when the College came under its current ownership and
management, Strayer has evolved from a small traditional business school into a
regional college that seeks to meet the special needs of the area's working
adult students. The College targets those students who did not attend college
immediately after high school or otherwise did not obtain a degree, but who
later seek additional education primarily for enhanced career opportunities.
Strayer recognizes that a return to school may create special difficulties for
these students, some of whom may have been dissatisfied with their secondary
education and who must balance educational goals with personal and professional
responsibilities. The College emphasizes the following factors to address the
needs of working adult students:
- Convenient Locations. Multiple campus locations provide students with
convenient access to the College throughout the greater Washington, D.C.
area. In early 1996, the College received approval to operate its first
degree-granting campus in the State of Maryland, where approximately 22%
of the College's current enrollment resides. The College will begin
offering classes at its Prince George's County, Maryland campus in April
1997, and is developing a proposal to establish a tenth campus in
Montgomery County, Maryland. The College also conducts classes on-site at
the Department of Transportation and at the General Services
Administration for employees of the federal government; at Quantico
Marine Base, Fort Belvoir Army Education Center and Naval Surface Warfare
Center, Dahlgren Division, for active military personnel; and at Computer
Sciences Corporation, in Hanover, Maryland for company employees. The
College also currently offers graduate computer information systems
courses at the Southern Maryland Higher Education Center in California,
Maryland.
- Flexible Scheduling. The College's nine campuses offer classes seven
days a week, with some classes beginning as early as 6:00 a.m. and others
lasting as late as midnight. This flexible scheduling allows students to
attend classes at the most convenient times, giving them a better chance
to complete their programs. The College operates on the quarter system,
which allows students to begin their program in any quarter and permits
part-time students to complete their programs in less time than at a
traditional higher education institution. The College offers some courses
in "mini" sessions, which allow students to complete courses on a more
intensive basis in less than a quarter, and has requested authorization
from the District of Columbia Education Licensure Commission to offer
these "mini" sessions on a year-round basis.
- Supportive Learning Environment. The College believes that interaction
between teacher and student is important to student success. Accordingly,
Strayer limits the size of its classes and focuses the efforts of its
faculty on teaching, rather than on research or publishing. All full-time
Strayer faculty members maintain convenient office hours to encourage
students to seek additional help. The College provides tuition
reimbursement for faculty members seeking to update their skills and
knowledge.
- Market Responsiveness. The College upgrades and expands its
business-oriented curriculum quickly in response to the changing needs of
students and employers. Strayer's Curriculum Advisory Board includes
representatives of over 20 employers, a majority of whom are from the
private sector, and meets regularly to review and recommend curriculum
changes to the College. Through its relationships
21
<PAGE> 23
with these and other employers, the College regularly monitors the needs
of the market. Centralized decision-making permits the College to
implement curriculum changes rapidly.
- SEL Program. Loans under the SEL Program provide students with an
alternative to government-sponsored financial aid. The SEL Program
enables students to finance their education through monthly payments of
principal and interest while they attend college and after they graduate
and at interest rates competitive with federal student loan programs. The
SEL Program also contributes to lower administrative costs and enables
the College to reduce its dependence on federal student loan funds.
- Resource Allocation. Strayer students do not require the capital
intensive amenities, such as dormitories, leisure and sports facilities
and other plant assets, provided by educational institutions serving a
younger, full-time student population. Instead, the College is able to
invest its resources in its classroom facilities and instructional
programs.
BUSINESS STRATEGY
The College seeks to strengthen its position as a leading provider of
business-oriented education for working adults in its region. To accomplish this
objective, the College employs the following strategies:
- Establish Additional Campuses. Strayer intends to increase enrollment at
its existing campuses and selectively add new campuses in its current
market and contiguous areas. The College plans to begin offering classes
in April 1997 at its first degree-granting campus in Maryland, which is
located in Prince George's County, and is developing a proposal to
establish an additional campus in Montgomery County, Maryland. The
College believes that additional Strayer campuses in Maryland will help
meet an existing demand from Maryland residents and employers for
business-oriented programs.
- Expand Distance Education Programs. The College has submitted a proposal
for approval of a distance learning program called "Strayer ONLINE" to
the District of Columbia Education Licensure Commission to give students
greater flexibility in completing their programs. Under the proposal, the
College would increase its online course offerings from selected master's
courses presently offered to include the College's entire curriculum,
subject to the availability of appropriate software for certain courses.
The College is establishing facilities for Strayer ONLINE at a Distance
Learning Center in Lorton, Virginia. The availability of Strayer course
offerings online may allow the College in the future to expand its
student population beyond those geographical areas served by Strayer
campuses.
- Additional Corporate and Government Locations. The College has made
arrangements with certain government and corporate employers to permit
their employees to take a limited number of courses at the employer's
place of business. By requiring these employees to enroll in a diploma or
degree program, the College seeks to increase enrollment in additional
courses at one or more of the College's campus facilities. The College
has established a corporate and governmental outreach department staffed
with six full-time employees to increase the College's presence
throughout its region.
- Expand and Upgrade Curriculum. The College regularly introduces new
programs as well as new course offerings and course upgrades in existing
programs in response to technological innovations and the changing
demands of business, industry and government.
- Expand SEL Program. The College intends to increase the SEL Program to
give students greater flexibility in financing their education and to
reduce its dependence on federal student loan funds. The Company expects
to use a portion of the proceeds from the Offering to fund the expansion
of the SEL Program.
- Control Campus Facilities. The College may seek to control its campus
facilities through purchase, as well as through long-term lease.
Management believes that permanent campus locations foster institutional
stability and market presence and enhance the College's ability to
develop and implement financial plans. The College intends to use a
portion of the proceeds from the Offering to purchase the Alexandria
campus facilities.
22
<PAGE> 24
CAMPUS ORGANIZATION
The College organizes its academic programs and administrative operations
on a decentralized campus basis to increase its responsiveness to student needs.
A Campus Dean and a Campus Coordinator oversee the academic and administrative
functions, respectively, at each campus. Each campus is staffed with personnel
performing admissions, academic counseling, financial aid and career development
functions.
A learning resources center at each campus supports the College's
instructional programs. Each learning resources center contains a library and
computer laboratories and is operated by a full-time manager and support staff.
CURRICULUM
The College offers a business-oriented curriculum to equip students with
specialized knowledge and skills for careers in business, industry and
government. The Academic Curriculum Committee reviews and revises the College's
course offerings periodically to improve the educational programs and respond to
changing and competitive job markets. The College formed a Curriculum Advisory
Board in 1993 to support the program evaluation process. The Curriculum Advisory
Board consists of College faculty, current and former Strayer students, and
representatives of more than 20 private and federal sector employers in the
greater Washington, D.C. area. The Curriculum Advisory Board also studies the
career progress of College alumni. The College uses these studies to make
decisions about curriculum development, resource allocation and faculty
appointments.
The College offers programs in the following areas:
BACHELOR OF SCIENCE (B.S.) DEGREE
Accounting
Business Administration
Computer Information Systems
Economics
ASSOCIATE IN ARTS (A.A.) DEGREE
Accounting
Business Administration
Computer Information Systems
Economics
General Studies
Marketing
MASTER OF SCIENCE (M.S.) DEGREE
Business Administration
Information Systems
Professional Accounting
DIPLOMA (CAREER DIVISION)
Computer Information Systems
Each undergraduate degree program emphasizes oral and written communication
skills as well as mathematics and various disciplines in the humanities and
social sciences. In addition to its degree and diploma programs, the College
offers classes to non-degree, non-program students wishing to take courses for
personal or professional enrichment.
23
<PAGE> 25
Although all of the College's programs and courses are offered at each
campus, the College adapts its offerings to the preferences of the student
population at each location. In addition, Strayer students may enroll in courses
at more than one campus. The following table shows Strayer's enrollment by
major, program and campus location at the beginning of the 1996 Fall quarter:
COLLEGE ENROLLMENT BY MAJOR, PROGRAM
AND CAMPUS LOCATION -- 1996 FALL QUARTER
<TABLE>
<CAPTION>
CAMPUS
-----------------------------------------------------------------------------------------
WASHINGTON, TAKOMA
MAJOR PROGRAM D.C. PARK ARLINGTON ALEXANDRIA WOODBRIDGE LOUDOUN MANASSAS FREDERICKSBURG TOTAL
- ---------------------- ------- ----------- ------ --------- ---------- ---------- ------- -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounting............ AA 47 19 6 12 9 9 8 16 126
BS 138 43 76 69 84 54 83 59 606
MS 26 10 25 11 14 7 9 5 107
Business
Administration...... AA 156 42 33 27 29 33 23 56 399
BS 309 113 201 206 211 179 197 170 1,586
MS 97 51 119 66 62 46 50 60 551
Computer Information
Systems............. * 77 85 36 60 83 43 69 65 518
AA 211 104 55 61 72 52 41 73 669
BS 356 159 282 408 361 259 276 201 2,302
Information Systems... MS 43 21 71 65 82 58 48 43 431
Economics............. AA 3 0 1 0 0 1 0 0 5
BS 13 10 4 7 3 0 0 0 37
General Studies....... AA 27 3 19 15 7 2 6 2 81
Marketing............. AA 14 1 0 0 0 0 2 0 17
Non-Degree/Non-Program**.. -- 186 113 94 92 40 128 61 23 737
----- --- ----- ----- ----- --- --- --- -----
Total
Enrollment...... 1,703 774 1,022 1,099 1,057 871 873 773 8,172
===== === ===== ===== ===== === === === =====
</TABLE>
- ---------------
* Diploma program.
** Includes undeclared majors.
The College allows students to apply credits earned in one program toward
attainment of a more advanced degree. For example, a student originally pursuing
a Diploma in Computer Information Systems can extend his original objective by
taking additional courses leading to an associate's degree in Computer
Information Systems, a bachelor's degree in Computer Information Systems, and
ultimately a master's degree in Information Systems. The curriculum design
provides students a level of competency and a measure of achievement in the
event they interrupt their education or choose to work in their field of
concentration prior to obtaining their final degree.
The following table illustrates the number of degrees and diplomas
conferred by Strayer in each of the last five years:
DEGREES AND DIPLOMAS CONFERRED
FOR THE YEARS 1992 TO 1996
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diploma Program............... 714 826 702 652 368*
Associate's Degrees........... 129 168 217 239 248
Bachelor's Degrees............ 398 453 673 787 823
Master's Degrees.............. 161 193 290 293 278
----- ----- ----- ----- ------
Total.................... 1,402 1,640 1,882 1,971 1,717
===== ===== ===== ===== ======
</TABLE>
- ---------------
* In 1996, the diploma program was expanded from nine months to twelve months.
The change resulted in fewer students completing the program's requirements by
June 30, 1996.
24
<PAGE> 26
FACULTY
The College seeks to appoint faculty who hold appropriate academic
credentials, are dedicated and active professionals in their field, and are
committed to teaching working adults. The following chart shows the highest
earned degrees of the College's faculty at the beginning of the 1997 Winter
quarter:
DISTRIBUTION BY HIGHEST EARNED DEGREE -- 1997 WINTER QUARTER
<TABLE>
<CAPTION>
DEGREES FULL-TIME PART-TIME
------------------------------------------------------- --------- ---------
<S> <C> <C>
Ph.D................................................... 18 49
Ed.D................................................... 2 6
D.Sc................................................... 4 2
J.D.................................................... 3 9
Master's............................................... 47 173
Bachelor's............................................. -- 21
Other:
D.B.A................................................ -- 1
D.C.M................................................ -- 1
D.P.A................................................ 2 --
Th.D................................................. -- 1
-- ---
Total........................................ 76 263
== ===
</TABLE>
In accordance with its educational mission, the College focuses the efforts
of its faculty on teaching. The normal load for a full-time faculty member is
four courses per quarter for each of three quarters, or 12 courses per academic
year. With the approval of the Campus Deans, faculty members may teach a fifth
course per quarter and extra courses during the summer quarter for additional
compensation. The College requires full-time faculty members to hold counseling
hours at least two hours per week for each course they teach.
Strayer provides financial support for faculty members seeking to update
their skills and knowledge. The College maintains a tuition plan that reimburses
instructors enrolled in advanced degree programs for one-half of their tuition
charges. Strayer conducts annual in-house faculty workshops in each discipline.
The College also fully reimburses its faculty for their costs in receiving
computer-related instruction and training to keep current in information
technology developments.
ACCREDITATION AND APPROVALS
The College has been accredited by Middle States, an accrediting agency
recognized by the Department of Education, since 1981. Accreditation is a system
for recognizing educational institutions and their programs for performance,
integrity and quality that entitles them to the confidence of the educational
community and the public. In the United States, this recognition comes primarily
through private voluntary associations of institutions and programs of higher
education. These associations establish criteria for accreditation, evaluate
institutions and professional programs for accreditation, and publicly designate
those which meet their criteria. Accredited schools are subject to periodic
review by accrediting bodies to ensure that the schools maintain the
performance, integrity and quality required for accreditation.
Middle States reaffirmed the College's accreditation in 1995. The College
is required to submit an interim status report to Middle States in April 1997,
and the next scheduled evaluation visit by Middle States is currently set for
the academic year 1999-2000. See "Licensing, Accreditation and Financial Aid
Regulation -- Accreditation."
Middle States is the same accrediting agency that grants institutional
accreditation to other degree-granting public and private colleges and
universities in its region. Accreditation by Middle States is an
25
<PAGE> 27
important attribute of the College. Colleges and universities depend on
accreditation in evaluating transfers of credit and applications to graduate
schools. Employers rely on the accredited status of institutions when evaluating
a candidate's credentials, and parents and high school counselors look to
accreditation for assurance that an institution has quality educational
standards. Moreover, scholarship commissions often restrict their awards to
students attending accredited institutions, and institutional accreditation is
necessary to qualify for eligibility for federal student financial assistance.
The College is authorized to offer its programs by the D.C. Education
Licensure Commission, the Virginia State Council of Higher Education, and the
Maryland Higher Education Commission. See "Licensing, Accreditation and
Financial Aid Regulation -- State Licensure."
The College is authorized by the Immigration and Naturalization Service of
the U.S. Department of Justice to admit foreign students. The College also
employs certain foreign faculty members and administrators in accordance with
U.S. immigration laws. See "Licensing, Accreditation and Financial Aid
Regulation -- Immigration." In addition, Strayer is approved for the education
of veterans and members of the selective reserve and their dependents, as well
as for the rehabilitation of handicapped students. Approximately 7% of the
College's students are veterans or reservists. See "Licensing, Accreditation and
Financial Aid Regulation -- Veterans Benefits."
STUDENT CHARACTERISTICS
The College's students are primarily working adults. At the beginning of
the 1996 Fall quarter, approximately 64% of the enrollment consisted of
part-time students, approximately 79% attended classes at night or on week-ends,
and approximately 55% were women. The approximate age distribution of the
students was as follows:
<TABLE>
<CAPTION>
PERCENTAGE
AGE OF STUDENTS
------------------------------------------------ -----------
<S> <C>
21 or under..................................... 8%
22 to 29........................................ 31%
30 to 39........................................ 37%
40 to 49........................................ 19%
50 or over...................................... 4%
Unknown......................................... 1%
</TABLE>
At the beginning of the 1996 Fall quarter, approximately 66% of the
College's enrollment consisted of Virginia residents. Maryland residents and
District of Columbia residents accounted for 22% and 12% of the enrollment,
respectively. Reflecting the attraction of the greater Washington, D.C. area for
international students, students from over 50 countries collectively represented
9% of the 1996 Fall quarter enrollment.
STUDENT RECRUITMENT
The College focuses its recruitment efforts on attracting students with the
motivation and ability to complete its business-oriented educational programs.
To generate interest among potential students, Strayer's marketing staff
primarily employs direct mailings and television, radio and newspaper
advertising. The College monitors the effectiveness of its various marketing
efforts in producing student enrollment. Referrals constitute the most important
source of inquiries from potential students.
The marketing department tracks and forwards to the College's admissions
representatives responses to its direct mail and advertising campaigns.
Admissions representatives at each campus pursue expressions of interest in
Strayer by arranging interviews for prospective students. The representatives
also conduct campus tours and otherwise assist prospective students in the
application process. At December 31, 1996, the College employed 43 admissions
representatives.
26
<PAGE> 28
The College has entered into articulation agreements with Germanna
Community College, Northern Virginia Community College and Prince George's
Community College to facilitate enrollment of students seeking to transfer
course credits earned at these institutions. The College sponsors recruitment
events at the campuses of each of these community colleges.
STUDENT ADMISSIONS
The College seeks to ensure that incoming students have the necessary
academic background to succeed in their course of study at Strayer. Students
attending the College's undergraduate programs must possess a high school
diploma or a General Education Development Certificate. All students must also
pass placement exams or submit acceptable standardized test scores. For
admission to the College's degree programs, students must attain a certain level
of proficiency in English and mathematics. Students attending the College's
graduate programs must have a bachelor's degree from an accredited institution.
If a student's undergraduate major varies widely from the student's proposed
graduate course of study, certain undergraduate foundation courses may be
necessary for admission to some of the highly technical courses offered at the
graduate level.
International students applying for admission must meet the same admission
requirements as other students. Those students whose native language is not
English must provide evidence that they are able to use the English language
with sufficient facility to do college-level work in an English-speaking
institution.
TUITION AND FEES
Strayer charges tuition by the credit hour. All courses offered are 4.5
credit hours. As of January 1, 1997, undergraduate, full-time students are
charged at the rate of $170 per credit hour. Undergraduate, part-time students
are charged at the rate of $180 per credit hour. Courses in graduate programs
are charged at the rate of $240 per credit hour. Accordingly, a full-time
student seeking to obtain a bachelor's degree in four years currently would pay
approximately $7,650 per year in tuition. The College implemented tuition
increases of 7.7%, 7.1% and 6.3% in 1994, 1995 and 1996, respectively.
Generally, tuition must be paid (or arrangements made therefor) prior to
the beginning of a quarter. If a student withdraws from a course before
completion, federal regulations permit the College to retain a specified
percentage of the tuition, which varies with the percentage of the course
completed.
Students finance their Strayer education in a variety of ways. A
significant number of students utilize federal financial aid programs. In
addition, many of Strayer's working adult students finance their own education
or receive full or partial tuition reimbursement from their employers. Strayer
offers grants, loans (including loans under the SEL Program), scholarships and
work-study programs as financing options for its students.
STRAYER COLLEGE EDUCATIONAL FOUNDATION
Strayer students are eligible to receive awards from the Strayer College
Educational Foundation (the "Foundation"), a non-profit organization that
provides scholarships and grants to college students, active duty military
personnel and high school students in the greater Washington, D.C. area. Through
December 31, 1996, the Foundation has awarded $74,280 in grants and
scholarships. The Foundation is a Selling Stockholder and has advised the
Company that it intends to establish an endowment fund for a scholarship program
with the net proceeds of this Offering.
SEL PROGRAM
In 1995, Strayer began the SEL Program of loans for eligible students as an
alternative to government-sponsored student loans. In 1996, the College
originated 1,263 SEL loans aggregating approximately $3.2 million. The SEL
Program enables the College to reduce the significant administrative costs
incurred by it in processing loans under Title IV Programs and lessens the
College's dependence on federal student financial aid programs. The College
believes that the SEL Program also helps it to attract and retain qualified
students.
27
<PAGE> 29
The College designed the SEL Program for working adult students. The loans
have maturities ranging from one to six years and bear interest at a fixed rate
that is competitive with rates under Title IV Programs. Monthly loan payments
begin the first month after the loan date and generally vary between $200 and
$300, including loan principal as well as interest. Borrowers make payments
while still enrolled, thereby reducing the debt they otherwise would assume upon
completion of their studies. At December 31, 1996, there were a total of 1,213
loans outstanding with an aggregate loan balance of approximately $2.9 million
and an average individual loan balance of approximately $2,400.
Loans under the SEL Program are unsecured. Strayer's underwriting involves
a credit evaluation of each applicant. See "Risk Factors -- Risks of SEL
Program."
The College intends to expand the SEL Program after the Offering. A portion
of the net proceeds of the Offering will be applied to fund ELP's operations.
See "Use of Proceeds."
STUDENT RETENTION
Strayer dedicates significant resources to assisting students in overcoming
the personal and academic obstacles that can interfere with completion of a
course of study. Each campus provides students with scheduled tutoring sessions
and with academic counseling centers that are staffed by full-time faculty
members for eight hours each week day. In addition, the College assigns each
student an academic adviser and offers developmental courses for students whose
record indicates a need for academic support. Strayer considers factors relating
to student retention in the performance evaluation of every full-time faculty
member.
Notwithstanding Strayer's student retention programs, some students at the
College, as in other higher education institutions, end their studies prior to
program completion. In the last five award years, the College's student
withdrawal rate ranged from approximately 23% to approximately 27%. The
withdrawal rate for the 1995-96 federal award year was 24.9%. Student
withdrawals have a negative financial and marketing effect on the College. The
College experiences some decline in student enrollment during each academic
quarter from the enrollment level at the beginning of the quarter. The College
is obligated to make refunds of unearned tuition with respect to students who
withdraw during an academic quarter.
CAREER DEVELOPMENT SERVICES
The College actively assists its students and alumni with job placement and
other career-related matters through career development offices located at eight
of its campuses. Strayer's career development personnel conduct workshops on
employment-related topics (including resume preparation, interviewing techniques
and job search strategies), maintain job listings, arrange campus interviews by
employers and provide other placement assistance. The College sponsors career
fairs in the Fall and Spring quarters for students and alumni to discuss career
opportunities with companies and governmental agencies in the greater
Washington, D.C. area.
The College conducts annual alumni surveys to monitor the career
progression of its graduates and to comply with Middle States and state
requirements to perform outcome assessments. The reliability of the survey data
largely depends on the information reported to the College. The 1996 alumni
survey, which had an approximately 15% overall response rate, indicated that
only 4% of those responding were unemployed. Approximately 74% of undergraduate
alumni responding indicated that their Strayer education sufficiently prepared
them for their present occupation and approximately 93% of graduate degree
alumni responding credit Strayer for the achievement of their professional
goals. According to the survey, Strayer's greatest assets, in order of
importance, are campus locations, schedule variety, instructor knowledge and
class sizes.
Strayer students and graduates are employed in a wide range of regional and
local companies, many of whom are in the information technology industry.
Federal governmental agencies also provide a significant source of employment.
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COMPETITION
Postsecondary education in Strayer's market area is highly competitive. The
College competes with traditional public and private two-year and four-year
colleges, other for-profit schools and alternatives to higher education, such as
employment and military service. Public colleges may offer programs similar to
those of the College at a lower tuition level, due to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to proprietary institutions. Tuition at private
institutions is generally higher, and in some cases significantly higher, than
the tuition at the College. Many of the College's competitors have greater
financial and personnel resources than the College.
The College competes with other educational institutions primarily based on
the quality of its business-oriented curriculum and instruction, its flexible
schedules and convenient classroom locations, and its responsiveness to changing
educational requirements of the workplace. Few of the College's competitors have
modified their programs to meet the special needs of working adult students,
although management believes that more may do so in the future.
EMPLOYEES
During 1996, the College employed 526 faculty members, of whom 73 were
full-time and 453 were part-time, and 279 non-faculty staff in information
systems, financial aid, recruitment and admissions, payroll and human resources,
corporate accounting and other administrative functions. Of the College's
non-faculty staff, 193 were employed full-time and 86 were part-time.
LEGAL PROCEEDINGS
From time to time, the College is involved in litigation and other legal
proceedings arising out of the ordinary course of its business. As of the date
of this Prospectus, there were no pending material legal proceedings to which
the Company was subject or to which the Company's property was subject.
NEW CAMPUSES
The College considers a number of factors in determining the location of a
new campus. The site must be in an area where the College has (or can obtain)
the necessary regulatory authorization to do business, where there is proximity
to a large number of working adults and where there is a concentration of
technology-oriented employers. The College normally avoids areas it believes are
adequately served by competing institutions. Within an appropriate area,
specific site selection involves criteria such as convenience and accessibility.
The Company expects to incur operating losses at each new campus for at
least the first year of operations. Initial enrollment is expected to include
existing Strayer students for whom the new campus would be more convenient. Over
time, enrollment at any new campus is expected to come from other working adults
in the area and from students attending other institutions.
PROPERTIES
The College leases eight of its nine campuses, five of which are owned by
corporations controlled by the College's President, Ron K. Bailey. The leases
with these corporations all have ten-year terms expiring in 2006, with three
five-year renewal terms. Of the remaining leases, two have terms that expire in
1999 and 2002, respectively, with one and two five-year renewal options,
respectively, and the third lease has a term that expires in 1998, with a
three-year renewal option. With the exception of the Arlington campus lease, the
leases contain purchase options. See "Certain Transactions -- Lease of Campus
Facilities" and Note 9 to the
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Company's consolidated financial statements. The table below sets forth certain
information regarding each of the College's properties at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF COMPUTER AREA IN
LOCATION CLASSROOMS WORKSTATIONS SQUARE FEET
--------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Washington, D.C........................ 21 110 33,000
Alexandria, Virginia................... 15 71 22,000
Arlington, Virginia.................... 12 80 26,000
Woodbridge, Virginia................... 17 64 20,800
Manassas, Virginia..................... 17 52 20,800
Loudoun Campus (Ashburn), Virginia..... 13 76 33,000
Fredericksburg, Virginia............... 13 62 17,500
Takoma Park (Washington, D.C.)......... 15 48 21,800
Prince George's County, Maryland....... 6 76 6,000
</TABLE>
The campuses are easily accessible to major highways or urban thoroughfares
or to the Washington, D.C. area metrorail subway system. The teaching facilities
at each campus are housed in an air-conditioned building that includes spacious
classrooms, a student lounge, faculty offices, a bookstore and a learning
resources center. Seven of the campuses provide free parking.
The College actively monitors facility capacity in light of current
utilization and projected enrollment growth. Since 1990, the College has
relocated its downtown Washington, D.C., Alexandria, Woodbridge and Manassas
campuses to newer and larger facilities and has completed extensive renovations
to the Arlington campus. Management believes the College can accommodate a
significant increase in student enrollment at most of its campuses and can
acquire additional capacity for other campuses on acceptable terms.
LICENSING, ACCREDITATION AND FINANCIAL AID REGULATION
STATE LICENSURE
The College is dependent on the authorization of each state within which
the College offers educational programs to allow it to operate and to grant
degrees or diplomas to students. The College is subject to extensive regulation
in each of the three jurisdictions (the District of Columbia, Virginia and
Maryland) in which it currently operates. State laws and regulations affect the
College's operations and may limit the ability of the College to introduce
educational programs or establish new campuses. State authorization is also
required in order for an institution to become and remain eligible to
participate in Title IV Programs.
The College was granted a permanent license by the D.C. Education Licensure
Commission (the "D.C. Commission") in 1990 following the purchase of the College
by Mr. and Mrs. Ron K. Bailey. If the D.C. Commission finds an accredited
institution in full compliance with D.C. licensure requirements, the D.C.
Commission grants a permanent license, which remains in effect indefinitely,
subject to periodic review and amendment due to change in ownership,
accreditation status, location, degrees or certificates offered, and other
conditions.
After the opening of the Takoma Park campus in 1992, the D.C. Commission
conducted a site visit and issued an evaluation report containing certain
findings of deficiency with respect to advertising and publications, graduate
programs, governance, administration, budgeting, library and computer facilities
and resources, student outcomes assessment, student health and other services,
and access for disabled students. The D.C. Commission is authorized to grant a
provisional license based on its determination that an institution complies, or
within a reasonable period of time can comply, with all applicable regulatory
requirements. A provisional license is issued for a fixed period of time and may
be subject to conditions which the D.C. Commission deems necessary to achieve
full compliance. In March 1993, the D.C. Commission granted the College a
provisional license for a period of three years on the conditions that, among
others, the College submit a progress report by March 1994 and employ a
compliance specialist to assist it in meeting licensure
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requirements. The College engaged a compliance specialist and submitted a
progress report to the D.C. Commission in February 1994.
In March 1996, the D.C. Commission extended the College's provisional
license through March 1997, with a site visit planned for the Fall of 1996 or
the Spring of 1997. After conducting a site visit in January 1997, the evaluator
submitted a report recommending that Strayer increase its administrative staff
to accommodate enrollment growth; make changes in faculty appointments,
including awarding tenure to appropriate faculty members, employing more
full-time faculty with doctoral degrees, employing full-time faculty to teach
approximately 60 percent of the classes at all sites, considering faculty rank,
and increasing the faculty role in institutional governance; expand facilities
for libraries, faculty offices, student records, computer laboratories, and
meetings; correct minor errors in the College's catalog; encourage student
participation in the College newspaper; and repair a wheelchair ramp. The
evaluator recommended that the College's authority to operate as a
degree-granting institution in the District of Columbia be renewed for five
years if the College rectified deficiencies in the areas of faculty, physical
plant, and library within six months. The College submitted a response to the
evaluation report on March 13, 1997. In its response, while accepting a number
of the evaluator's recommendations, the College maintained that it was in full
compliance with all of the D.C. Commission's standards for licensure and merited
a permanent license. The D.C. Commission is expected to act on the College's
license renewal application at its meeting on March 27, 1997, prior to the
expiration of the College's license on March 31, 1997.
The College began offering its educational programs in Virginia in 1981.
The Virginia State Council of Higher Education approved the College's first
Northern Virginia site in 1982. On November 15, 1995, the State Council of
Higher Education for Virginia granted the College a term of full approval ending
November 30, 1998.
In 1995, the College applied to establish a branch campus in Prince
George's County, Maryland, to offer degree-granting programs up to the master's
degree level in accounting, business administration and computer information
systems. In February 1996, the Maryland Higher Education Commission ("MHEC")
advised the College of the approval of its application to operate in Maryland as
an out-of-state institution. The College is preparing to open a campus in Prince
George's County, Maryland, for the 1997 Spring quarter, which begins in April.
MHEC gave the College permission to offer courses at the Computer Sciences
Corporation facilities in Hanover, Maryland, beginning in July 1996, and to
offer the Master of Science in Computer Information Systems at the Southern
Maryland Higher Education Center beginning in the 1996 Fall quarter.
ACCREDITATION
An institution must be accredited by an accrediting agency recognized by
the Department of Education in order to be eligible to participate in Title IV
Programs. The HEA requires accrediting agencies recognized by the Department of
Education to review many aspects of an institution's operations in order to
ensure that the education or training offered by the institution is of
sufficient quality to achieve, for the duration of the accreditation period, the
stated objective for which the education or training is offered. Under the
Higher Education Amendments of 1992, a recognized accrediting agency must
perform regular inspections and reviews of institutions of higher education,
including unannounced site visits of institutions such as the College that
provide vocational education and training. In accordance with that requirement,
Middle States conducted an unannounced site visit to the College in April 1996
and in its report stated that Strayer had represented itself with honesty and
integrity regarding its prebaccalaureate occupationally specific programs.
Middle States, a collegiate accrediting agency recognized by the Department
of Education, accredited the College in 1981 and reaffirmed the College's
accreditation in November 1995. The College is required to submit an interim
status report to Middle States in April 1997, which will address planning
efforts as they relate to expansion of enrollments and additional off-campus
sites and to facilities. Middle States' next scheduled evaluation visit to the
College is currently set for the academic year 1999-2000. Middle States has
updated certain of its policies to conform to new HEA requirements. The College
expects that its next accreditation review will be conducted under the new
requirements.
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IMMIGRATION
The College is authorized by the Immigration and Naturalization Service
("INS") of the U.S. Department of Justice to admit foreign students. The College
also employs certain foreign faculty members and administrators in accordance
with U.S. immigration laws. Foreign students, other than resident aliens,
intending citizens, and residents of certain Pacific islands, are ineligible to
participate in Title IV Programs. Immigration legislation enacted in 1996
imposed additional requirements on higher education institutions to collect
information concerning, and verify the immigration status of, foreign students.
The College has established procedures designed to comply with U.S. immigration
laws. If the College fails to comply with these laws, the INS could take
enforcement action, which could result in the withdrawal of foreign students
enrolled at Strayer, loss of authorization to admit foreign students or loss of
foreign faculty members and administrators.
FINANCING STUDENT EDUCATION
In the 1997 Winter quarter, approximately 37.8% of the College's students
participated in one or more of the federally supported student financial aid
programs. A substantial portion (approximately 48% in 1996) of the College's
revenues are derived from tuition financed under Title IV Programs.
The College's financial aid programs are designed to assist eligible
students whose financial resources are inadequate to meet the cost of education.
Aid is awarded on the basis of financial need, generally defined under the HEA
as the difference between the cost of attending a program of study and the
amount a student can reasonably be expected to contribute to those expenses. All
recipients of financial aid must maintain a satisfactory grade point average and
progress in a timely manner toward completion of a program of study.
Title IV Programs
The College maintains eligibility for its students to participate in the
following Title IV Programs:
Federal Family Education Loans. Pursuant to the Federal Family Education
Loan Program (the "FFEL Program"), which includes the Federal Stafford Loan
("Stafford") program and the Federal PLUS program, students and their parents
can obtain from lending institutions subsidized and unsubsidized student loans,
which are guaranteed by the federal government. The obligation to begin repaying
Stafford loans is deferred until six months after the student graduates,
withdraws or ceases to be enrolled on at least a half-time basis. Students who
demonstrate financial need may qualify for a subsidized Stafford loan, and the
federal government will pay the interest on the loan while the student is in
school and for six months after the student's graduation or withdrawal.
Unsubsidized Stafford loans are available to a student without demonstrated
financial need or in some cases in addition to a subsidized Stafford loan. The
unsubsidized Stafford loan program now incorporates the former Federal
Supplemental Loans for Students ("SLS") program. In 1996, approximately 41.2% of
the College's revenues were derived from Stafford loans. PLUS Loans are made
available to parents of dependent students and accounted for approximately 1.1%
of the College's revenues in 1996. The maximum amount of any PLUS loan is the
difference between the student's estimated cost of attendance at the institution
and the estimated financial resources reasonably available to that student.
Pell Grants. Grants under the Federal Pell Grant ("Pell") program, which
are available to eligible students based on financial need and other factors,
accounted for approximately 5.6% of the College's revenues in 1996.
Campus-Based Programs. The "campus-based" Title IV Programs include the
Federal Supplemental Educational Opportunity Grant program, the Federal
Work-Study program, and the Federal Perkins Loan ("Perkins") program. These
programs are called "campus-based" because the institution has the authority to
determine the allocation of funds to eligible students. Tuition received by the
College under the campus-based programs accounted for less than 1.0% of the
College's revenues in 1996.
Direct Student Loans. In 1993, Congress enacted the William D. Ford
Federal Direct Loan Program (the "Direct Loan Program"), under which the
Department of Education makes loans directly to students, rather than
guaranteeing loans made by lending institutions. The Direct Loan Program has
been phased in
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beginning in 1994-95. The College was approved to participate in this program
beginning July 1, 1996, and anticipates beginning to make loans under this
program beginning in 1997.
Other Financial Aid Programs
In addition to the College's own student loan and scholarship programs,
eligible students at the College may participate in educational assistance
programs administered by the U.S. Department of Veterans Affairs, the U.S.
Department of Defense, the District of Columbia and private organizations.
FINANCIAL AID REGULATION
To be eligible to participate in Title IV Programs, the College must comply
with specific standards and procedures set forth in the HEA and the regulations
issued thereunder by the Department of Education. An institution must, among
other things, be authorized by each state within which it operates to offer its
educational programs and be accredited by a recognized accrediting agency. See
"Business -- Accreditation and Approvals." The institution must also be
certified by the Department of Education to participate in Title IV Programs,
which requires, among other things, that the institution meet certain standards
of administrative capability and financial responsibility. For purposes of the
Title IV Programs, the College and all of its campuses are considered to be a
single "institution" so that Department of Education requirements applicable to
an "institution" are applied to all of the College's campuses in the aggregate
rather than on an individual basis.
The College is currently certified to participate in Title IV Programs. The
HEA requires the Department of Education to review every institution of higher
education for continued participation in Title IV Programs by July 23, 1997, on
a schedule established by the Department. The College submitted its application
for recertification to the Department on March 14, 1997. The timely submission
of the recertification application will allow the College to continue to
participate in Title IV Programs pending the Department's action on the
application. As a result of the Department of Education's recertification
review, if the Department of Education determined that an institution did not
meet all applicable standards, the institution could be recertified for a
limited period of time or placed on provisional certification status or its
certification permitted to expire. Provisional certification does not limit an
institution's access to Title IV Program funds, but does subject the institution
to closer review by the Department of Education and may subject the institution
to summary adverse action if it commits violations of Title IV Program
requirements. Based on its Perkins loan cohort default rate for the most recent
year, the College could be placed on provisional certification status.
The regulatory scheme applicable to the College has been subject to
frequent revisions, many of which have increased the level of scrutiny to which
higher education institutions are subjected and raised the applicable standards.
In enacting the Higher Education Amendments of 1992 and the Higher Education
Technical Amendments of 1993, Congress imposed significant new and more
stringent standards governing institutions participating in Title IV Programs,
including new standards for institutional eligibility and the timing, scope of
and procedures for eligibility and certification reviews and accrediting agency
approval. The new standards are designed to limit institutional dependence on
Title IV Program funds, prevent institutions with unacceptable student loan
default rates from participating in Title IV Programs and, in general, require
institutions to satisfy certain criteria intended to protect the integrity of
the Title IV Programs, notably criteria regarding administrative capability and
financial responsibility. The regulatory standards in effect at the time of
reviews by regulatory authorities and the College's compliance with those
standards may affect the operations of the College and its ability to
participate in Title IV Programs.
The new standards are consistent with the increased scrutiny and regulation
to which providers of postsecondary education have been subjected as a result of
increased concern over fraud and abuse in Title IV Programs. Congress and the
Department of Education have recently focused in particular upon the operations
of proprietary institutions, such as the College. Certain elements of the
regulatory scheme applicable to the College are described below. The current
regulatory scheme may be modified to a greater or lesser extent through the
reauthorization of the Higher Education Act, which Congress will consider in
1997.
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Increased Regulatory Scrutiny
The 1992 amendments to the HEA formalized, modified and strengthened the
regulatory structure known as the "Program Integrity Triad," which consists of
the Department of Education, recognized accrediting agencies, and state higher
education regulatory bodies. Congress intended this initiative to increase the
regulatory scrutiny of postsecondary educational institutions. In addition to
the Program Integrity Triad, other participants in Title IV Programs, notably
student loan guarantee agencies, also have enforcement authority.
The HEA was most recently reauthorized by the U.S. Congress in 1992, at
which time funding for the Title IV Programs was authorized through September
30, 1997, with an automatic one-year extension if the HEA were not reauthorized
by that date. The Congress has commenced the reauthorization process, but the
reauthorization is not expected to be completed until late 1997 or during 1998.
Although there is no present indication that the Congress will decline to
reauthorize the Title IV Programs, at this time it is not possible to predict
the outcome of the reauthorization process. There can be no assurance that
federal funding will continue to be available for any or all Title IV Programs
for proprietary institutions such as the College, that such funding will be
maintained at current levels for any or all such programs, that current
requirements for student and institutional participation will be unchanged, or
that one or more present Title IV Programs will not be replaced by other
programs with materially different student or institutional eligibility
requirements or benefits. An elimination of certain Title IV Programs, a
reduction in federal funding levels of such programs, material changes in the
requirements for participation in such programs, or the substitution of
materially different programs could reduce the ability of certain students to
finance their education, which in turn could lead to lower enrollments at the
College or require the College to increase its reliance upon alternative sources
of student financial aid. Given the significant percentage of the Company's
revenues that are indirectly derived from the Title IV Programs, the loss of or
a significant reduction in Title IV Program funds available to the College's
students could have a material adverse effect on the Company.
In addition to the HEA reauthorization, President Clinton and members of
Congress have proposed various changes in the Internal Revenue Code to assist
students and their parents in meeting the cost of higher education. Among other
changes, the President has proposed the "Hope Scholarship," which would provide
a nonrefundable tax credit of up to $1,500 a year for two years for tuition and
fees of postsecondary education. Students would be required to maintain at least
a "B" average and meet certain other eligibility requirements to qualify for the
second year of the tax credit. Members of Congress and representatives of the
higher education community have expressed some concerns about these proposals,
including the possibility of review of student grade point averages by the
Internal Revenue Service. Congress has commenced consideration of these proposed
changes in the Internal Revenue Code, but is not expected to complete that
consideration until later in 1997. At this time it is not possible to predict
whether Congress will enact any of the proposed tax reforms, to what extent
Congress may modify them in the process of enactment, or to what extent such tax
benefits, if enacted, may be available to students attending proprietary
institutions such as the College.
Administrative Capability
Department of Education regulations specify extensive criteria by which an
institution must establish that it has the requisite "administrative capability"
to participate in Title IV Programs. To meet the administrative capability
standards, an institution, among other things, must not have cohort default
rates above specified levels, must have various procedures in place for
safeguarding federal funds, must not be, and not have any principal or affiliate
who is, debarred or suspended from federal contracting or engaging in activity
that is cause for debarment or suspension, and must not otherwise appear to lack
administrative capability.
If the Department of Education determines that an institution is not
administratively capable solely because it fails to comply with the cohort
default rate standards of administrative capability, the Department will certify
the institution's continuing eligibility to participate in Title IV Programs on
a provisional basis for no more than three years. See "Licensing, Accreditation
and Financial Aid Regulation -- Financial Aid Regulation -- Student Loan
Defaults." During the period of provisional certification, the institution must
comply with any additional conditions included in its program participation
agreement. If the Department of
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Education determines that a provisionally certified institution is unable to
meet its responsibilities under its program participation agreement, it may
revoke the institution's certification to participate in Title IV Programs.
Based on an inspection conducted by the Office of Inspector General of the
Department of Education in mid-1992, the Department of Education concluded that
there were serious deficiencies at that time in the College's administration of
federal student financial aid programs. The Department of Education cited late
and unpaid refunds, lack of refund notification, unpaid credit balances, a high
student withdrawal rate, lack of exit counseling documentation, incorrect loan
certifications and missing financial aid transcripts. Because of these
deficiencies, the Department of Education transferred the College from the
"advance" system of payment of Title IV Program funds, under which an
institution requests and receives funding from the Department of Education in
advance based on anticipated needs, to the "reimbursement" system of payment,
under which the institution must disburse funds to eligible students and
document their eligibility for Title IV Program funds before receiving such
funds from the Department of Education. The College disputed various of the
Department of Education's findings but took steps to correct certain
institutional weaknesses identified by the Department of Education, including
creating new administrative positions dealing with Title IV Programs, hiring
additional financial aid officers, increasing training for financial aid
officers and other College officials, preparing a financial aid manual, and
developing new computer systems. Further, following an internal audit, the
College in 1993 and 1994 repaid to the government certain Title IV funds for
which the College determined its documentation was inadequate. Following these
remedial actions, the Department of Education returned the College to the
advance system of payment, effective December 7, 1995.
Based on the Department of Education review, the College's principal
guaranty agency, American Student Assistance Corporation ("ASA"), imposed a
temporary emergency suspension on new loan guarantees to students enrolled at
the College in April 1993. After conducting a program review, ASA limited its
guaranty to loans for students who had previous loans guaranteed by ASA. In
December 1993, after conducting a followup review, ASA removed the limitation on
the College's participation in the FFEL guaranteed student loan programs. In
August 1994, ASA advised the College that its corrective measures and plan of
action were satisfactory and the program review was closed.
Department of Education regulations permit an institution to enter into a
written contract with a third-party servicer for the administration of any
aspect of the institution's participation in Title IV Programs. The third-party
servicer must, among other obligations, comply with Title IV requirements and be
jointly and severally liable with the institution for any violation by the
servicer of any Title IV provision. The College has written contracts with two
third-party servicers, which it has, as required, reported to the Department of
Education. Financial Aid Management for Education, Inc., which has served the
College since 1983, certifies FFEL Program loan applications, prepares reports
from the College to the Department of Education, issues checks for the Pell and
campus-based programs, and issues and collects Perkins loans. Unger and
Associates, Inc. provides certain default management services to the College in
connection with the FFEL Programs, including notices to students of the
commencement of their repayment obligations, skiptracing, and preclaims
assistance.
Financial Responsibility
The HEA and Department of Education regulations prescribe extensive
standards of financial responsibility that institutions such as the College must
satisfy to participate in Title IV Programs. Among these standards are general
standards requiring the institution to provide the services described in its
official publications and statements; to provide the administrative resources
necessary to comply with Title IV requirements; and to meet all of its financial
obligations, including required refunds and any repayments to the Department of
Education for debts and liabilities incurred in programs administered by the
Department. A for-profit institution such as the College must also: (i)
demonstrate an "acid test" ratio (defined as the ratio of cash, cash equivalents
and current accounts receivable to current liabilities) of at least 1-to-1 at
the end of its latest fiscal year; (ii) not have had operating losses in either
or both of its two latest fiscal years that in sum result in a decrease in
tangible net worth in excess of 10% of the institution's tangible net worth at
the beginning of the two-year period; and (iii) have had a positive tangible net
worth for its latest fiscal year. For
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the fiscal year ended December 31, 1996, the College's "acid test" ratio was
equal to 1.69-to-1. The College did not have operating losses in either of its
two most recent fiscal years and had a positive tangible net worth for its
latest fiscal year. Unless the institution meets specific alternative criteria,
it must submit an irrevocable letter of credit, payable to the Department of
Education, in an amount equal to 25% of the total dollar amount of refunds that
the institution paid on Title IV Programs in the previous fiscal year. The
College has submitted such a letter of credit in the amount of $500,000. An
institution will not be considered to be financially responsible if it exhibits
certain characteristics of poor past performance, including, among other
considerations, unpaid liabilities for Title IV violations, recent limitation,
suspension or termination actions, recent audit or program review findings
resulting in repayment of more than 5% of Title IV funds received for the
relevant year, failure to submit timely and acceptable audit reports, and
failure to resolve satisfactorily program review or audit findings. Based on its
audited financial statements for 1995 and 1996, as submitted to the Department
of Education, the College believes it satisfies each of the applicable financial
responsibility standards. In 1996, the Department of Education issued proposed
regulations that would establish new measures of financial responsibility. The
Department has twice extended the period for comment on the proposed regulations
because of concerns expressed by members of the higher education community about
the proposed standards. It is not possible to predict the outcome of this
rulemaking proceeding at this time.
Student Loan Defaults
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans by its students exceed certain rates. A
rate of student defaults (known as a "cohort default rate") is calculated for
each institution annually by determining the rate at which borrowers who become
subject to their repayment obligation in one federal fiscal year default by the
end of the following federal fiscal year. For certain purposes described below,
the Department of Education calculates a weighted average cohort default rate
for the institution's students who enter repayment and default on a FFEL Program
or Direct Loan Program loan.
If the Department of Education notifies an institution that its cohort
default rate for FFEL Program loans equals or exceeds 25% for each of the three
most recent federal fiscal years, the institution's participation in the FFEL
Program ends 30 days after the notification, unless the institution timely
appeals that determination on specified grounds and according to specified
procedures. An institution's participation in the Direct Loan Program ends 30
days after notification that any combination of its FFEL Program cohort default
rate, its Direct Loan Program cohort default rate, or its weighted average
cohort default rate equals or exceeds 25% for each of the three most recent
federal fiscal years, unless the institution timely appeals. An institution
whose participation terminates under these provisions may not participate in the
relevant program for a period of up to three federal fiscal years. The
Department of Education also may initiate a proceeding to limit, suspend or
terminate an institution's participation in the FFEL Program if it has any
combination of a FFEL Program, Direct Loan Program or weighted average cohort
default rate that is equal to or greater than 25% for each of the three most
recent federal fiscal years. The Department of Education may initiate a
proceeding to limit, suspend or terminate an institution's participation in all
Title IV Programs if it has a FFEL Program, Direct Loan Program or weighted
average cohort default rate that exceeds 40% for any federal fiscal year.
If an institution's FFEL cohort default rate equals or exceeds 25% in any
of the three most recent federal fiscal years, or if its cohort default rate for
loans under the Perkins program exceeds 15% for any federal award year, the
institution may be placed on provisional certification status. Provisional
certification does not limit an institution's access to Title IV Program funds;
however, an institution with provisional status is under closer review by the
Department of Education and may be subject to summary adverse action if it
commits violations of Title IV Program requirements. The College's cohort
default rates on FFEL Program loans for the 1992, 1993 and 1994 federal fiscal
years, the most recent years for which this information is available, were
10.6%, 16.6% and 16.0%, respectively. The average default rates for proprietary
institutions nationally were 30.2%, 23.9% and 21.1% in fiscal years 1992, 1993
and 1994, respectively. The College's Perkins cohort default rates in federal
award years 1994, 1995, and 1996 were 4.0%, 11.6% and 18.6%, respectively. Thus,
based on its most recent Perkins cohort default rate, the College could be
placed on provisional certification status, which would subject it to closer
review by the Department of Education. If the College were placed on provisional
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certification status for this reason and reduced its Perkins cohort default rate
below 15% in a subsequent year, the College could ask the Department of
Education to remove the provisional status. The College has not made any new
Perkins loans for more than a year, and is in the process of withdrawing
voluntarily from participation in the Perkins program.
The "85/15 Rule"
Under what is commonly referred to as the "85/15 Rule," the HEA provides
that proprietary institutions, such as the College, are eligible to participate
in Title IV Programs only if they derive no more than 85% of their revenues from
Title IV Programs, as determined in accordance with a formula in the
regulations. A proprietary institution that violates the "85/15 Rule" loses its
eligibility to participate in Title IV Programs for at least one year. During
1996, the College derived 48% of its revenues from tuition financed under Title
IV Programs.
Incentive Compensation
As a part of an institution's program participation agreement with the
Department of Education, the institution must certify that it will neither
provide, nor contract with any entity that provides, any commission, bonus or
other incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity. Although there can be
no assurance that the Department of Education will not find deficiencies in the
College's present or former compensation plans, the College believes that its
compensation plan complies with the HEA.
Potential Effect of Regulatory Violations
If the College fails to comply with the regulatory standards governing
Title IV Programs, the Department of Education could impose one or more
sanctions, including transferring the College to the reimbursement system of
payment, requiring repayment of certain Title IV funds, certifying the College's
eligibility on a provisional basis, taking emergency action, referring the
matter for criminal prosecution, or initiating proceedings to impose a fine or
to limit, suspend or terminate the participation of the College in Title IV
Programs. In addition, the College's guarantee agencies could limit, suspend or
terminate its eligibility to provide guaranteed student loans in the event of
certain regulatory violations. Although there are no such sanctions currently in
force, and the College does not believe any such sanctions are contemplated, if
such sanctions were imposed against the College and resulted in a substantial
curtailment of the College's participation in Title IV Programs, the College
would be materially and adversely affected.
If the College lost its eligibility to participate in Title IV Programs, or
if the amount of available federal student financial aid were reduced, the
College would seek to arrange or provide alternative sources of revenue or
financial aid for students. The SEL Program would provide one such alternative,
but there can be no assurance that the SEL Program could provide loans
sufficient to make up for the loss of Title IV Program funds. Although the
College believes that one or more private organizations would be willing to
provide financial assistance to students attending the College, there is no
assurance that this would be the case, and the interest rate and other terms of
such student financial aid might not be as favorable as for Title IV Program
funds. The College may be required to guarantee all or part of such alternative
assistance or might incur other additional costs in connection with securing
alternative sources of financial aid. Accordingly, the loss of eligibility of
the College to participate in Title IV Programs would be expected to have a
material adverse effect on the College even if it could arrange or provide
alternative sources of revenue or student financial aid.
RESTRICTIONS ON ADDING LOCATIONS AND EDUCATIONAL PROGRAMS
State requirements and accrediting agency standards may in certain
instances limit the ability of the College to establish additional locations and
programs. District of Columbia regulations require institutions to submit an
application for an amended license in order to add a new program or location.
The Virginia State Council of Higher Education requires institutions to obtain
approval prior to offering new educational
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<PAGE> 39
programs at existing sites or instruction for degree credit at a new site
located more than 25 miles or 30 minutes' travel time from a central location.
Maryland law and regulations require institutions to obtain the approval of MHEC
in order to offer an instructional program not specified in its certificate of
approval or to offer more than one-third of the credit-bearing coursework
leading toward a certificate or degree at a location not specified in its
certificate of approval. Middle States requires institutions that it accredits
to notify it in advance of implementing new programs or locations, and upon
notification may undertake a review of the institution's accreditation. Based on
its current understanding of how these standards will be applied, the College
does not believe that these standards will have a material adverse effect on the
College or its expansion plans.
The HEA requires proprietary institutions of higher education to be in full
operation for two years before qualifying to participate in Title IV Programs.
However, the applicable regulations permit an institution that is already
qualified to participate in Title IV Programs to establish an additional
location that may immediately qualify, unless the location was acquired from
another institution that has ceased offering educational programs at that
location and has unpaid Title IV liabilities. The new location must satisfy all
other applicable requirements for institutional eligibility, including approval
of the additional location by the relevant state authorizing agency and the
institution's accrediting agency. In addition, a location that qualifies as a
"branch campus" must meet extensive regulatory requirements, including the
standards of administrative capability and financial responsibility discussed
above. The College's expansion plans assume its continued ability to establish
new campuses as additional locations of the College's main campus without
incurring the two-year delay in participation in Title IV Programs. The loss of
state authorization or accreditation by the College or an existing campus, or
the failure of the College or a new campus to obtain state authorization or
accreditation, would render the College ineligible to participate in Title IV
Programs in that state or at that location.
The Department of Education requires an institution to provide notice of an
additional location that offers at least 50%, but less than 100%, of an
educational program. The Department of Education may, in its discretion, require
the institution to apply for approval before it awards or disburses Title IV
Program funds to students enrolled at such location. The Department of Education
regulations provide that that determination is based on the percentage of an
educational program that is offered at the new location and on the financial and
administrative capability of the institution. An institution must apply to the
Department of Education for approval before it awards or disburses Title IV
Program funds to students enrolled at a new branch campus or a new location at
which it offers 100% of an educational program.
Generally, if an institution eligible to participate in Title IV Programs
adds an educational program after it has been designated as an eligible
institution, the institution must apply to the Department of Education to have
the additional program designated as eligible. However, an institution is not
obligated to obtain Department of Education approval of an additional program
that leads to an associate, baccalaureate, professional or graduate degree or
which prepares students for gainful employment in the same or related recognized
occupation as an educational program that has previously been designated as an
eligible program at that institution and meets certain minimum length
requirements. In the event that an institution erroneously determines that an
educational program is eligible for Title IV funds without the Department of
Education's express approval, the institution may be liable for repayment of
Title IV aid provided to students in that program. The College does not believe
that the Department of Education's regulations will create significant obstacles
to its plans to add new programs.
DISTANCE LEARNING
On March 13, 1997, the College submitted a proposed plan for a distance
learning program called "Strayer ONLINE" to the D.C. Education Licensure
Commission. The College expects the D.C. Commission to act on the proposed plan
at its meeting on March 27, 1997. Subject to the D.C. Commission's favorable
action, the College intends to submit the proposed plan to the Virginia State
Council of Higher Education, the Maryland Higher Education Commission, and
Middle States for their approval. Subject to regulatory approvals, the College
intends to offer its existing degree and diploma programs through Strayer
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<PAGE> 40
ONLINE via Internet-based telecommunications instruction, beginning in 1997 with
master's and upper-level undergraduate courses in accounting, business
administration, and computer information systems and expanding to most master's
courses offered by the College by 1999 and most upper-level undergraduate
courses by 2000. Beginning in the 1998 Spring quarter and as appropriate
software becomes available, the College anticipates extending Strayer ONLINE to
most lower level undergraduate courses and to the diploma program. The College
is establishing facilities for Strayer ONLINE at a Distance Learning Center in
Lorton, Virginia. Tuition and other charges for courses offered through Strayer
ONLINE would be the same as for courses on campus. The College anticipates that
the same sources of student financial assistance will be generally available for
students enrolled through Strayer ONLINE as for students enrolled on campus. The
availability of Title IV Program funds to students enrolled through Strayer
ONLINE, however, would be limited in that, among other restrictions, Strayer
will adjust the amount of aid available to students enrolled in Strayer ONLINE
to take into account any significant reductions in the students' cost of
attendance arising from the use of telecommunicated instruction and will limit
the amount of Title IV Program assistance available to students enrolled in the
diploma program to that which is available to students enrolled in
correspondence courses. See "Business -- Business Strategy."
The delivery of educational services, whether through conventional
classroom means or through the use of distance learning technologies, including
courses offered via the Internet, is primarily regulated at the state level. The
D.C. Commission requires that a course or program offered by "correspondence,
extension, telecommunications or in summer session" be consistent with the
objectives and purposes of the institution and "consistent with and comparable
in quality to courses offered to students regularly enrolled on a full-time
basis." If courses offered by the College through the Internet or other
technology are found to be inferior to those otherwise offered by the College,
or such courses are inconsistent with the objectives and purposes that the
College presented to the D.C. Commission and the D.C. Commission approved, the
D.C. Commission could initiate an adverse action proceeding, up to and including
seeking the termination of the College's license to operate in the District of
Columbia. Virginia requires institutions, including those otherwise authorized
to operate within the State, to obtain approval from the Virginia State Council
of Higher Education before offering any instructional program via
telecommunications at a specific site within the State. Maryland requires
institutions authorized to operate in Maryland to submit a prospectus and
request for approval to offer programs by telecommunications instruction. While
certain states assert the legal right to regulate the provision of
telecommunications instruction to students residing within their respective
jurisdictions even where the offering institution is not physically present
within that state, the Company is unaware of any instances where under such
circumstances an institution has been barred from so operating.
Middle States has adopted guidelines for the incorporation of distance
learning programs within the scope of accreditation, and has submitted the
guidelines to its membership for approval. The College believes that Strayer
ONLINE meets the standards adopted by Middle States. The regional accrediting
agencies (such as Middle States) have informally agreed that they will not
assert authority over the offering of courses via telecommunications offered by
an institution that is not physically present within their geographic area, and
rather defer to the authority of the accrediting agency within whose region the
home campus of the institution is located.
The HEA imposes a limit on the amount of correspondence study an
institution may offer and remain an eligible institution. However, the HEA
further states that a student enrolled in a course of instruction that is
offered in whole or in part through telecommunications and which leads to a
recognized associate, bachelor or graduate degree conferred by such institution
is not considered to be enrolled in a correspondence course, unless the total
number of telecommunications and correspondence courses offered by the
institution equals or exceeds fifty percent of the total number of courses
offered by the institution. The HEA also excludes from Title IV Program
participation institutions at which more than one half of the enrolled students
are enrolled in correspondence courses, except that the Secretary of Education
is authorized to waive this limitation at his discretion in the case of colleges
offering two- or four-year programs leading to an associate or bachelor's
degree. Department of Education regulations grant an automatic waiver where
students enrolling in correspondence courses receive five percent or less of the
total Title IV Program funds received by all students enrolled at the
institution. The HEA defines "telecommunications" as the use of television,
audio, or
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computer transmission, including open broadcast, closed circuit, cable,
microwave, or satellite, audio conferencing, computer conferencing, or video
cassette or discs. The courses the College will offer through Strayer ONLINE are
offered through "telecommunications" as that term is defined in the HEA. The
College does not anticipate that the number of students enrolled in its diploma
program through Strayer ONLINE will equal or exceed one half of the College's
total enrollment, nor that the number of courses offered through Strayer ONLINE
will equal or exceed the total number of courses offered on its campuses. The
College will monitor enrollment in and the offering of courses on Strayer ONLINE
to ensure that the prescribed limits are not exceeded.
CHANGE IN OWNERSHIP RESULTING IN A CHANGE OF CONTROL
Many states and accrediting agencies require institutions of higher
education to report or obtain approval of certain changes in ownership or other
aspects of institutional status, but the types of and triggers for such
reporting or approval vary among states and accrediting agencies. The D.C.
Commission may require an institution licensed by it to apply to amend its
license prior to a change in ownership. The applicable laws and regulations of
Virginia and Maryland do not specifically address reporting of changes in
ownership. The College's accrediting agency, Middle States, requires
institutions that it accredits to inform it in advance of any substantive
change, including a change that significantly alters the ownership or control of
the institution. Examples of substantive changes requiring advance notice to
Middle States include changes in the legal status, ownership or form of control
of the institution, such as the sale of a proprietary institution. Middle States
must approve a substantive change in advance in order to include the change in
the institution's accreditation status. The Company does not believe that the
Offering and related transactions require approval from any of these entities.
The HEA provides that an institution which undergoes a change in ownership
resulting in a change of control loses its eligibility to participate in the
Title IV Programs and must apply to the Department of Education in order to
reestablish such eligibility. An institution is ineligible to receive Title IV
Program funds during the period prior to recertification. The HEA further
defines one of the events that would trigger a change in ownership resulting in
a change of control as the transfer of the controlling interest of the stock of
the institution or its parent corporation. For a publicly-traded corporation
required to be registered with the Securities and Exchange Commission ("SEC"),
such as the Company, the Department of Education regulations implementing the
HEA define a change in ownership resulting in a change of control as occurring
when a change of control of the corporation takes place that gives rise to the
obligation on the part of the corporation to file a Form 8-K with the SEC
notifying that agency of the change of control. The Company has determined that
the Offering and related transactions will not give rise to the obligation to
file a Form 8-K with the SEC.
Ron K. Bailey currently owns approximately 62.4% of the Company's
outstanding stock jointly with his wife, and after completion of the Offering
will continue to own 54.2% of the outstanding Common Stock (51.0% on a fully
diluted basis) jointly with his wife. If Mr. or Mrs. Bailey were to die, the
surviving spouse would become the sole owner of those shares. The HEA and
Department of Education implementing regulations allow a change in ownership
upon the retirement or death of an owner to be treated as not resulting in a
change of control if it involves the sale or transfer of the owner's ownership
interest to a family member or to a person with an ownership interest who has
been involved in the management of the institution for at least two years.
However, the Department of Education requires schools to report such events to
the Department of Education for review. District of Columbia, Virginia and
Maryland law and Middle States policies do not specifically address changes in
ownership resulting from the retirement or death of an owner. However, it is
possible that one or more of these regulatory bodies would consider such a
change in ownership to be a
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substantive change that must be reported by the institution and would require
review or reauthorization of the institution.
Under INS regulations, if a school that is approved to admit foreign
students changes ownership, approval will be automatically withdrawn 60 days
after the change of ownership unless the school files a new petition for school
approval within 60 days of that change of ownership. If, after conducting a
review, the INS district director finds that the school's approval should not be
continued, the district director must institute proceedings to withdraw the
school's approval. After the Company was formed and the initial public offering
of its stock was completed, the College timely notified the INS of the change in
ownership, and the INS continued the College's approval to admit foreign
students. The College expects that it will again be required to file a petition
for school approval with the INS within 60 days after the Offering.
If the College underwent a change that required reapproval by any state
authority, Middle States or any federal agency, and any required regulatory
approval were significantly delayed, limited or denied, there could be a
material adverse effect on the College's ability to offer certain educational
programs, award certain degrees or diplomas, operate one or more of its
locations, admit certain students or participate in Title IV Programs, which in
turn would materially adversely affect the College's operations. A change that
required approval by a state regulatory authority, Middle States or a federal
agency could also delay the College's ability to establish new campuses or
educational programs and may have other adverse regulatory effects. Furthermore,
the disadvantage of undergoing a change of control may materially limit the
College's flexibility in future financings or acquisition transactions.
VETERANS BENEFITS
Pursuant to federal law providing benefits for veterans and reservists, the
College is approved for education of veterans and members of the selective
reserve and their dependents by the state approving agency in the District of
Columbia and Virginia. The College expects to seek approval to offer educational
programs to veterans and other eligible persons in Maryland at an appropriate
time.
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MANAGEMENT AND DIRECTORS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- -----------------------------------
<S> <C> <C>
Ron K. Bailey...................... 56 President, Treasurer and Director
Harry T. Wilkins................... 40 Chief Financial Officer
Stanley G. Elmore.................. 55 Chairman of the Board of Directors
Todd A. Milano..................... 44 Director
Jennie D. Seaton................... 67 Director
Roland Carey....................... 57 Director
Donald T. Benson................... 53 Director
G. Thomas Waite, III............... 45 Director
Donald Stoddard.................... 60 Director
Charlotte Beason................... 49 Director
</TABLE>
Ron K. Bailey is the President and Treasurer and has been a director of the
Company since its formation. Mr. Bailey has been the President and a trustee of
the College since 1989 and the President and a director of ELP since its
formation in 1994. From 1980 to 1989, Mr. Bailey held a variety of
administrative positions with the College, including the position of Vice
President of the College. Before assuming his first full-time position with the
College in 1980, Mr. Bailey was a part-time faculty member of the College and
served as Director of Data Processing of the National Association of Home
Builders.
Harry T. Wilkins is the Chief Financial Officer of the Company and has been
the Director of Financial Affairs of the College since 1992. Prior to joining
the College, Mr. Wilkins was a Director with the accounting firm of Wooden &
Benson, Chartered from 1984 to 1992 and a member of the consulting practice of
the accounting firm of Deloitte Touche (then Deloitte, Haskins and Sells) from
1979 to 1984. Mr. Wilkins is a Certified Public Accountant.
Stanley G. Elmore has been a director of the Company since July 1996. Mr.
Elmore has been the Chairman of the Board of Trustees of the College since 1989.
Mr. Elmore has served as Projects and Programs Manager, Citibank Mid-Atlantic, a
position he has held for more than five years.
Todd A. Milano has been a director of the Company since July 1996. Mr.
Milano has been the Vice Chairman of the Board of Trustees of the College since
1992. Mr. Milano has served as President and Chief Executive Officer of Central
Pennsylvania Business School since 1989.
Dr. Jennie D. Seaton has been a director of the Company since July 1996.
Dr. Seaton has been a member of the Board of Trustees of the College since 1990.
Dr. Seaton is retired and was an Assistant Dean of Virginia Commonwealth
University from 1975 to 1994.
Roland Carey has been a director of the Company since July 1996. Mr. Carey
has been a member of the Board of Trustees of the College since 1990. Mr. Carey
is an Instructor with the Carl Sandburg School, a position he has held for more
than five years.
Donald T. Benson has been a director of the Company since July 1996. Mr.
Benson has been a member of the Board of Trustees of the College since 1992. Mr.
Benson has served as Vice President, Human Resources, of Aetna Life Insurance
Company since 1992. From 1976 to 1992, Mr. Benson was Senior Vice President,
Human Resources, of Connecticut General Insurance Corp. (CIGNA).
G. Thomas Waite, III has been a director of the Company since July 1996.
Mr. Waite has been a member of the Board of Trustees of the College since 1994.
Mr. Waite has served as Treasurer for the Humane Society of the United States
since 1993. In 1992, Mr. Waite was the Director of Commercial Management of The
National Housing Partnership; from 1986 to 1991, he held the position of Senior
Vice President of Hurst
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Property Company. As a result of the insolvency of a real estate partnership in
which Mr. Waite served as a general partner, Mr. Waite filed for protection from
creditors under Chapter 11 of the Federal Bankruptcy Code in 1993, which
subsequently was converted to a Chapter 7 filing in 1993.
Dr. Donald Stoddard has been a director of the Company since July 1996. Dr.
Stoddard has been a member of the Board of Trustees of the College since 1995.
Dr. Stoddard is a Professor, Department of English, Anne Arundel Community
College, a position he has held since 1990. From 1979 to 1990, Dr. Stoddard was
the Coordinator, Collegiate Institutional Approval, of the Maryland Higher
Education Commission.
Dr. Charlotte Beason has been a director of the Company since July 1996.
Dr. Beason has been a member of the Board of Trustees of the College since 1995.
Dr. Beason is a Nurse at the U.S. Department of Veterans Affairs/Health Care
Reform Office, a position she has held for more than five years.
Directors of the Company are elected at the annual meeting of stockholders
and serve until their successors are duly elected and qualified or until their
earlier resignation or removal. Executive officers serve at the discretion of
the Board of Directors.
CERTAIN SIGNIFICANT EMPLOYEES OF THE COLLEGE
The following information is supplied with respect to certain other
significant employees of the College:
Younes P. Benab, Ph.D., 59, is the Academic Dean of the College, a position
he has held since 1986.
J. Chris Toe, Ph.D., 42, is the Director, Graduate Programs of the College,
a position he has held since 1994. Dr. Toe joined the College in 1993 as an
adjunct professor, becoming a full-time professor in 1994. Prior to joining the
College, Dr. Toe was an independent consultant.
James F. McCoy, Jr., 37, is the Administrative Dean of the College, a
position he has held since 1994. Mr. McCoy previously was Finance Team Leader,
Phillips Colleges, in 1994; Vice President of Operations, Brenell Institute,
from 1992 to 1994; and Operations Manager, Phillips Colleges, from 1983 to 1992.
Marla Boulter, 41, is the College's Director of College Relations, a
position she has held since 1995. Ms. Boulter joined the College in 1990 as an
accountant and was the College's Director of Marketing from 1991 to 1995.
Don R. Anderson, 54, is the Director of Facilities of the College, a
position he has held since 1988.
Robert E. Farmer, 58, is the Director of Human Resources of the College, a
position he has held since 1995. Mr. Farmer was the Campus Coordinator of the
Arlington campus from 1992 until 1995, and was the Director of Admissions at
that campus from 1990 to 1992. Mr. Farmer is a certified Professional in Human
Resources (PHR).
Piroj Piboolnuruk, 42, is the College's Director of Information Management,
a position he has held since 1992. Mr. Piboolnuruk was the College's coordinator
of Administrative Services from 1986 to 1992.
John Tucker, 56, is the College's Director of Distance Learning, a position
he has held since 1995. Mr. Tucker has been on the faculty of the College as an
Adjunct Professor since 1974 and was a director of systems engineering with the
Internal Revenue Service from 1988 to 1995. He is a certified computer
professional and has an extensive background as an educator in distance
learning.
David J. Spille, 30, is the Manager of Investor Relations, a position he
has held since February 1996. Prior to his employment at Strayer, Mr. Spille was
an analyst at the Nasdaq Stock Market, Inc. from 1994 to 1996 and a business
analyst at E-Systems Incorporated from 1990 to 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, an Executive
Committee and a Compensation Committee.
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Audit Committee. The Audit Committee consists of non-management directors
and makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants and reviews the adequacy of the Company's
internal accounting controls.
Executive Committee. The Executive Committee consists of Mr. Bailey and one
or more non-management directors and exercises such authority as is delegated to
it.
Compensation Committee. The Compensation Committee consists of three
non-management directors. The Compensation Committee determines the compensation
of the Company's executive officers, subject to the provisions of any employment
agreements, and administers the Company's 1996 Stock Option Plan.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors are reimbursed for expenses incurred in connection with their
attendance at Board and Committee meetings, but currently receive no
compensation for serving as directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last completed
fiscal year paid to the Company's Chief Executive Officer. No other executive
officer of the College received salary and bonus exceeding $100,000 in that
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
---------------------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------- UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS/SAR'S COMPENSATION(2)
- ------------------------------ ----- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Ron K. Bailey................. 1995 $150,000 $6,175,000(1) -- $ 3,181
President 1996 $150,000 -- -- $ 3,138
</TABLE>
- ---------------
(1) The bonus was withheld for payments by Mr. Bailey in respect of income taxes
on undistributed S Corporation income of the College. Other compensation in
the form of perquisites and other personal benefits has been omitted because
the aggregate amount of such perquisites and other personal benefits
constituted less than $50,000 or 10% of Mr. Bailey's total annual salary and
bonus.
(2) Reflects (i) $3,043 and $3,000 in matching contributions made by the College
to the College's 401(k) plan for Mr. Bailey in 1995 and 1996, respectively,
and (ii) $138 in premiums paid by the College for life insurance for Mr.
Bailey in each of 1995 and 1996.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Bailey and the College have entered into an Employment Agreement which
provides that Mr. Bailey will serve as President and Chief Executive Officer of
the College. For his services, Mr. Bailey receives an annual salary of $150,000.
According to the terms of the Employment Agreement, Mr. Bailey's salary for
successive years may be increased at the discretion of the College's Board of
Trustees. The College does not currently contemplate payment of bonuses to Mr.
Bailey. Future bonuses, if any, paid to Mr. Bailey will be awarded pursuant to
guidelines approved by the Compensation Committee of the Company's Board of
Directors and will be at levels commensurate with any bonuses paid to other
executive officers. The agreement contains a covenant restricting Mr. Bailey
from competing with the College for three years after the termination of
employment.
The College also has entered into an employment agreement with Mr. Harry T.
Wilkins, Chief Financial Officer of the Company, which contains a covenant
restricting Mr. Wilkins from competing with the College for three years after
the termination of his employment.
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<PAGE> 46
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan") provides for the grant of
options that are intended to qualify as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, and for grant of non-qualifying
options to directors and employees of the Company. The Plan authorizes the
issuance of up to 1,000,000 shares of Common Stock pursuant to options granted
under the Plan (subject to anti-dilution adjustments in the event of a stock
split, recapitalization or similar transaction). The Compensation Committee of
the Board of Directors administers the Plan and grants options to purchase
shares of Common Stock. Immediately prior to the closing of the Company's
initial public offering, the College granted options for 663,136 shares of
Common Stock at the initial public offering price, of which options for 646,674
shares are outstanding as of March 18, 1997. All such options vest with respect
to one-third of the shares subject to the option on each of the first, second
and third anniversaries of the date of grant. These options will expire on the
fifth anniversary of the date of grant.
The option exercise price for incentive stock options granted under the
Plan may not be less than 100% of the fair market value of the shares on the
date of grant of the option (or 110% in the case of an incentive stock option
granted to an optionee beneficially owning more than 10% of the outstanding
shares). The option exercise price for non-incentive stock options granted under
the Plan may not be less than 100% of the fair market value of the shares on the
date of grant of the option. The maximum option term is ten years (or five years
in the case of an incentive stock option granted to an optionee beneficially
owning more than 10% of the outstanding shares). Options may be exercised at any
time after grant, except as otherwise provided in the particular option
agreement. Options covering no more than 500,000 shares of Common Stock may be
granted to any officer or other employee during the term of the Plan. There is
also a $100,000 limit on the value of shares (determined at the time of grant)
covered by incentive stock options that first become exercisable by an optionee
in any calendar year.
Options granted under the Plan are not transferable and may be exercised
only by the optionee during his or her lifetime. If any optionee's employment
with the Company terminates by reason of death or permanent and total
disability, the optionee's options, whether or not then exercisable, may be
exercised within one year after such death or disability unless otherwise
provided in the option agreement (but not later than the date the option would
otherwise expire). If the optionee's employment terminates for any reason other
than death or disability, options held by such optionee terminate upon such
termination unless otherwise provided in the option agreement or approved by the
Compensation Committee (but not later than the date the option would otherwise
expire). The Compensation Committee may extend the period during which the
option may be exercised (but not later than the date the option would otherwise
expire) by so providing in the option agreement. The options will terminate
within a specified time after the optionee's termination of employment with the
Company.
Each non-employee director (an "Eligible Director") at the time of the
initial public offering was granted an initial option to purchase a number of
shares of Common Stock equal to 1,000 times the number of years the Eligible
Director served as a trustee of the College. Options granted to Eligible
Directors under the Plan may be exercised with respect to the shares subject to
such option one year after the option is granted. All options expire five years
after the date of grant.
Upon any dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation in which the Company is not the
surviving corporation, or upon the sale of all or substantially all of the
assets of the Company to another corporation, or upon any transaction approved
by the Board of Directors which results in any person or entity owning 80% or
more of the total combined voting power of all classes of stock of the Company,
the Plan and the options issued thereunder will terminate, unless provision is
made in connection with such transaction for the continuation of the Plan and/or
the assumption of the options or for the substitution for such options of new
options covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares of
Common Stock and the per share exercise price. In the event of such termination,
all outstanding options will be exercisable in full during such period
immediately prior to the occurrence of such termination as the Board of
Directors in its discretion will determine.
45
<PAGE> 47
The Board of Directors may amend the Plan with respect to shares of Common
Stock as to which options have not been granted. However, the Company's
stockholders must approve any amendment that would: (i) change the requirements
as to eligibility to receive options; (ii) materially increase the benefits
accruing to participants under the Plan; or (iii) materially increase the number
of shares that may be sold pursuant to options granted under the Plan (except
for adjustments upon changes in capitalization).
401(k) PLAN
The College maintains a retirement plan (the "401(k) Plan") intended to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
The 401(k) Plan is a defined contribution plan that covers all full-time
employees of the College of at least 21 years of age, employed by the College
for at least one year. Employees may contribute up to 10% of their annual wages
(subject to an annual limit prescribed by the Code) as pretax, salary deferral
contributions. The College may, in its discretion, match employee contributions
up to a maximum of 15% of annual wages. The College's contributions to the
401(k) Plan for the year ended December 31, 1996 were $119,000.
46
<PAGE> 48
CERTAIN TRANSACTIONS
LEASE OF CAMPUS FACILITIES
The Company has long-term noncancelable operating leases for eight of its
various campus locations. The rents on these leases are subject to an annual
increase based on a stipulated price index. Of the eight campus locations, five
of the campuses, including the Washington, D.C. campuses and three of the
Virginia campuses, were leased from corporations which are wholly-owned by Mr.
Bailey, the Company's President and majority stockholder. Rent paid to Mr.
Bailey under these five operating leases for the years ended December 31, 1994,
1995 and 1996 was $1,339,000, $1,896,000 and $2,279,000, respectively. Future
minimum rental commitments for all of the Company's eight leases and the five
campuses leased from Mr. Bailey as of December 31, 1996 was as follows (in
thousands):
<TABLE>
<CAPTION>
AMOUNT PAYABLE TO AN
TOTAL LEASE AFFILIATE OF MR. BAILEY
COMMITMENTS INCLUDED IN TOTAL
----------- -----------------------
<S> <C> <C>
1997............................................... $ 3,153 $ 2,126
1998............................................... 3,024 2,126
1999............................................... 2,758 2,126
2000............................................... 2,750 2,126
2001............................................... 2,648 2,126
2002............................................... 2,381 2,126
Thereafter......................................... 7,894 7,264
------- -------
$24,608 $20,020
======= =======
</TABLE>
Each of the leases has a 10-year term expiring in May 2006. The Company has
the option under each lease to purchase at any time during the term of the lease
the related campus facility at its discretion at the fair market value of such
facility as determined by an independent appraiser.
The Company may lease additional campus facilities from entities owned or
controlled by Mr. Bailey. Any such leases will have market terms as determined
by an independent appraiser and be subject to the approval by a majority of
independent directors.
TRANSACTIONS WITH PRK INVESTMENTS, INC.
The College retained PRK Investments, Inc. ("PRK") to provide it with a
variety of services, including services related to computer equipment purchasing
and the College's compliance with the HEA and Department of Education
regulations applicable to Title IV Programs. See "Licensing, Accreditation and
Financial Aid Regulation -- Financial Aid Regulation -- Administrative
Capacity." Two-thirds of the PRK common stock is owned by children of Ron K.
Bailey, President and a director of the Company. The College paid PRK
approximately $257,000 for computer equipment purchasing and related services in
1996. In addition, pursuant to a contract with PRK, the College made monthly
payments of $20,000 to PRK for Title IV services from January 1, 1996 through
May 15, 1996. Beginning May 16, 1996, the computer equipment purchasing and
related services performed by PRK for the College, as well as the services
related to Title IV Programs, are performed by employees of the Company. The
College provided PRK office space on a rent-free basis in 1996 through May 15,
1996.
TRANSACTIONS WITH CAREER TRAINING INSTITUTE, INC.
College faculty and other employees have received computer-related
instruction and training in other occupational skills from Career Training
Institute, Inc. ("CTI"). Prior to December 31, 1996, eighty percent of the CTI
common stock was owned by children of Ron K. Bailey, President and a director of
the Company. The College paid CTI approximately $199,000 for its services in
1996. Management believes that CTI provided such services to the College on
terms at least as favorable to the College as the College could obtain
47
<PAGE> 49
from unaffiliated parties. The Company believes that the instruction provided by
CTI is not competitive with the current programs of the College.
REORGANIZATION TRANSACTIONS
On July 30, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares in the offering at a price of
$10 per share. Net proceeds to the Company were $31,313,000. Prior to the
closing of the offering, the Company exchanged 5,999,000 shares of its common
stock for 100% of the outstanding common stock of the College, which was held
jointly by Mr. and Mrs. Ron K. Bailey, in their capacity as the S Corporation
Stockholder. Approximately $19,838,000 of the net proceeds of the offering were
paid to the Baileys as a distribution of earnings on which they had previously
paid income taxes during the period the College was an S Corporation.
Contemporaneously with the closing of the initial public offering, the
Company acquired ELP at a purchase price of $1,060,000, ELP's net book value.
ELP was wholly owned by Mr. Ron K. Bailey, the Company's President and a
director of the Company.
48
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock as of March 15, 1997, by (i) each person known by the Company to
be the beneficial owner of more than five percent (5%) of the outstanding shares
of Common Stock, (ii) each director of the Company, (iii) each Selling
Stockholder, and (iv) all executive officers and directors as a group. The
information presented in the table is based upon the most recent filings with
the Securities and Exchange Commission by such persons or upon information
otherwise provided by such persons to the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------- SHARES ----------------------
PERCENT TO BE PERCENT
NAMES OF BENEFICIAL OWNERS(1) NUMBER OF CLASS SOLD NUMBER OF CLASS
- --------------------------------------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Ron K. Bailey and Beverly W. Bailey.... 5,900,000 62.4% 450,000 5,450,000 54.2%
Putnam Investments, Inc.(2)
One Post Office Square
Boston, Massachusetts 02109............ 975,679 10.3 -- 975,679 9.7
Strayer College Educational Foundation
3045 Columbia Pike
Arlington, Virginia 22204.............. 100,000 1.1 100,000 0 0
Stanley G. Elmore...................... 0 0 -- 0 0
Todd A. Milano......................... 4,540 * -- 4,540 *
Jennie D. Seaton....................... 0 0 -- 0 0
Roland Carey........................... 0 0 -- 0 0
Donald T. Benson....................... 600 * -- 600 *
G. Thomas Waite, III................... 0 0 -- 0 0
Donald Stoddard........................ 300 * -- 300 *
Charlotte Beason....................... 0 0 -- 0 0
All directors and executive officers as
a group (10 persons)................. 5,905,440 62.5% 450,000 5,455,440 54.3%
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable or exercisable within 60 days
are deemed outstanding for purposes of computing the percentage ownership of
the person holding such option or warrant but are not deemed outstanding for
purposes of computing the percentage ownership of any other person. Except
where indicated otherwise, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Based on a Schedule 13G filed with the Securities and Exchange Commission on
January 31, 1997. These securities are owned by various institutional
investors that are clients of investment adviser subsidiaries of Putnam
Investments, Inc. ("PI"), a wholly-owned subsidiary of Marsh & McClennan
Companies, Inc. ("M&MC"). For purposes of reporting requirements of the
Securities Exchange Act of 1934, PI and M&MC are each deemed to be
beneficial owners of these securities; however, each of PI and M&MC
expressly disclaims that beneficial ownership.
49
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (the "Charter") authorizes the
Company to issue 20,000,000 shares of Common Stock, $.01 par value, and
5,000,000 shares of Preferred Stock, $.01 par value. On the date of this
Prospectus, the Company has 9,450,000 shares of Common Stock and no shares of
Preferred Stock outstanding. Upon completion of the Offering, there will be
10,050,000 shares of Common Stock outstanding, plus options to acquire (as of
March 18, 1996) up to 646,674 shares of Common Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted upon by the stockholders. Stockholders do not have
cumulative voting rights in the election of directors. Subject to preferences
that may be applicable to any outstanding Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. The Company presently intends to pay regular cash dividends on its
Common Stock. See "Dividend Policy." In the event of a liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued and paid for, duly authorized, validly issued, fully
paid and non-assessable. As of the date of this Prospectus, the Current
Stockholders hold all of the outstanding Common Stock.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock from time to time in one or more series and to
establish the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued shares of undesignated Preferred Stock and to
fix the number of shares constituting any series and the designation of such
series, without any further vote or action by the stockholders. Any future
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. At present, the Company has no plans to issue any Preferred
Stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by Maryland law, the
Company's Charter and its bylaws. Certain provisions of the Charter and bylaws
of the Company, which are summarized below, may make it more difficult to change
the composition of the Company's Board of Directors and may discourage or make
more difficult any attempt by a person or group to obtain control of the
Company.
Voting Requirements. The Company's Charter may not be amended without the
affirmative vote of a majority of the shares entitled to vote generally in the
election of directors, voting as a single voting group. The Company's bylaws may
be amended either by the affirmative vote of a majority of all shares
outstanding and entitled to vote generally in the election of directors, voting
as a single group, or by an affirmative vote of a majority of the Company's
directors then holding office, unless the stockholders prescribe that any such
bylaw may not be amended or repealed by the Board of Directors.
Special Meetings. Under the Company's bylaws, special meetings of the
stockholders may be called by stockholders only if such stockholders hold
outstanding shares representing at least 25% of all votes entitled to be cast on
any issue proposed to be considered at any such special meeting.
LIMITATION OF LIABILITY
Under Maryland law a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director or officer of the Company shall be liable to the
50
<PAGE> 52
Company or to any stockholder for money damages except to the extent that (i)
the director or officer actually received an improper benefit in money, property
or services, for the amount of the benefit or profit in money, property or
services actually received, or (ii) a judgment or other final adjudication
adverse to the director or officer is entered in a proceeding based on a finding
in a proceeding that the director's or officer's action was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The Company's Charter has incorporated the provisions of this
law limiting the liability of directors and officers.
The Company's bylaws require it to indemnify (a) any present or former
director or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of his service in
that capacity, against reasonable expenses incurred by him in connection with
the proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful. In addition, the Company's
bylaws require it to pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a present or former director or
officer made a party to a proceeding by reason of his service as a director or
officer provided that the Company shall have received (1) a written affirmation
by the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification by the Company as authorized by the
bylaws and (2) a written understanding by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The Company's bylaws also (i) provide that any
indemnification or payment or reimbursement of the expenses permitted by the
bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment of expenses under Section 2-418 of the Maryland
General Corporation Law for directors of Maryland corporations and (ii) permit
the Company such other and further indemnification or payment or reimbursement
of expenses as may be permitted under Section 2-418 of the Maryland General
Corporation Law for directors of Maryland corporations.
CORPORATE ANTI-TAKEOVER PROVISIONS
The Company has elected to include in its Charter provisions exempting it
from the application of the Maryland business combination statute and control
share acquisition statute.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
51
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
The Company's Common Stock is traded on the Nasdaq and the shares of Common
Stock offered hereby will be eligible for trading on the Nasdaq.
Upon completion of the Offering, the Company will have 10,050,000 shares of
Common Stock outstanding (10,222,500 if the Underwriters' over-allotment option
is exercised in full), excluding 646,674 shares issuable upon exercise of
options held by employees of the Company as of March 18, 1997. Of these shares
of Common Stock, 4,700,000 shares of Common Stock may be resold without
registration under the Securities Act (except by affiliates of the Company). The
Company and Mr. and Mrs. Ron K. Bailey have agreed that, for a period of 180
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock (subject, in the case of the Company, to an
exception for the exercise of options granted under the Company's stock option
plan). But for these agreements, all but 1,000 of the outstanding shares of
Common Stock immediately prior to the closing of the Offering would be eligible
for sale, subject to the volume resale, manner of sale and notice limitations of
Rule 144 or the provisions of Rule 144A under the Securities Act.
In general, under Rule 144 as currently in effect, an "affiliate" is
entitled to sell, within any three-month period, that number of shares that does
not exceed the greater of 1% of the outstanding shares or the average weekly
trading volume of the then outstanding shares during the four calendar weeks
preceding such sale. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly controls, or is controlled by, or is under
common control with such issuer. A person who is not an affiliate of the issuer
for at least 90 days and who has beneficially owned such shares for at least two
years is entitled under Rule 144(k) under the Securities Act to sell such shares
without regard to the volume or other resale requirements described above. In
addition, Rule 144A under the Securities Act permits, subject to certain
conditions, the sale by the current holders of restricted securities of all or a
portion of their shares to certain "qualified institutional buyers" as defined
in Rule 144A.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock.
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions stated in the Underwriting Agreement
dated the date hereof, each Underwriter named below has severally agreed to
purchase, and the Company and the Selling Stockholders have agreed to sell to
such Underwriter, the number of shares of Common Stock set forth opposite the
name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Smith Barney Inc..................................................
Legg Mason Wood Walker, Incorporated..............................
---------
Total................................................... 1,150,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page of
this Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the initial public offering of the shares to the public, the public offering
price and such concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 172,500 additional
shares of Common Stock at the Price to Public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company and Mr. and Mrs. Ron K. Bailey have agreed that, for a period
of 180 days from the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (subject, in the case of the
Company, to an exception for the exercise of options granted under the Company's
stock option plan).
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchases of the Common Stock so long as the
stabilizing bids do not exceed a specified
53
<PAGE> 55
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market in order to cover syndicate short positions. Penalty bids
permit the Underwriters to reclaim a selling concession from a syndicate member
when the shares of Common Stock originally sold by such syndicate member are
purchased in a stabilizing transaction or syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq or otherwise and, if commenced,
may be discontinued at any time.
Legg Mason Wood Walker, Incorporated has performed and may continue to
perform financial services for the Company or the College from time to time.
LEGAL MATTERS
The legal validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Hogan & Hartson L.L.P., Baltimore, Maryland.
Certain legal matters will be passed upon for the Underwriters by Dow, Lohnes &
Albertson, PLLC, Washington, D.C.
EXPERTS
The consolidated balance sheets of Strayer Education, Inc. as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, included in this Prospectus, have been included herein
in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto. A copy of the Registration
Statement may be inspected by anyone without charge and may be obtained at
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission, maintained by the Securities and Exchange Commission at its
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Northeast Regional Office located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and the Midwest Regional Office located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Securities and Exchange
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
such as the Company that file electronically with the Securities and Exchange
Commission.
54
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Strayer Education, Inc.
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-3
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1996................................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1996.................................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996.......................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Strayer Education, Inc.
We have audited the accompanying consolidated balance sheets of Strayer
Education, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
December 31, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Strayer
Education, Inc. and subsidiaries as of December 31, 1995 and December 31, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997
F-2
<PAGE> 58
STRAYER EDUCATION, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 8,992 $11,777
Marketable securities available for sale, at market.................... 498 5,057
Short-term investments -- restricted................................... 720 807
Tuition receivable, net of allowances for doubtful accounts of $155 and
$164, respectively.................................................. 7,873 8,923
Inventories............................................................ 725 923
Other current assets................................................... 58 309
------- -------
Total current assets........................................... 18,866 27,796
Student loans receivable, net of allowances for losses................. 932 2,799
Property and equipment, net............................................ 2,874 7,063
Investments in marketable securities available for sale, at market..... 3,134 10,070
Other assets............................................................. 72 94
------- -------
Total assets................................................... $25,878 $47,822
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $ 360 $ 332
Accrued expenses....................................................... 542 710
Unearned tuition....................................................... 9,504 11,150
Other current liabilities.............................................. 133 30
------- -------
Total current liabilities...................................... 10,539 12,222
Deferred income taxes.................................................... -- 189
------- -------
Total liabilities.............................................. 10,539 12,411
------- -------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized in 1996,
no shares issued or outstanding..................................... -- --
Common stock:
1995 -- Par value $10; 500 shares authorized; 375.5 shares issued
and outstanding.................................................... 4 --
1996 -- Par value $.01; 20,000,000 shares authorized; 9,450,000
shares issued and outstanding...................................... -- 95
Additional paid-in capital............................................. 2,100 31,192
Retained earnings...................................................... 13,077 3,893
Net unrealized gains on investments, net of deferred income taxes of
$152 in 1996........................................................ 158 231
------- -------
Total stockholders' equity..................................... 15,339 35,411
------- -------
Total liabilities and stockholders' equity..................... $25,878 $47,822
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
Tuition..................................................... $33,238 $36,934 $42,775
Fees and other.............................................. 1,019 1,262 2,230
------- ------- -------
34,257 38,196 45,005
------- ------- -------
Costs and Expenses:
Instruction and educational support......................... 14,740 16,168 17,808
Selling and promotion....................................... 3,667 4,281 4,457
General and administration.................................. 10,648 11,571 6,749
------- ------- -------
29,055 32,020 29,014
------- ------- -------
Income from operations...................................... 5,202 6,176 15,991
Investment and other income................................... 350 875 1,061
------- ------- -------
Income before taxes......................................... 5,552 7,051 17,052
Provision for income taxes.................................... -- -- 2,740
------- ------- -------
Net income.................................................. $ 5,552 $ 7,051 $14,312
======= ======= =======
PRO FORMA INFORMATION:
Income before income taxes.................................. $17,052
Income taxes................................................ 6,649
-------
Net income.................................................. $10,403
=======
Net income per share........................................ $ 1.24
=======
Weighted average shares outstanding......................... 8,410
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 60
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAINS
-------------------- PAID-IN RETAINED (LOSSES) ON
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS TOTAL
----------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993... 375.5 $ 4 $ -- $ 6,624 $ -- $ 6,628
Distributions to
stockholders............ -- -- -- (2,800) -- (2,800)
Net unrealized losses on
investments............. -- -- -- -- (43) (43)
Net income................. -- -- -- 5,552 -- 5,552
----------- --- ------- -------- ----- --------
Balance, December 31, 1994... 375.5 4 -- 9,376 (43) 9,337
Distributions to
stockholders............ -- -- -- (3,350) -- (3,350)
Capital contributions by
stockholder in
connection with
formation of ELP........ -- -- 2,100 -- -- 2,100
Net unrealized gains on
investments............. -- -- -- -- 201 201
Net income................. -- -- -- 7,051 -- 7,051
----------- --- ------- -------- ----- --------
Balance, December 31, 1995... 375.5 4 2,100 13,077 158 15,339
Formation of Strayer
Education, Inc.......... 1,000 -- 1 -- -- 1
Exchange of Strayer
Education, Inc. common
stock for Strayer
College, Inc. common
stock................... 5,998,624.5 56 (56) -- -- --
Proceeds from sale of
common stock, net of
offering expenses of
$3,187.................. 3,450,000 35 31,278 -- -- 31,313
Payment to stockholder for
acquisition of ELP...... -- -- (943) (117) -- (1,060)
Distributions to
stockholders............ -- -- (1,188) (22,788) -- (23,976)
Cash dividends ($.0625 per
share).................. -- -- -- (591) -- (591)
Net unrealized gains on
investments............. -- -- -- -- 73 73
Net income................. -- -- -- 14,312 -- 14,312
----------- --- ------- -------- ----- --------
Balance, December 31, 1996... 9,450,000 $ 95 $ 31,192 $ 3,893 $ 231 $ 35,411
=========== === ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 5,552 $ 7,051 $14,312
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............................ 448 688 1,021
Provision for student loan losses........................ -- 49 205
Deferred income taxes.................................... -- -- (75)
Changes in assets and liabilities:
Short-term investments -- restricted..................... -- (317) (87)
Tuition receivable, net.................................. 2,230 940 (1,050)
Inventories.............................................. 13 (179) (198)
Other assets............................................. (65) 167 (161)
Trade accounts payable................................... (18) (220) (28)
Accrued expenses......................................... 153 83 167
Unearned tuition......................................... 776 113 1,646
Other current liabilities................................ (14) 75 (103)
Student loans originated or acquired........................ -- (1,481) (3,314)
Collections on student loans receivable..................... -- 500 1,030
Proceeds from sale of loans................................. -- -- 212
------- ------- --------
Net cash provided by operating activities........... 9,075 7,469 13,577
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment......................... (1,500) (1,162) (5,208)
Purchases of marketable securities.......................... (6,586) (7,993) (16,640)
Maturities of marketable securities......................... 5,238 6,386 5,370
Other....................................................... 8 (22) --
------- ------- --------
Net cash used in investing activities .............. (2,840) (2,791) (16,478)
------- ------- --------
Cash flows from financing activities:
Distributions to stockholders............................... (2,800) (3,350) (23,976)
Dividends paid.............................................. -- -- (591)
Proceeds from sale of common stock and
additional capital contributions by ELP stockholder...... -- 2,100 31,313
Acquisition of ELP.......................................... -- -- (1,060)
Other....................................................... (62) -- --
------- ------- --------
Net cash provided by (used in) financing
activities........................................ (2,862) (1,250) 5,686
------- ------- --------
Net increase in cash and cash requirements.......... 3,373 3,428 2,785
Cash and cash equivalents -- beginning of period.............. 2,191 5,564 8,992
------- ------- --------
Cash and cash equivalents -- end of period.................... $ 5,564 $ 8,992 $11,777
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 62
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Strayer Education, Inc. (the Company) was formed on May 10, 1996, as a
Maryland corporation, and was capitalized on May 15, 1996 with cash of $1,000.
The Company commenced operations on July 25, 1996.
On July 30, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares in the offering at a price of
$10 per share. Net proceeds to the Company were $31,313,000. Prior to the
closing of the offering, the Company exchanged 5,999,000 shares of its common
stock for 100% of the outstanding common stock of Strayer College, Inc. (the
College). Approximately $19,838,000 of the net proceeds of the offering were
paid to the stockholders of the College as a distribution of earnings on which
the stockholders had previously paid income taxes during the period the College
was an S Corporation.
Contemporaneously with the closing of the initial public offering, the
Company acquired Education Loan Processing, Inc. (ELP) at a purchase price of
$1,060,000, ELP's net book value. ELP was incorporated in December 1994 and
began operations in January 1995. ELP was wholly owned by a stockholder of the
Company.
Under generally accepted accounting principles, the College's and ELP's
bases in their assets and liabilities were carried over to the Company and the
operations of the College, ELP and the Company were retroactively combined in a
manner similar to a pooling of interest, because these acquisitions were
combinations of entities under common control. All significant intercompany
accounts and transactions have been eliminated.
Consistent with the financial statements included in the Company's
prospectus and the reorganization of the Company in connection with the
completion of the initial public offering, the 1994 and 1995 financial
statements are presented on a combined basis and the 1996 financial statements
are presented on a consolidated basis. The accompanying 1996 financial
statements include the accounts of the Company, the College and ELP,
collectively referred to herein as the "Company" or "Companies."
2. NATURE OF OPERATIONS
The College is a proprietary accredited institution of higher education
that provides undergraduate and graduate degrees in various fields of study
through its eight campuses in the District of Columbia and Virginia.
ELP is a finance company that purchases and services student loans,
principally for the College. For purposes of the consolidated balance sheets,
all of ELP's assets and liabilities have been classified as current assets and
liabilities with the exception of student loans receivable, which have been
classified as noncurrent consistent with industry practice.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating cash and cash invested in
short-term certificates of deposit, commercial paper, and U.S. government
obligations. The Companies place their cash and temporary cash investments with
high quality credit institutions. The Companies consider all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Investments
The Companies' investments are considered "available-for-sale," and, as
such, are stated at market value. The net unrealized gains and losses are
reported as a component of stockholders' equity. Realized gains or losses from
the sale of marketable securities are based on the specific identification
method.
F-7
<PAGE> 63
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tuition Revenues
Tuition income is deferred at the time of registration and is recognized as
income, net of any refunds or withdrawals, ratably throughout each respective
quarter session. Advance registrations for the next quarter are shown as
unearned tuition.
Student Loans Receivable
Student loans receivable are stated at the amount of unpaid principal,
reduced by an allowance for loan losses. Interest income from student loans is
recognized using the interest method.
Provisions for estimated losses on student loans are charged to income in
amounts sufficient to maintain the allowance at a level considered adequate to
cover the losses of principal and interest in the existing loan portfolio, based
upon historical trends, economic conditions and other information. ELP's
charge-off policy is based on a loan-by-loan review; however, any loan with
payments more than 120 days past due is written off against the allowance.
Concentration of Credit Risk
The Companies place their cash and temporary cash investments with high
credit quality institutions. At times cash and cash equivalent balances may be
in excess of the FDIC insurance limit. The Companies have not experienced any
losses on their cash and cash equivalents.
Tuition receivables are not collateralized, however, credit risk is
minimized as a result of the diverse nature of the College's student base in the
Washington, D.C. area. The College establishes an allowance for doubtful tuition
accounts based upon factors surrounding historical trends and other information.
Student loans are receivable from the College's students. The Companies
perform credit evaluations and require cosigners in some instances to minimize
credit risk.
Inventories
Inventories, which consist of books and supplies held in campus bookstores,
are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives ranging from 3 to 40 years. Depreciation amounted to $448,000, $688,000
and $1,021,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Income Taxes
For the years ended December 31, 1994 and 1995, the financial statements of
the Companies do not include a provision for income taxes because the taxable
income of the Companies was included in the income tax returns of the
stockholders under the S Corporation elections.
In connection with the formation of Strayer Education, Inc., the initial
public offering of the Company's common stock, and the acquisition of the
College and ELP by Strayer Education, Inc., effective July 25, 1996, the
Companies are no longer treated as S Corporations for tax purposes. The
Companies now provide for deferred income taxes based on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the year in which the differences are expected to
reverse.
F-8
<PAGE> 64
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Income Per Share
Pro forma weighted average shares outstanding reflect the acquisition of
the College by the Company in exchange for 5,999,000 shares of common stock, as
if it had occurred on January 1, 1996. Subsequent to the closing of the initial
public offering, the Company made a distribution to the stockholders of the
College in respect of earnings previously subject to income tax during the
College's period as an S Corporation (the "S Corp. Distribution"). As a result,
pro forma weighted average shares outstanding also give effect to the increase
in the number of shares which, when multiplied by the net per share proceeds of
the offering, would have been necessary to fund distributions to the
stockholders, including the S Corp. Distribution, during the 12 months ended
July 1996, to the extent that such distributions exceeded net income during the
same period. Fully diluted income per share was not significantly different from
the primary amount. Historical net income per share is presented in Note 11.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS. In addition,
FAS 128 requires dual presentation of basic and diluted EPS. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. The Company's pro forma basic and diluted EPS under FAS 128 would have
been $1.26 and $1.23, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
period reported. Actual results could differ from those estimates.
4. INVESTMENTS
Short-Term Investments -- Restricted
The U.S. Department of Education requires Title IV Program loan funds
collected in excess of amounts due for tuition to be kept in a separate cash or
cash equivalent account until such amounts can be remitted to students. These
funds are invested in short-term U.S. Treasury Notes with maturities of three
months or less.
F-9
<PAGE> 65
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable Securities
The cost and market value for each class of investments at December 31,
1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Government obligations..................... $ 2,499 $ 80 $ -- $ 2,579
Equity securities............................... 975 78 -- 1,053
------ ---- ------ ------
Total................................. $ 3,474 $158 $ -- $ 3,632
====== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Certificates of deposit and money market
funds......................................... $ 632 $ -- $ -- $ 632
U.S. Government obligations..................... 10,416 137 -- 10,553
Equity securities............................... 3,695 247 -- 3,942
------- ---- ------ -------
Total................................. $14,743 $384 $ -- $15,127
======= ==== ====== =======
</TABLE>
The contractual maturities of U.S. Government obligations at December 31,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
MARKET
COST VALUE
-------- -------
<S> <C> <C>
Due in one year or less.................................. $ 3,930 $ 3,959
Due after one year through five years.................... 5,144 5,204
Due after five years through 10 years.................... 1,342 1,390
------- -------
Total.......................................... $ 10,416 $10,553
======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT
The composition of property and equipment as of December 31, 1995 and 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Land...................................................... $ -- $ 800
Buildings................................................. -- 2,319
Furniture and equipment................................... 3,910 5,321
Leasehold improvements.................................... 1,092 1,576
Vehicles.................................................. 63 52
------ -------
5,065 10,068
Less accumulated depreciation........................ 2,191 3,005
------ -------
$2,874 $ 7,063
====== =======
</TABLE>
F-10
<PAGE> 66
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STUDENT LOANS RECEIVABLE
Student loans receivable as of December 31, 1995 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ------
<S> <C> <C>
Student loans receivable outstanding, including accrued
interest.................................................. $981 $2,946
Allowance for loan losses................................... (49) (147)
---- ------
Student loans receivable, net.......................... $932 $2,799
==== ======
</TABLE>
The interest rate on student loans is generally 7.5%. The Companies believe
the carrying value of the student loans approximates their fair value.
Annual principal payments due under the student loans outstanding at
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................. $ 805
1998.............................................. 568
1999.............................................. 443
2000.............................................. 321
2001.............................................. 252
2002 through 2013................................. 557
------
Total................................... $2,946
======
</TABLE>
7. STOCK OPTION PLAN
In July 1996, the Company set aside 1,000,000 shares of common stock for
shares to be issued under the Company's 1996 Stock Option Plan (the Plan) that
provided for the grant of options intended to qualify as incentive stock
options, and provided for the grant of non-qualifying options to directors and
employees of the Company. Options may be granted to eligible employees of the
Companies at the discretion of the Board of Directors, at option prices based on
the fair market value of the shares at the date of grant. Vesting provisions are
at the discretion of the Board of Directors.
On July 24, 1996, the Board of Directors granted options to acquire 663,136
shares of stock at the initial offering price of $10.00 per share to all
full-time employees with at least one year of service, and to all members of the
Board of Directors. The options vest in three equal annual installments
beginning on July 25, 1997. At December 31, 1996, the total number of stock
options outstanding, after forfeitures, was 657,250, all of which expire on July
25, 2001.
F-11
<PAGE> 67
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for the fair value of its stock options granted to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for the Plan, since the exercise price of the options was
equal to the fair value of the underlying common stock on the date of grant. Had
compensation expense been determined based on the fair value of the options at
the grant dates consistent with that method of accounting under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the Company's pro forma net income and net income per share for
the year ended December 31, 1996 would have been decreased as indicated below
(in thousands):
<TABLE>
<S> <C>
Net income:
As reported...................................................... $10,403
Pro forma........................................................ $10,204
Net income per common share:
As reported...................................................... $ 1.24
Pro forma........................................................ $ 1.21
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following assumptions for grants
during the year ended December 31, 1996: fair value at date of grant of $3.40
per share; dividend yield of 1.0%; expected volatility of 35%; risk-free
interest rate of 6.52%; expected term of 4 years; and remaining contractual life
of the options of 4.58 years.
8. PROFIT SHARING PLAN
The College has a 401(k) profit sharing trust covering all eligible
employees of the College. Participants may defer a percentage of their salaries
or make contributions up to 10% of their total compensation. Employee
contributions are voluntary. Discretionary contributions are made by the College
in the fourth quarter of each year, and were $88,000, $94,000 and $119,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
9. COMMITMENTS AND CONTINGENCIES
The College participates in various federal student financial assistance
programs which are subject to audit. Management believes that the potential
effects of audit adjustments, if any, for the periods currently under audit will
not have a material adverse effect on the Companies' financial position, results
of operations or cash flows.
The College has long-term noncancelable operating leases for eight of its
nine campuses and other administrative locations. ELP has a two-year
noncancelable operating lease for office space. Rent expense was $3,309,000,
$3,227,000 and $3,371,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The College has the option to buy certain of the campus properties
at their fair market value as determined by independent appraisal. The
Washington D.C. campuses and three of the Virginia campuses are leased from the
President and a majority stockholder of the Company. Rent paid to the
stockholder was $1,339,000, $1,896,000 and $2,279,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-12
<PAGE> 68
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rents on these leases are subject to an annual increase based on a
stipulated price index. The minimum rental commitments for the Companies as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
TOTAL AMOUNT
PAYABLE TO
STOCKHOLDER
TOTAL INCLUDED IN TOTAL
------- -----------------
<S> <C> <C>
1997............................................... $ 3,153 $ 2,126
1998............................................... 3,024 2,126
1999............................................... 2,758 2,126
2000............................................... 2,750 2,126
2001............................................... 2,648 2,126
2002............................................... 2,381 2,126
Thereafter......................................... 7,894 7,264
------- -------
$24,608 $20,020
======= =======
</TABLE>
10. INCOME TAXES
The income tax provision for the year ended December 31, 1996 is summarized
below (in thousands). There was no income tax provision in 1994 or 1995 due to
the Companies' S Corporation status during those years.
<TABLE>
<S> <C>
Current:
Federal........................................... $2,088
State............................................. 727
------
2,815
------
Deferred:
Federal........................................... (61)
State............................................. (14)
------
(75)
------
$2,740
======
</TABLE>
The tax effects of the principal temporary differences that give rise to
the Companies' deferred tax liability are as follows (in thousands):
<TABLE>
<S> <C>
Tuition receivable and student loans................................. $ 112
Property and equipment............................................... (37)
Unrealized gains on marketable securities............................ (152)
-----
Net deferred tax liability........................................... $ (77)
=====
</TABLE>
A reconciliation between the Companies' statutory tax rate and the
effective tax rate for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
Statutory federal rate................................................. 35%
Income attributable to period during which the Companies were S
Corporations......................................................... (24%)
State income taxes, net of federal benefits............................ 5%
---
Effective tax rate for year ended December 31, 1996.................... 16%
===
</TABLE>
Cash payments for income taxes were $2,809,000 in 1996.
F-13
<PAGE> 69
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma income taxes reflect the application of statutory corporate
income tax rates to the net income of the Companies as if the termination of the
S Corporation status of the Companies had occurred on January 1, 1996.
The components of the pro forma income tax provision as of December 31,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
Current
Federal........................................... $5,526
State............................................. 1,198
------
6,724
Deferred............................................ (75)
------
$6,649
======
</TABLE>
The effective pro forma income tax rate differs from the 35% statutory
federal rate principally as a result of state income taxes.
11. HISTORICAL INCOME PER SHARE
Historical income per share, computed on the basis of the weighted average
number of shares and share equivalents outstanding after giving effect to the
merger of the College and the Company, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income per share........................... $ .93 $ 1.18 $ 1.88
Weighted average shares outstanding............ 6,000,000 6,000,000 7,592,806
</TABLE>
Fully diluted income per share was not significantly different from the
primary amounts.
12. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.0625 per share to
stockholders of record as of January 3, 1997, and this dividend was paid on
January 17, 1997.
F-14
<PAGE> 70
[PICTURES OF EACH OF THE NINE CAMPUS FACILITIES INSERTED HERE.]
<PAGE> 71
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 12
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Licensing, Accreditation and Financial
Aid Regulation...................... 30
Management and Directors.............. 42
Certain Transactions.................. 47
Principal and Selling Stockholders.... 49
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 52
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Financial Statements.................. F-1
</TABLE>
================================================================================
================================================================================
1,150,000 SHARES
STRAYER EDUCATION, INC.
COMMON STOCK
[STRAYER LOGO]
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
LEGG MASON WOOD WALKER
INCORPORATED
================================================================================
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,618
NASD filing fee................................................... 3,674
Nasdaq National Market Listing Fee................................ 15,450
Accounting fees and expenses...................................... 75,000
Legal fees and expenses........................................... 100,000
Printing and Engraving expenses................................... 85,000
Transfer Agent and Registrar fees and expenses.................... 1,500
Miscellaneous Expenses............................................ 59,758
--------
Total................................................... $350,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Charter provides that, to the fullest extent that limitations
on the liability of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the College shall have any liability
to the College or its stockholders for monetary damages. The Maryland General
Corporation Law provides that a corporation's charter may include a provision
which restricts or limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to the extent that
it is provided that the person actually received an improper benefit or profit
in money, property or services, for the amount of the benefit or profit in
money, property or services actually received, or (2) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The Company's
Charter and By-laws provide that the Company shall indemnify and advance
expenses to its currently acting and its former directors to the fullest extent
permitted by the Maryland General Corporation Law and that the Company shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law.
The Charter and By-laws provide that the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company to
the fullest extent permitted by law against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Company. In addition, the Company's Charter provides that its
directors and officers will not be liable to stockholders for money damages,
except in limited instances. However, nothing in the Charter or By-laws of the
Company protects or indemnifies a director, officer, employee or agent against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the Maryland General Corporation Law
provides that he shall be indemnified against reasonable expenses incurred in
connection therewith.
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains
provisions by which the Underwriters agree to indemnify the Registrant and each
officer, director and controlling person of the Registrant against certain
liabilities.
II-1
<PAGE> 73
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 15, 1996, the Company issued 1,000 shares of Common Stock to Mr. and
Mrs. Ron K. Bailey, as joint tenants with a right of survivorship for $1,000 in
cash. No underwriting discount or commission was paid in connection with the
sale. The sale was effected without registration under the Securities Act in
reliance on the exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <C>
1.01** -- Proposed form of Underwriting Agreement.
3.01* -- Certificate of Incorporation of the Company.
3.02* -- Amended and Restated Bylaws of the Company.
4.01* -- Specimen Stock Certificate.
5.01** -- Opinion of Hogan & Hartson L.L.P. as to the legality of the Common Stock being
registered.
10.01* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Fredericksburg Investments, Inc.
10.02* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Beacon Investments, Inc.
10.03* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Battleview Investments, Inc.
10.04* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Central Investments, Inc.
10.05* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Potomac Investments, Inc.
10.06* -- Lease Agreement, dated as of October 1, 1991, between Strayer College, Inc. and
GLM-Highland Building Limited Partnership.
10.07* -- Lease Agreement, dated as of June 15, 1993, between Strayer College, Inc. and
Alexandria Tech Center I.
10.08* -- Employment Agreement, dated as of June 1, 1996, between Strayer Education, Inc.
and Ron K. Bailey.
10.09* -- Employment Agreement, dated as of June 1, 1996, between Strayer College, Inc.
and Harry T. Wilkins.
10.10* -- 1996 Stock Option Plan
10.11* -- Form of Tax Indemnification Agreement
10.12* -- First Amendment to Agreement of Lease for Office Condominium Space, dated July
25, 1994, between Strayer College, Inc. and Cross Creek Associates Limited
Partnership.
10.13 -- Lease Agreement, dated as of February 29, 1996, between Confederation Life
Insurance Company (U.S.) in Rehabilitation and Strayer College, Inc.
10.14 -- Office Building Lease, dated as of July 26, 1996, between Nikowski Limited
Partnership and Strayer College, Inc.
10.15 -- Office Lease Agreement, dated as of June 17, 1996, between 1133 Fifteenth Street
Limited Partnership and Strayer College, Inc.
23.01** -- Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.01).
23.02 -- Consent of Coopers & Lybrand L.L.P.
24.01 -- Power of Attorney (contained in signature page).
27+ -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3967).
** To be filed by amendment.
+ Included in electronic filing via EDGAR.
(b) Financial Statement Schedules:
Schedule II-- Valuation and Qualifying Accounts and report thereon
II-2
<PAGE> 74
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being,
made, a post-effective amendment to this registration statement; (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts
or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information set
forth in the registration statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Securities Act need not be furnished, provided, that the registrant
includes in the prospectus, by means of a post effective amendment,
financial statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial
statements.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 75
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
District of Columbia, on March 19, 1997.
STRAYER EDUCATION, INC.
By: /s/ RON K. BAILEY
--------------------------------------
Ron K. Bailey
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ron K. Bailey and Harry T. Wilkins, and each of
them individually, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and his name, place and
stead in any and all capacities, to sign the Registration Statement and any and
all amendments (including post-effective amendments) to the Registration
Statement, any Registration Statement relating to this Registration Statement
under Rule 462 and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney's-in-fact and agents, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ RON K. BAILEY Chief Executive Officer and March 19, 1997
- ------------------------------------- Director (Principal Executive
Ron K. Bailey Officer)
/s/ HARRY T. WILKINS Chief Financial Officer (Principal March 19, 1997
- ------------------------------------- Financial and Accounting Officer)
Harry T. Wilkins
/s/ STANLEY G. ELMORE Director March 19, 1997
- -------------------------------------
Stanley G. Elmore
/s/ TODD A. MILANO Director March 19, 1997
- -------------------------------------
Todd A. Milano
/s/ JENNIE D. SEATON Director March 19, 1997
- -------------------------------------
Jennie D. Seaton
/s/ ROLAND CAREY Director March 19, 1997
- -------------------------------------
Roland Carey
/s/ DONALD T. BENSON Director March 19, 1997
- -------------------------------------
Donald T. Benson
</TABLE>
II-4
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ G. THOMAS WAITE Director March 19, 1997
- -------------------------------------
G. Thomas Waite
/s/ DONALD STODDARD Director March 19, 1997
- -------------------------------------
Donald Stoddard
/s/ CHARLOTTE BEASON Director March 19, 1997
- -------------------------------------
Charlotte Beason
</TABLE>
II-5
<PAGE> 77
STRAYER EDUCATION, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C>
Deduction from asset account:
Allowance for doubtful accounts:
Year ended December 31, 1996................. $155 $788 $ (779) $ 164
Year ended December 31, 1995................. 135 655 (635) 155
Year ended December 31, 1994................. 453 665 (983) 135
Allowance for loan losses:
Year ended December 31, 1996................. 49 205 (107) 147
Year ended December 31, 1995................. -- 49 -- 49
</TABLE>
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Strayer Education, Inc.
In connection with our audits of the consolidated financial statements of
Strayer Education, Inc. as of December 31, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, which financial statements
are included in the Prospectus, we have also audited the consolidated financial
statement schedule listed in Item 16 of Part II of the Registration Statement
herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------- ------------
<S> <C> <C> <C>
1.01** -- Proposed form of Underwriting Agreement. ..........................
3.01* -- Certificate of Incorporation of the Company. ......................
3.02* -- Amended and Restated Bylaws of the Company. .......................
4.01* -- Specimen Stock Certificate. .......................................
5.01** -- Opinion of Hogan & Hartson L.L.P. as to the legality of the Common
Stock being registered. ...........................................
10.01* -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Fredericksburg Investments, Inc. .........................
10.02* -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Beacon Investments, Inc. .................................
10.03* -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Battleview Investments, Inc. .............................
10.04* -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Central Investments, Inc. ................................
10.05* -- Lease Agreement, dated as of June 1, 1996, between Strayer College,
Inc. and Potomac Investments, Inc. ................................
10.06* -- Lease Agreement, dated as of October 1, 1991, between Strayer
College, Inc. and GLM-Highland Building Limited Partnership. ......
10.07* -- Lease Agreement, dated as of June 15, 1993, between Strayer
College, Inc. and Alexandria Tech Center I. .......................
10.08* -- Employment Agreement, dated as of June 1, 1996, between Strayer
Education, Inc. and Ron K. Bailey..................................
10.09* -- Employment Agreement, dated as of June 1, 1996, between Strayer
College, Inc. and Harry T. Wilkins. ...............................
10.10* -- 1996 Stock Option Plan.............................................
10.11* -- Form of Tax Indemnification Agreement..............................
10.12* -- First Amendment to Agreement of Lease for Office Condominium Space,
dated July 25, 1994, between Strayer College, Inc. and Cross Creek
Associates Limited Partnership. ...................................
10.13 -- Lease Agreement, dated as of February 29, 1996, between
Confederation Life Insurance Company (U.S.) in Rehabilitation and
Strayer College, Inc. .............................................
10.14 -- Office Building Lease, dated as of July 26, 1996, between Nikowski
Limited Partnership and Strayer College, Inc. .....................
10.15 -- Office Lease Agreement, dated as of June 17, 1996, between 1133
Fifteenth Street Limited Partnership and Strayer College, Inc. ....
23.01** -- Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.01). ....
23.02 -- Consent of Coopers & Lybrand L.L.P. ...............................
24.01 -- Power of Attorney (contained in signature page). ..................
27+ -- Financial Data Schedule. ..........................................
</TABLE>
- ---------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3967).
** To be filed by amendment.
+ Included in electronic filing via EDGAR.
<PAGE> 1
Exhibit 10.13
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), made as of the 29th day of February,
1996, by and between CONFEDERATION LIFE INSURANCE COMPANY (U.S.) IN
REHABILITATION, a rehabilitation estate created pursuant to the laws of the
State of Michigan, (the "Landlord"), and STRAYER COLLEGE, INC., a Maryland
Corporation (the "Tenant").
WITNESSETH
1. PREMISES: In consideration of the rent hereinafter reserved and of the
covenants hereinafter contained, Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the warehouse bay having an address of 8382
Terminal Road, Bays D-G, Newington, Virginia in the Newington Business Center
which space is hereinafter referred to as the "Premises".
2. LEASE TERM:
(A) The term of this Lease shall commence on the date hereof and shall end
three (3) years and zero (0) months after the Rent Commencement Date. The
"Rent Commencement Date" shall be the 1st day of March 1996, provided, the
Landlord has completed construction of the Premises and installation of the
Tenant fit-up specifications listed on Exhibit B, entitled "Description of
Work to be Performed by Landlord", attached hereto and the Premises are
tendered in writing to Tenant for occupancy on or before March 1, 1996. Should
the Premises be tendered to Tenant for occupancy on a date later than March 1,
1996 the Rent Commencement Date shall be deemed to be the date Tenant actually
opens for business in the Premises or the date which is thirty (30) days after
the Landlord makes written tender of the Premises to the Tenant, whichever be
earlier.
(B) At any time prior to the delivery of possession of the Premises as
aforesaid, the Tenant, his agents, servants or employees shall have the right
to come on the Premises for the purpose of taking measurements therein, but for
no other purpose, provided, however, that such entry shall not unreasonably
interfere with or obstruct the progress of the work being done by the Landlord.
Tenant agrees that upon receiving possession of the Premises from the Landlord,
as aforesaid, it will with due diligence proceed to install such fixtures and
equipment and perform such other work as shall be necessary or appropriate in
order to prepare the Premises for the opening of business, including, but not
limited to, the work described in the attached Exhibit C, entitled "Description
of Work to be Performed by Tenant". In the event the Tenant does not commence
the operation of its business within ninety (90) days after receiving
possession of the Premises from the Landlord, the Landlord, in addition to any
other remedy hereunder, shall have
<PAGE> 2
the option of terminating this Lease by giving the Tenant written notice of
such termination, whereupon this Lease shall be terminated.
3. MINIMUM RENT: Tenant agrees to pay during the term hereof a minimum annual
rent of Seventy Nine Thousand Six Hundred Fifteen Dollars and Twenty Cents ($
79,6l5.20), payable without diminution, counterclaim, deduction, set-off, or
demand, in equal monthly installments of Six Thousand Six Hundred Thirty Four
Dollars and Sixty Cents ($ 6,634.60), the first installment payable on the
execution of this Lease and the remaining installments payable in advance on
the first day of each calendar month during the term of this Lease.
Notwithstanding the foregoing, if the term shall commence on a day other than
the first day of the calendar month, the first installment of rent shall be
prorated to take into account the number of days from the term commencement
date to the end of such calendar month, and the final installment of rent shall
be prorated to take into account the number of days from the first day of the
last calendar month of the term to the termination date. All rent and other
payments due hereunder from Tenant to Landlord shall be made payable to
CONFEDERATION LIFE INSURANCE COMPANY (U.S.) IN REHABILITATION, and mailed to
Zuckerman Kronstadt, Inc., 7316 Wisconsin Avenue, Suite 300, Bethesda, Maryland
20814 or to such other person and place as Landlord may hereafter designate in
writing. If any installment of rent accruing hereunder or any other sums
payable hereunder shall not be paid within five (5) days after the due date,
the rental and such other sums due shall, without affecting any of Landlord's
other rights under this Lease, be increased by a late rental charge of 5%, or
$75.00 whichever is greater, per month until paid, time being of the essence of
this Lease. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installment of rent herein stipulated shall be deemed to be other
than on account of the earlier stipulated rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check for
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided in this Lease.
4. DEFINITIONS: The following definitions shall apply as to the terms used in
this Lease:
A. The term "Real Estate Taxes" means all state, county and city taxes,
rates and assessments, general and special, levied or imposed with respect to
the Premises and/or "Building" and "Land" (hereinafter defined). If the present
system of real estate taxes is changed and a new tax or levy is added to or
substituted therefore, then such new tax or levy shall be included in the term
"Real Estate Taxes". Should any governmental taxing authority levy, assess or
impose a tax, excise and/or assessment, however described (other than an income
or franchise tax), upon, against, on account of or measured by, in whole or in
part, the rent expressly reserved hereunder, or upon the rent expressly
reserved under any other
-2-
<PAGE> 3
leases or leasehold interest in the Landlord or Building, as a substitute (in
whole or in part) or in addition to any existing Real Estate Taxes, such tax or
excise on rents shall be included within the term "Real Estate Taxes".
B. The term "Tax Year" means the period from January 1 of any calendar
year through December 31 of the same calendar year, unless a different tax year
is adopted for Real Estate Taxes by any taxing authority, in which event the
term "Tax Year" shall mean the tax year so adopted.
C. The term "Building" means (collectively in the singular) the buildings,
and all other improvements located at 8382 & 8384 Terminal Road, Newington,
Fairfax County, Virginia, and known as the Newington Business Center I.
D. The term "Land" means the land underlying the Building (including all
parking and common areas) for which Landlord is or may become responsible to
pay Real Estate Taxes.
E. The term "Lease Year" shall mean the successive l2-month periods during
the term of this Lease, each period commencing on the first day of the calendar
month in which the rent commencement date of this Lease falls.
F. The term "Minimum Rent" means the rental set forth in Paragraph 3 of
this Lease, as adjusted from time to time in accordance with Paragraph 5 below.
5. RENT ADJUSTMENT: Effective each and every Lease Year after the first Lease
Year, the monthly Minimum Rent shall be increased by the rate of 3% of the
Minimum Rent paid by the tenant during the year preceding each annual increase.
For example, if the Minimum Rent for the preceding Lease Year was $1,000 then
the Minimum Rent for the current (Lease Year shall be increased to $1,030.
6. TAXES:
A. Landlord shall, in the first instance, be obligated to pay all Real
Estate Taxes. Tenant shall reimburse Landlord, in the manner provided in
subsection (b) of this Paragraph 6, as additional rent and in addition to
Minimum Rent and all other payments provided for herein, that portion of the
Real Estate Taxes equal to the product obtained by multiplying such Real Estate
Taxes by "Tenant's Percentage Share" as set forth in the next sentence. The
term "Tenant's Percentage Share", for all purposes of this Lease, is hereby
defined to be that percentage representing the proportion that the total gross
rentable square feet contained within the Premises bears to the total gross
square feet within the Building. Changes in gross rentable square feet shall
result in corresponding pro rata adjustments in Tenant's Percentage Share.
B. Tenant covenants and agrees to deposit monthly at the same time and
place as the payment of Minimum Rent, an amount equal to one-twelfth (1/12th)
of
-3-
<PAGE> 4
the actual or Landlord's estimate of Tenant's Percentage Share of the annual
Real Estate Taxes. The first such installment shall be due on the rent
commencement date. Any overpayment of Tenant's Percentage Share of the Real
Estate Taxes for any Tax Year shall be credited to rent thereafter due and
payable (or refunded to Tenant if the term of this Lease has expired) and on
the due date of Real Estate Taxes any balance of Tenant's Percentage Share not
covered by the accumulation of monthly deposits shall be paid by Tenant within
fifteen (15) days after Landlord's written demand. Landlord shall provide
Tenant with a statement of reconciliation of Tenant's payment of Real Estate
Taxes against actual taxes within ninety (90) days following the end of the
Building's fiscal year. Landlord shall not be required to keep said escrow
deposits separate from its general accounts and any interest earned on said
escrow deposits shall be and remain the property of Landlord.
C. Reasonable expenses, including attorney's fees, expert witness fees and
similar costs, incurred by Landlord in obtaining or attempting to obtain a
reduction of any Real Estate Taxes shall be added to and included in the amount
of any such Real Estate Taxes. Real Estate Taxes which are being contested by
Landlord shall nevertheless be included for purposes of the computation of the
liability of Tenant under the above paragraph, provided, however, that in the
event that Tenant shall have paid any amount of increased rent pursuant to this
paragraph 6 and the Landlord shall thereafter receive a refund of any portion
of any Real Estate Taxes on which such payment shall have been based, Landlord
shall pay to Tenant the appropriate portion of such refund. Landlord shall have
no obligation to contest, object or litigate the levying or imposition of any
Real Estate Taxes and may settle, compromise, consent to, waive or otherwise
determine in its discretion to abandon any contest with respect to the amount
of any Real Estate Taxes without consent or approval of the Tenant.
D. If the termination date of this Lease shall not coincide with the end
of a Tax Year, then in computing the amount payable under this Paragraph 6 for
the period between (the commencement of the applicable Tax Year in question and
the termination date of this Lease, Tenant's Percentage Share of the Real
Estate Taxes for the applicable Tax Year shall be equitably apportioned (on a
per diem basis) so that Tenant shall pay only for such portion of such Tax Year
occurring during the term of this Lease. Tenant's obligation to pay Real Estate
Taxes under this Paragraph 6 for the final period of this Lease shall survive
the expiration and/or termination of the term of this Lease.
7. MAINTENANCE OF COMMON AREAS AND FACILITIES:
A. All facilities furnished by the Landlord and designated for general
use, in common, with occupants and tenants of the Building, including but not
limited to parking areas, roads, sidewalks, loading platforms, canopies,
washrooms, shelters, ramps, grounds and landscaped areas, and other facilities
shall at all times be subject to the exclusive control and management of the
Landlord, and the Landlord
-4-
<PAGE> 5
shall have the right from time to time to change the area level, location and
arrangement of such parking areas; and to make all rules and regulations
pertaining to and necessary for the proper operation and maintenance of the
common areas and facilities.
B. Tenant shall at its own expense clean and remove snow and ice from
sidewalks immediately adjacent to the Premises.
C. In each Lease Year the Tenant shall pay to the Landlord as additional
rent hereunder Tenant's Percentage Share of Landlord's operating costs of the
common areas and facilities (the "Common Area Costs"). For the purpose of this
paragraph, the Tenant's proportionate share of such costs shall be the same
percentage as his percentage share of Real Estate Taxes set forth hereinabove.
D. For the purpose of this paragraph, Common Area Costs are defined as
including all reasonable costs and expenses incurred by the Landlord in
operating, repairing, maintaining and replacing such facilities, insuring such
facilities, the Building and Landlord, including without limitation,
landscaping; sanitary control; cleaning; lighting; snow and trash removal;
painting; striping; fire protection, liability and property insurance; repairs;
employee salaries; tax contributions; management fees equal to 4% of the gross
rental income collected at the project and security protection.
E. Tenant covenants and agrees to deposit monthly, at the same time and
place as the payment of Minimum Rent, an amount equal to one-twelfth (1/12th)
of the actual or Landlord's estimate of Tenant's percentage Share of the annual
Common Area Costs. The first such installment shall be due on the rent
commencement date. Actual annual Common Area Costs shall be computed on the
basis of periods of twelve (12) consecutive calendar months as designated by
Landlord. Within a reasonable time after the end of each such twelve (12) month
period, Landlord will furnish Tenant a statement showing in reasonable detail
the amount of Landlord's Common Area Costs for the preceding period. Any
overpayment of Tenant's Percentage Share of Common Area Costs for the preceding
twelve (12) month period shall be credited to rent thereafter due and payable
(or refunded to Tenant if the term of this Lease has expired). Landlord shall
provide Tenant with a statement of reconciliation of Tenant's payment of
Common Area Costs against actual Common Area Costs within ninety (90) days
following the end of the Building's fiscal year. Any balance of Tenant's
Percentage Share not covered by the accumulation of monthly deposits shall be
paid by Tenant within fifteen (l5) days after Landlord's written demand.
Tenant's obligation to pay its Tenant's Percentage Share of Common Area Costs
under this Paragraph 7 for all periods of this Lease shall survive the
expiration and/or termination of the term of this Lease.
8. PUBLIC UTILITIES: In addition to all rentals herein specified, Tenant shall
pay for all utilities, including but not limited to water, gas, and electricity
used or
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consumed in or upon the premises, and all sewer charges as and when the charges
therefore shall become due and payable. In the absence of separate metering
devices, Landlord shall have the option of paying any of the public utilities
or sewer charges directly and apportioning (at its cost) such charges among the
tenants in accordance with the "Tenant's Percentage Share" (hereinabove
defined) of each such tenant.
9. TRASH: Tenant shall keep the Premises clean, both inside and outside, and
will remove all refuse from the Premises and from adjacent areas, all at its
own expense. The Tenant will not burn any trash or garbage of any kind at the
project, nor permit refuse, rubbish or garbage to accumulate or fire hazard to
exist about the Premises. The Tenant shall arrange for and maintain a
commercial type of trash container of adequate size and arrange for adequate,
regular pickup of trash and garbage. The location of said trash container shall
be designated by the Landlord. If the Premises are designated to keep trash
indoors, no trash shall be stored outside the Premises. Alternatively, the
Landlord at its sole option shall have the right to provide a trash
container(s) for Tenant's use (including in common with the use by other
tenants) at a location within the project selected by Landlord. In said event,
Landlord shall arrange for adequate, regular pickup of trash and garbage and
the Tenant shall pay monthly its pro rata share of all cost of trash removal.
10. SECURITY DEPOSITS: Tenant agrees to pay Landlord, at the signing of this
Lease, Six Thousand Six Hundred Thirty Four Dollars and Sixty Cents ($
$6,634.60) as security for proper compliance with terms of this Lease. Said
security deposit is to be reimbursed to Tenant, without interest, upon
expiration of this Lease and when the Premises are properly vacated, provided no
deductions are necessary due to damage to the Premises, or for any rent or
other payment due and not paid, or in accordance with any provision of this
Lease. Said security deposit may not be used as rent by Tenant. If the Lease
provides for Tenant at its cost to repair, maintain and/or replace the heating,
ventilating and air conditioning equipment which service the Premises, Tenant
agrees that the return of the security deposit is furthermore conditioned upon
Landlord's acceptance of the condition of this equipment at the expiration date
of the Lease. Landlord shall inspect the Premises and reimburse Tenant within
thirty (30) days after the Premises has been vacated and the keys returned to
Landlord by Tenant. If the Minimum Rent stated herein or any other sum payable
by Tenant to Landlord is overdue and unpaid, then Landlord may, at Landlord's
option and without prejudice to any other remedy of Landlord, appropriate and
apply the entire Security Deposit or so much as is necessary to compensate the
Landlord for the amounts due Landlord arising from Tenant's failure to pay
those amounts. Tenant shall forthwith upon demand by Landlord restore the
Security Deposit to the original sum deposited.
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11. REPAIRS: The Tenant agrees to maintain the Premises in good repair during
the term of this Lease, at its own expense, including the floors, walls,
ceiling, interior or exterior doors, inside plumbing, all heating, ventilating,
air conditioning and other equipment and fixtures installed by the Landlord.
Tenant agrees that it will at its own expense repair, maintain and replace when
necessary all equipment (including but not limited to heating and air
conditioning, doors and/or door closures), fixtures, windows and floor
coverings and that it will redecorate the Premises when necessary. Tenant
agrees that it will have done at its own expense any work for or about the
Premises resulting from or associated with Tenant's occupancy which may be
required by law or regulation or lawful authority. Landlord agrees within a
reasonable time after receipt of written notice from the Tenant to make all
repairs reasonably necessary to the structural portion of the Premises and
roof, including gutters and all downspouts, subject to Paragraph 16. The Tenant
also agrees, at his own expense, to repair any damage to the common areas and
facilities (defined in Paragraph 7) caused by the operation of its business or
by the actions of its employees, agents or invitees on or about the Premises,
the Building, Land or the common areas and facilities, including, without
limitation, any damage to the parking areas caused by the operation (including
without limitation, the driving, loading or unloading) of delivery vans,
trucks, carts or vehicles of any sort servicing Tenant's business or the
Premises. The Tenant also agrees at his own expense to keep in effect during
the term of this Lease and any extension or renewal thereof a full service
contract (preventative maintenance ) on the heating, ventilating and air
conditioning equipment with a licensed contractor approved by Landlord, which
approval shall not be unreasonably withheld. Tenant agrees to provide Landlord
with a copy of this Maintenance contract upon request.
12. USE OF PREMISES: Tenant covenants (a) to use the Premises only for carrying
on the purpose of business office, distribution space, and storage/ warehouse
for equipment, records and furniture; (b) to employ at the Premises not more
than one employee for each 150 square feet of the Premises; and (c) to permit
Landlord to transmit heat, air conditioning and electric current through the
Premises at all times at the discretion of Landlord, provided, however, that
Landlord shall not exercise the right in such a way as to unreasonably
inconvenience Tenant or interfere with Tenant's use of Premises. Tenant agrees
that from and after the Rent Commencement Date Tenant shall conduct Tenant's
business in the Premises in accordance with the terms of this Lease.
13. TENANT'S AGREEMENTS: Tenant covenants and agrees:
A. To pay to Landlord said Minimum Rent, additional and other rent amounts
during the term and until possession of the Premises is redelivered to Landlord
free and clear of Tenant's property and equipment, and delivered in broom clean
condition.
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B. To save Landlord harmless and indemnified from all loss, damage,
liability or expense incurred, suffered or claimed by any person whomsoever by
reason of Tenant's neglect or use of the Premises, Land or Building or of
anything therein, or the common areas and facilities in or adjacent thereto; or
of water, steam, electricity or other utility; or by reason of any injury, loss
or damage to any person or property upon the Premises not caused by the willful
acts or gross negligence of Landlord, its employees, agents, or independent
contractors, and to be answerable for all nuisances caused or suffered on the
Premises, or caused by Tenant in the Building, Land or common areas and
facilities or on the approaches thereto.
C. Not to strip or overload, damage or deface the Premises or hallways,
stairways, elevator (if any), common areas and facilities or other approaches
thereto, of the Building, or fixtures therein or used therewith, nor to permit
any hole to be made in any of the same.
D. Not to suffer or permit any trade or occupation to be carried on or use
made of the Premises which shall be unlawful, noisy, offensive or injurious to
any person or property or such as to increase the danger of fire or affect or
make void or voidable any insurance on the Building, or which may render any
increased or extra premium payable for such insurance, or which shall be
contrary to any law or ordinance, rule or regulation, from time to time
established by any public authority. Tenant expressly agrees to conform to all
rules and regulations from time to time established by the Insurance Rating
Bureau of the jurisdiction in which the Premises are located.
E. To keep the Premises adequately heated to prevent freezing of water
pipes and fixtures.
F. Not to place upon the interior or exterior of the Building or any
window or any part thereof or door of the Premises any placard, sign,
lettering, window covering or drapes, except such and in such place and manner
as shall have been first approved in writing by Landlord; to have installed at
Tenant's expense a building standard sign, as determined by Landlord, for the
entrance door to the Premises.
G. That all automobile parking areas, driveways and other facilities
furnished by Landlord including employee parking areas, pedestrian sidewalks
and ramps, landscaped areas, exterior stairways and other common areas,
facilities and improvements provided by Landlord for the general use in common
of tenants, their agents, employees, invitees and customers shall at all times
be subject to the exclusive control and management of Landlord. Landlord shall
have the right to restrict parking by tenants, their agents and employees to
designated areas. Landlord shall have the right to tow or have towed any
vehicle owned and/or operated by Tenant or its personnel which violates the
parking covenants without
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written notice to the owner of such vehicle. Tenant and/or the owner of such
vehicle shall be responsible for and agree to pay upon demand all towing and
storage charges.
H. Taking of parking spaces (in use by Tenant) under powers of eminent
domain shall give Tenant the right to terminate this Lease.
I. To conform to all rules or regulations of the Building as shown on
Exhibit A hereof. Tenant further agrees to conform to all additional or
different Building rules and regulations as may reasonably be established by
Landlord from time to time, and provided Tenant receives written notice from
Landlord of any modification to the rules and regulations.
J. Not to bring into the Premises or the project where the Premises are
located any hazardous, toxic, or infectious substance or material as defined by
any federal, state, county or municipal law or ordinance. Tenant covenants and
agrees that Tenant has sole responsibility and liability for the handling and
disposal of any substance or material which is governed or controlled by any
federal, state, county or municipal law or ordinance. Tenant accepts total
responsibility for all legal and financial burdens arising out of a breach of
this covenant, and Tenant further agrees and acknowledges the provisions of
Section 13.B. of this Lease shall apply in the event that Tenant breaches the
covenant set forth in this Section 13.1.
14. LANDLORD'S RIGHT OF ACCESS: Landlord shall have the right to enter the
Premises during usual business hours for the purpose of inspecting or making
repairs to the Premises or Building. If the repairs necessitate the cutting of
any carpeting belonging to Tenant, Landlord shall have no obligation to replace
said carpeting but shall repair same. Landlord shall have the right to show the
Premises to prospective tenants during the last six (6) months of the Lease
term.
15. ALTERATIONS: Tenant will not paint the Premises or make or permit anyone to
make any alterations in or additions to the Premises, nor will Tenant install
any equipment of any kind that will require any alterations or additions to or
the use of the water system, heating system, plumbing system, air conditioning
system or electrical system, nor will Tenant install a television antenna or
air conditioning units of any type on the roof, in the windows or upon the
exterior of the Premises without the prior written consent of Landlord, which
consent shall not unreasonably be withheld, conditioned or delayed. If any such
alterations or additions are made without such consent, Landlord may correct or
remove them, and Tenant shall be liable for any and all expenses incurred by
Landlord in the performance of this work. At the termination of this Lease all
such alterations or improvements made to the Premises shall remain on the
Premises and become the property of Landlord, unless Landlord directs that such
alterations or improvements be removed, in which event Tenant shall restore the
Premises to their original condition.
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16. DAMAGE TO BUILDING OR PREMISES: If the Premises are damaged or destroyed by
fire or other casualty from any cause, so as to render the Premises unfit for
use and occupancy, and such damage and destruction was without the fault or
neglect of Tenant, its servants, employees, agents, visitors or licensees, then
a just and proportionate part of the rent, in accordance with the nature and
extent of the injury to Premises, shall be suspended or abated until the
Premises have been repaired. Landlord will proceed at its expense, as
expeditiously as practicable, to repair the damage, unless, because of the
extent of the damage or destruction, Landlord should decide not to repair or
restore the Premises or the Building, in which event and at Landlord's sole
option, Landlord may terminate this Lease forthwith, by giving Tenant a written
notice of its intention to terminate within ninety (90) days after the date of
the casualty. Notwithstanding the foregoing, in case of fire or other casualty
shall be caused by the carelessness, negligence or improper conduct of Tenant,
its agents, servants, employees, visitors or licensees then, Tenant shall be
liable for the full amount of rental during the period of restoration or until
cancellation, and all required repairs shall be made at Tenant's expense. In no
event shall Landlord be required to repair, restore or rebuild any portions of
the Premises constituting a part of Tenant's leasehold improvements or other
Tenant work, trade fixtures, equipment or personal property. No compensation or
claim will be paid by Landlord, or diminution of rent allowed by Landlord, by
reason of inconvenience, annoyance or injury to business arising from the
necessity of repairing any other portion of the Building, however the necessity
may occur.
17. HOLD HARMLESS; INSURANCE: (a) Tenant agrees that it will indemnify and save
Landlord and its agent(s) harmless of and from any and all liabilities,
damages, causes of action, suits, claims, judgments, costs and expenses of any
kind (including reasonable attorneys' fees) (i) relating to or arising from the
Tenant's possession, use, occupation, management, repair, maintenance or
control of the Premises, or any portion thereof, or (ii) arising from or in
connection with any act or omission of Tenant or Tenant's agents, employees or
invitees, or (iii) resulting from any default, violation or nonperformance of
this Lease by Tenant, or (iv) resulting from injury to person or property or
loss of life sustained, unless caused by the willful acts or gross negligence
of the Landlord, its employees, agents or independent contractors, in or about
the Premises. To assure such indemnity, Tenant shall carry and keep in full
force and effect at all times during the term of this Lease for the protection
of Landlord, its agent(s) and Tenant herein, public liability insurance with
limits of at least One Million Dollars ($1,000,000.00) for each accident and
Five Hundred Thousand Dollars ($500,000.00) for each separate injury, and
property damage insurance in the amount of One Hundred Thousand Dollars
($100,000.00), with a contractual liability or similar endorsement. Tenant
certifies that Landlord and its agent(s) shall be maintained at all times as an
additional named insured under such insurance policy. Such insurance policy
shall contain a provision providing that same will not be cancelled or amended
unless and until Landlord is provided with thirty (30) days prior written
notice. In the
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event Tenant shall fail to maintain such policy of insurance then Landlord may,
after three (3) days' written notice to Tenant, obtain such policy and pay the
premium thereon and the amount so paid shall be added to the next installment
of Minimum Rent. (b) It is understood and agreed that all personal property,
goods, wares and merchandise in the Premises shall be and remain at the sole
risk of Tenant or those claiming through Tenant, and Landlord shall not be
liable for any damage to or loss of such personal property, goods, wares and
merchandise arising from bursting, overflowing or leaking of the roof or of
water, sewer or steam pipes, or from heating or plumbing fixtures, or from
handling of the electrical wires or fixtures or from any other cause
whatsoever, unless said damages are caused through the willful acts or gross
negligence of Landlord, its employees, agents or independent contractors.
Tenant certifies that it has either obtained its own insurance coverage for
losses to personal property of any kind which may be in or on the premises or
has decided to self-insure for such losses.
18. SUBORDINATION: This Lease shall be subject to and subordinate at all times
to the lien of any mortgages and/or deeds of trust and all land leases now or
hereafter made on the Land or Building or Premises, and to all advances made or
hereafter to be made thereunder. This subordination provision shall be
self-operative and no further instrument of subordination shall be required,
provided, however, that if requested by Landlord or the holder of any such
mortgage or deed of trust, Tenant shall immediately execute, in recordable
form, a subordination agreement evidencing and confirming such subordination.
19. ATTORNMENT: If any proceedings are commenced for the foreclosure of any
mortgage or deed of trust encumbering the Land, Building or Premises, or if any
deed in lieu of foreclosure is given in lieu thereof, Tenant agrees to attorn,
in writing pursuant to an attornment agreement satisfactory to such purchaser,
to the purchaser at the foreclosure sale, if requested to do so by such
purchaser, and to recognize such purchaser as Landlord under this Lease, and
Tenant waives the provisions of any statute or rule of law, now or hereinafter
in effect, which may give or purport to give Tenant any right to terminate this
Lease in the event such foreclosure proceeding is commenced and the Premises
are sold pursuant to such proceeding. Tenant's obligation to attorn shall be
conditioned upon the successor Landlord's agreement to assume all of the
obligations of the Landlord pursuant to the Lease, first arising or accruing
from and after the date on which such successor Landlord takes title to the
Premises. In the event the purchaser at any such foreclosure sale shall so
request Tenant to attorn to such purchaser, Tenant shall not be credited as
against such purchaser with any Minimum Rent allocable to the period after the
date of such foreclosure sale and paid more than thirty (30) days in advance of
its due date.
20. SUBLETTING AND ASSIGNMENT: Tenant will not sublet the Premises or any part
thereof or transfer possession or occupancy thereof or rent desk space therein
to any person, firm or corporation or transfer or assign or encumber this
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Lease without the prior written consent of Landlord, which consent shall not
unreasonably be withheld, conditioned or delayed, nor shall any subletting or
assignment thereof be effected by operation of law or otherwise without the
prior written consent of Landlord. In the event Tenant desires to sublet or
assign all or any portion of the Premises, Tenant shall give Landlord thirty
(30) days' written notice of Tenant's intention to do so. Within thirty (30)
days after receipt of said notice, Landlord shall have the right to sublet the
Premises from Tenant at the same rental stipulated herein. If Tenant's notice
to Landlord states that Tenant desires to sublet or assign all of the Premises,
Landlord shall have the additional right to terminate this Lease within such
thirty (30) day period and thereafter to re-lease the Premises. Tenant shall
have the right to assign or sublease the Premises to other affiliated entities
engaged in college-related business activities and functions, including but not
limited to, student loan processing and other functions involving document
preparation and/or review relating to student records. Any sublease or
assignment to other affiliated entities shall not be subject to Landlord's
right to terminate this Lease. In the event Landlord has not exercised its
right to either terminate this Lease or to sublet from Tenant as aforesaid,
Tenant may sublet the Premises after first obtaining the written consent of
Landlord, but, in any event, Landlord may for any reason withhold its consent
to any assignment, subletting or transfer. Further, no such assignment or
subletting nor the consent of Landlord thereto shall release, discharge or
affect the liability of Tenant, as provided in this Lease, for the full term
hereof. Any consent by Landlord to an assignment or subletting of this Lease
shall not constitute a waiver of the necessity for such consent as to any
subsequent assignment or subletting. If Tenant is a corporation, unincorporated
association, partnership or limited liability company, and Tenant shall,
without the prior written consent of Landlord, transfer, assign or hypothecate
any stock or interest in such corporation, association, partnership or limited
liability company so as a result in a change in the control thereof by the
person, persons or entities owning a controlling interest therein as of the
date of this Lease, then Landlord shall have the option to terminate this Lease
at any time after actual notice of such change by giving Tenant at least sixty
(60) days prior written notice and, on the date fixed in such notice for
termination of this Lease, this Lease shall expire and come to end with the
same effect as if said date were originally set forth in this Lease for
expiration of the term. The mere receipt by Landlord of rent from a party other
than Tenant shall not be deemed actual notice of any change in control or
ownership of Tenant. This provision shall not be applicable to the transfer of
any stock or interest in such corporation, association or partnership to a
member of the immediate family of any person(s) owning as of the date of this
Lease a controlling interest therein (i.e., the spouse and direct lineal
ancestor or descendant of such person or such person's spouse).
21. CONDEMNATION: This Lease shall terminate and the rental payable hereunder
shall be abated upon and after the date of such termination in the event of the
forcible leasing in excess of one year or condemnation of the Premises or any
part thereof by any competent authority under the right of eminent domain for
any
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public or quasi-public use or purpose which renders the balance of the Premises
economically unsuitable. If the nature, location or extent of any proposed
condemnation affecting the Building is such that Landlord elects in good faith
to demolish all or substantially all of the Building, then Landlord may
terminate this Lease by giving at least sixty (60) days' written notice of
terminate to Tenant at any time after such condemnation, and this Lease shall
terminate on the date specified in such notice. This provision to terminate
shall also apply in the event of condemnation which affects the parking
available to the Premises, and in use by Tenant, whether or not the Premises
itself is affected by the condemnation. The forcible leasing by any competent
authority of any portion of the Building other than the Premises shall have no
effect whatever upon this Lease. In case of any taking or condemnation, whether
or not the term of this Lease shall cease and terminate, the entire award shall
be the property of Landlord, and Tenant hereby assigns to Landlord all of its
right, title and interest in and to any such award. Tenant, however, shall be
entitled to claim, prove and receive in the condemnation proceeding such awards
as may be allowed for fixtures and other equipment installed by it, but only if
such awards shall be made by the Court in addition to the award made by it to
Landlord for the Land and Building or part thereof so taken.
22. QUIET ENJOYMENT: Landlord covenants that, upon payment of the rent herein
provided, and the performance by Tenant of all covenants herein, Tenant shall
have and hold the Premises free from any interference from Landlord, except as
otherwise provided herein.
23. TENANT'S DEFAULT: Tenant shall be in default of this Lease upon the
happening of any one of the following:
A. Failure to pay the rent or any other sum required by the terms of this
Lease within five (5) business days after the due date.
B. The commencement of any action or proceeding for the dissolution of
liquidation of Tenant, or for the appointment of a receiver or trustee of
Tenant's property, and the failure to discharge any such action within thirty
(30) days.
C. The making of any assignment for the benefit or creditors, or if Tenant
is declared bankrupt and an action in bankruptcy is not dismissed within thirty
(30) days.
D. Failure to comply with the rules and regulations of the Building.
E. The abandonment of the premises by Tenant (unless the Tenant continues
to pay rent and all other charges and abides by all other terms and conditions
of the Lease).
F. Failure to perform or observe any other term, covenant or condition of
this Lease and the continuance therefor for twenty (20) days after written
notice
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from Landlord. In addition to any other remedies contained herein the Landlord
at his sole discretion may convert this Lease to a month-to-month lease if the
Tenant has been in default for any rent or other amounts owed for over (30)
days.
Upon default, as hereinabove defined, Landlord, without notice to Tenant,
may enter upon the Premises without terminating this Lease and do any acts which
Landlord may reasonably deem necessary to cure such default, and Tenant agrees
to pay Landlord any damage and/or expense incurred thereby. Furthermore, upon
default Landlord may, on ten (10) days advance written notice to Tenant,
terminate this Lease and, with or without legal process, take possession of the
Premises and remove Tenant or any other occupant. Landlord shall be entitled to
recover as damages from Tenant an amount equal to the balance of all rent due to
the end of the Lease term, together with all legal and other expenses incurred,
including the cost of reletting the Premises. Tenant shall be credited however,
with any net amounts received by Landlord from the reletting of the Premises. It
is expressly agreed that Landlord shall not be liable for any failure to relet
the premises, the Landlord shall, however, make commercially reasonable efforts
to relet the Premises through the commercial real estate brokerage community. No
act of Landlord shall be considered an acceptance of a surrender of the
Premises, unless in writing. Landlord may maintain real separate actions each
month to recover the damages, without waiting to the end of the term of this
Lease. Notwithstanding anything to the contrary set forth in this Section 23,
Landlord shall also be entitled to exercise any and all additional rights and
remedies provided at law or in equity as a result of any default by Tenant
hereunder.
24. ATTORNEYS' FEES: In the event Landlord employs attorney(s) due to an
alleged or actual violation of any term or provision of this Lease, Tenant
shall pay such reasonable attorney(s) fees and all court costs, provided it is
determined that Tenant is at fault or has defaulted under this Lease.
25. SURRENDER OF PREMISES: Upon the expiration or termination of this Lease,
Tenant shall quit and surrender the Premises to Landlord broom clean and in
good order, ordinary wear and tear excepted, and shall remove all of its
property therefrom. The obligations of this Paragraph shall survive the
termination of this Lease. In the event Tenant fails to remove furniture, trade
fixtures or machinery from the Premises before the expiration of this Lease, it
is agreed that Tenant is abandoning said furniture, trade fixtures and
machinery and the same shall become the property of Landlord, who shall have
the right to use, remove or dispose of same at Tenant's expense.
26. TENANT HOLDING OVER: If Tenant shall not immediately surrender possession
of the Premises at the termination of this Lease, Tenant shall become a tenant
from month-to-month, provided rent shall be paid to and accepted by Landlord in
advance at twice the Minimum Rent payable hereunder just prior to the
termination of this Lease; but unless and until Landlord shall accept such
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rental from Tenant, Landlord shall continue to be entitled to retake or recover
possession of the Premises as hereinbefore provided in case of default on the
part of Tenant, and Tenant shall be liable to Landlord for any loss or damage
Landlord may sustain by reason of Tenant's failure to surrender possession of
the Premises immediately upon the expiration of the term of this Lease. If
Tenant shall fail to surrender possession of the Premises immediately upon the
expiration of the term hereof, Tenant hereby agrees that all obligations of
Tenant and all rights of Landlord applicable during the term of this Lease
shall be equally applicable during such period of subsequent occupancy, whether
or not a month-to-month tenancy shall have been created as aforesaid.
27. LANDLORD'S LIABILITY: In no event shall Landlord, including any successor
assignee of all or any portion of Landlord's interest in the Building or Land,
be personally liable or accountable with respect to any provision of this
Lease. If Landlord shall be in breach or default with respect to any obligation
hereunder or otherwise, Tenant agrees to look for satisfaction solely to the
equity of Landlord in the Building and Land. The liability of Landlord, or
other entity comprising Landlord, shall in no event exceed the amount of such
equity and no other assets of Landlord (or any partners, stockholders or
officers of Landlord) shall be subject to levy, execution or other procedures
for satisfaction of Tenant's remedies. In the event Landlord transfers this
Lease, other than as security for a mortgage, ground Lease or deed of trust,
Landlord (and, in case of any subsequent transfers or conveyance, then grantor)
shall, upon such transfer and acceptance by the transferee be relieved from all
liability and obligations hereunder arising after such transfer, including any
liability to Tenant for any security deposit under this Lease.
28. NOTICES: All notices, demands, requests, approvals, consents or other
instruments required or desired to be given hereunder by either party to the
other shall be personally delivered to sent by U.S. certified or registered
mail, return receipt requested, first class postage prepaid, addressed as
follows: If to Landlord: Confederation Life Insurance Company (U.S.) in
rehabilitation, 260 Interstate North, Atlanta, GA 30339, ATTN: Director, Real
Estate; with a copy to Zuckerman Kronstadt, Inc., Agent, 7316 Wisconsin Avenue,
Suite 300, Bethesda, Maryland 20814. If to Tenant: at Strayer College, 4500
Plank Road, Suite 220, Fredericksburg, VA 22407, ATTN: Donald R. Anderson, with
a copy to Strayer College, 3045 Columbia Pike, Arlington, VA 22204, ATTN: Ron
K. Bailey.
29 ESTOPPEL CERTIFICATES: Tenant agrees from time to time, within five (5)
business days of request from Landlord, to execute, acknowledge and deliver to
Landlord, or to such other person(s) as Landlord may indicate, a statement in
writing certifying that Tenant is in possession of the Premises and currently
paying rent at the then-applicable Minimum Rent and that this Lease is in full
force and effect, and containing such other information as may be required.
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30. SUCCESSORS AND ASSIGNS: This Lease and the covenants and conditions herein
contained shall inure to the benefit of and be binding upon landlord, its
successors and assigns, and shall inure to the benefit of and be binding upon
Tenant, its heirs, distributees, personal representatives, successors and
assigns, provided that as to the assigns of Tenant, the benefits shall inure to
such assigns only if the assignment has been consented to in writing by
Landlord.
31. ENTIRE AGREEMENT: This Lease contains the entire agreement of the parties
in regard to the Premises. There are no oral agreements existing between them.
32. WAIVER OF JURY TRIAL: Tenant hereby waives all right to trial by jury in
any claim, action, proceeding or counterclaim by either Landlord or Tenant
against the other or any matters arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant and/or Tenant's use or
occupancy of the Premises. Should Tenant disregard its agreement to waive all
rights to a jury trial, Landlord may terminate this Lease on ten (10) days
advance written notice to Tenant and the Landlord's measure of damages shall be
the same as described in paragraph 23, hereof. In the event that Landlord does
not terminate this Lease as described in the preceding sentence Tenant shall
immediately deposit with an escrow agent designated by the Landlord all amounts
of rent claimed by the Landlord to be accrued and unpaid, and any further
amounts as they become due as claimed by the Landlord during the pendency of the
action. Should Tenant fail to make such payments as they become due, the Tenant
agrees that the Circuit Court, upon motion of the Landlord and notification by
the escrow agent of the status of the account, shall give judgment in favor of
the Landlord and issue a warrant for possession, and Tenant hereby consents to
the entry of said judgment and issuance of warrant of restitution. All monies
shall be held by the escrow agent until final disposition of the action, and
shall be distributed in the manner which best effects any judgment rendered by
the Court. Should Tenant disregard this agreement to deposit monies with an
escrow agent, the Landlord may terminate this Lease on ten (10) days advance
written notice to the Tenant, and the Landlord's measure of damages shall be
the same as described in paragraph 23.
33. OTHER PROVISIONS: This Lease shall be construed and governed by the laws of
the Commonwealth of Virginia. Except as specifically provided for herein,
Tenant agrees to accept the Premises in its "as is" condition. Tenant agrees at
its own expense to obtain a Certificate of Occupancy and any other permits and
licenses needed for Tenant's operation at the use and occupancy of the Premises
and to validly maintain same during the term of this Lease. No waiver of any
breach of any covenant, condition or agreement contained herein shall operate
as a waiver of the covenant, condition or agreement itself, or of any
subsequent breach thereof. If any term, covenant or condition of this Lease or
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Lease or the application of
such term, covenant or condition to
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<PAGE> 17
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant and
condition of this Lease shall be valid and enforced to the fullest extent
permitted by law.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE> 18
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal as
of the day and year first above written.
WITNESS: LANDLORD:
CONFEDERATION LIFE INSURANCE
COMPANY (U.S.) IN REHABILITATION,
a rehabilitation estate created pursuant to
the laws of the State of Michigan
/s/ JANET D. MCGAN By: /s/ P. CONRAD NELSON
- ----------------------- ------------------------------
Name: P. Conrad Nelson
Title: Manager, Real Estate
By: /s/ JOSEPH S. WRAY, III
- ----------------------- -----------------------------
Name: Joseph S. Wray, III
Title: Director, Real Estate
(CORPORATE SEAL)
WITNESS: TENANT: STRAYER COLLEGE, INC.,
a Maryland Corporation
/s/ J. EIGHNEY-CABATER By: /s/ RON K. BAILEY (SEAL)
- ----------------------- ----------------------------
Ron K. Bailey, President
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<PAGE> 19
LIST OF EXHIBITS
ADDENDUM
EXHIBIT A SITE PLAN
EXHIBIT B DESCRIPTION OF WORK TO BE PERFORMED BY LANDLORD
EXHIBIT C DESCRIPTION OF WORK TO BE PERFORMED BY TENANT
EXHIBIT D RULES AND REGULATIONS
<PAGE> 20
ADDENDUM I
This Addendum to Lease dated 2/29/96, made this 29th day of February, 1996 by
and between CONFEDERATION LIFE INSURANCE COMPANY (U.S.) REHABILITATION, a
rehabilitation estate created pursuant to the laws of the state of Michigan,
(the "Landlord"), and STRAYER COLLEGE, INC., a Maryland Corporation (the
"Tenant").
SECTION I. PREMISES: Landlord and Tenant agree that the demised premises as
herein defined contain approximately Sixteen Thousand Two Hundred Forty Eight
(16,248) rentable square feet of space.
SECTION 2. LEASE TERM: OPTION: A-1. Subject to the satisfaction of the
conditions precedent set forth in Section A-2 below, Tenant shall have the
right at its option, to extend the term of this Lease for one (1) successive,
additional period ["Extension Period"] of two (2) years. Such extension option
shall be exercisable by Tenant giving written notice to Landlord of the
exercise of such option only during the three-month period that is at least six
(6) months, but no more than nine (9) months, prior to the expiration of the
then-current term of this Lease; and, upon the exercise of such extension
option, the expiration date of the term of this Lease shall automatically be
extended for the length of time of such Extension Period. Such Extension Period
shall be upon the same terms, covenants and conditions as set forth in the
Lease with respect to the initial term, with the exception that the "minimum
rent" for the first Lease Year of such Extension Period shall be the then
market rental value of the demised premises as reasonably established by
Landlord. With respect to such extension option, in the event that (i) Tenant
shall fail to exercise the same strictly within the time period and in the
manner set forth above, and/or (ii) at the time hereinabove specified for the
exercise of such option, all of the conditions precedent set forth in Section
A-2 below shall not have been satisfied, then such extension option shall
automatically expire and be absolutely void and of no force or effect.
A-2. The extension option granted to Tenant in Section A-I above shall be
void and of no force and effect unless, at the time above-specified for
exercising such option and upon the expiration of the original term of this
Lease, each and every one of the following conditions precedent shall have been
fully satisfied:
(1) This Lease shall be in full force and effect;
(2) The original Tenant named in this Lease or any permitted assignee or
sub- tenant in accordance with the Lease shall be in possession of the premises
and shall be regularly conducting its normal business operation therein; and
<PAGE> 21
(3) Tenant shall not be in default in the performance or observance of any
of the terms, provision, covenants and conditions of the Lease.
A-3. Notwithstanding any other provision of the Lease, in the event the
term of the Lease is extended pursuant to the exercise by Tenant of any
extension option or options hereinabove granted, then, with respect to such
Extension Period, the annual minimum rent (and the monthly installments
thereof) for each Lease Year following the first Lease Year for each Extension
Period shall be adjusted in accordance with Section 5. RENT ADJUSTMENT in this
Lease.
SECTION 6. TAXES AND SECTION 7. MAINTENANCE OF COMMON AREAS AND FACILITIES:
Notwithstanding anything to the contrary contained herein, Tenant shall pay to
Landlord its proportionate share of Real Estate Taxes and Common Area Costs
during the term hereof, based on Landlord's estimate. The 1996 estimated Real
Estate Taxes and Common Area Maintenance charges are $1.30 per rentable square
foot, which amount may change in accordance with the terms of this Lease.
Controllable items of the Common Area Maintenance charges shall not increase by
more than four percent (4%) per year on a cumulative basis during the lease
term.
PARKING: Tenant shall be entitled to its pro rata share of parking spaces at
the property, which is thirty six (36) parking spaces. In the event that
reserved parking spaces are provided for any future tenant, Tenant shall
receive its proportionate share of reserved parking spaces. Landlord also
reserves the right to designate certain parking spaces for the specific use of
the Tenant.
[SIGNATURE PAGE TO FOLLOW]
<PAGE> 22
It is mutually understood and agreed that this Addendum is incorporated within
this Lease and shall be considered a part of the Lease for the above mentioned
premises.
WITNESS: LANDLORD:
CONFEDERATION LIFE INSURANCE
COMPANY (U.S.) IN REHABILITATION,
a rehabilitation estate created pursuant to
the laws of the State of Michigan
/s/ JANET D. MCGAN By: /s/ P. CONRAD NELSON
- ---------------------- -------------------------------
Name: P. Conrad Nelson
Title: Manager, Real Estate
By: /s/ JOSEPH S. WRAY, III
- ---------------------- -------------------------------
Name: Joseph S. Wray, III
Title: Director, Real Estate
(CORPORATE SEAL)
WITNESS: TENANT: STRAYER COLLEGE, INC.,
a Maryland Corporation
/s/ J. EIGHNEY-CABATER By: /s/ RON K. BAILEY (SEAL)
- ---------------------- -----------------------------
Ron K. Bailey, President
<PAGE> 1
BELTWAY PLAZA
4710 Auth Place
Camp Springs, Maryland 20746
OFFICE BUILDING LEASE
THIS AGREEMENT OF LEASE (THE "LEASE") made this 26th day of July 1996, by
and between Nicowski Limited Partnership, a Maryland Partnership (hereinafter
referred to as "Landlord") and Strayer College, Inc., a Maryland Corporation
(hereinafter jointly and severally referred to as "Tenant").
WITNESSETH, that for and in consideration of the rentals hereinafter reserved
and of the mutual covenants and agreements hereinafter set forth Landlord and
Tenant do hereby mutually agree as follows:
1. PREMISES
Landlord, for and in consideration of the covenants and agreements herein set
forth, and the rent hereinafter specifically reserved, has leased and does
hereby lease unto said Tenant, the space in the Building (hereinafter referred
to as "Building") in which the demised Premises are located (said space being
hereinafter referred to as "Premises"). The Premises are hereby specified to
contain approximately Nine thousand six hundred eighty six (9,686) square feet
of gross floor area, some of which will be common areas to be used in common
with others. The Premises, outlined on the plan attached hereto marked Exhibit
E, and made a part of this Lease, are a part of the property identified as:
Suite 200 47l0 Auth Place, Camp Springs, Maryland 20746.
2. TERM
Subject to and upon the terms and conditions set forth herein, or in any
Exhibit or Addendum hereto, this Lease shall continue in force for a term of
four (4) years with a "Commencement Date" as established in Item 7, Addendum A.
The first "lease year" during the term hereof shall be the period commencing on
the Commencement Date and terminating on the last day of the twelfth (12th)
full calendar month after the Commencement Date. Each subsequent "lease year"
during the term hereof (including any extension or renewals) shall commence on
the date immediately following the
<PAGE> 2
last of the preceding lease year and shall continue for a period of twelve (l2)
full calendar months, except that the last lease year during the term hereof
shall terminate on the date this Lease expires, or any option hereof.
3. RENT
(a) During on for the term hereof, commencing on the Commencement Date, Tenant
covenants and agrees to pay to Landlord for the demised Premises, without
previous notice or demand therefor, and without deduction, setoff or abatement,
a minimum annual rent as follows: For the first year of the term, Tenant shall
pay minimum annual rent in the amount of Ninety nine thousand five hundred
seventy two and 04/100 DOLLARS ($99,572.04) payable in equal monthly
installments, in advance of Eight thousand two hundred ninety seven and 67/100
DOLLARS ($8,297.67). Rent for the second through the 4th year of the term
hereof shall be adjusted as set forth in Paragraph 4. Monthly rent installments
("Basic Monthly Rent") shall be payable on the first day of each and every
calendar month during the term hereof, with the first such monthly installment
to be paid at the time of execution of this Lease and applied on the Rent
Commencement Date. Rent for any partial month shall be pro-rated at the rate of
one-thirtieth (1/30th) of the Basic Monthly Rent per day. Tenant covenants and
agrees to pay, as additional rent, a late fee equal to five percent (5%) of any
rent due or Basic Monthly Rent due or other payments due under this Lease, if
said payments are not paid within ten (10) days of their due date. Tenant agrees
to pay a one (l) time charge of twenty thousand dollars _____ ($20,000.00) at
occupancy as his share of the cost of: l. Adding one (l) light pole and
replacing three (3) in rear one (l) acre lot with sufficient heads to light
parking area including electric work for sprinkler system. 2. Blacktop patching
of rear one (1) acre lot and slurry seal entire lot and stripe parking spaces
sixty per cent (60%) full size and forty per cent (40%) compact size
approximately. 3. Sprinkler with sufficient sprinkler heads for Tenant layout
and core area for entire second floor of Tenant space.
(b) The minimum annual rent for the first year of the term is calculated on a
basis of Ten and 28/100 DOLLARS ($10.28) per square foot of gross floor area in
the demised Premises, as specified in Paragraph l hereinabove. Tenant shall pay
for all Tenant improvement in said Premises.
(c) Tenant shall pay as additional rent and without notice, abatement,
deduction or set-off, all sums, costs and expenses which Tenant, in any of the
provisions of this Lease, or through a separate agreement relating to the
demised Premises, assumes or agrees to pay, including but not limited to Tenant
work, and in the event of any non-payment thereof, the Landlord shall have (in
addition to all other rights and remedies) all the rights and
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<PAGE> 3
remedies provided herein or by law in the case of non-payment of the Basic
Monthly Rent.
(d) All payments due to Landlord, including the Basic Monthly Rent, additional
rent, payments, utilities and all other rent, reimbursements and charges due
under the terms of this Lease shall be made at the offices of Nicowski Limited
Partnership 4710 Auth Place Suite 120 Camp Springs, Maryland 20746 or other
address of which Tenant is given written notice by Landlord. Rent checks are to
be made payable to Nicowski Limited Partnership Management or such other
person, firm or corporation as the Landlord may hereafter designate in writing.
4. ADJUSTMENT OF RENT
For the second through the final year of the term hereof, the minimum annual
rent as set forth in Paragraph 3(a) hereinabove, shall be adjusted annually on
each anniversary of the Commencement Date for each lease year during the term
hereof by the adjustments set forth in sub-paragraphs (a) and (b) in this
Paragraph 4, and the result reached thereby shall be paid by the Tenant as
minimum annual rent for such lease year, and as Basic Monthly Rent, in lieu of
the minimum annual rent, and Basic Monthly Rent, paid in the lease year
immediately prior thereto; provided, however, that the amount payable by Tenant
under this Lease as minimum annual rent for each lease year shall not be less
than the minimum annual rent paid in the lease year immediately prior thereto.
(a) The minimum annual rent shall be adjusted annually cumulatively for each
lease year during the term hereof by multiplying the minimum annual rent for
the lease year immediately prior to the lease year for which such annual
adjustment is to be made by three per cent (3.0%).
(b) In addition to the minimum annual rent, additional rent shall be due for
each lease year during the term hereof by Fourteen joint two eight six per cent
(14.286%) which is Tenant's pro-rata share, of the amount of increase, if any,
in the Landlord's operating expenses over the "Basic Cost" (as hereinafter
defined). If adjusted, any adjustment shall be at the beginning of any lease
year.
"Basic Cost", as the term is used herein, shall consist of all operating
expenses of the Building, excluding Real Estate Taxes, and shall consist of all
expenditures to maintain all facilities in the operation of the Building and
such additional facilities in subsequent years as may be determined by Landlord
to be necessary. The term "operating expenses" as used herein shall mean all
expenses, costs and disbursements (but not replacement of capital investments
items or specific costs billed to and paid by specific Tenants) of
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<PAGE> 4
every kind and nature which Landlord shall pay or become obligated to pay
because of or in connection with the operation of the Building, including but
not limited to the following:
(1) Wages and salaries of all employees engaged in operating and maintenance of
security of the Building, including taxes, insurance and benefits relating
thereto.
(2) All supplies and materials used in operation and maintenance or security of
the Building.
(3) Cost of all utilities including surcharges for the Building, including the
cost of water, sewer, power, heating, lighting, air conditioning and
ventilating for the Building. Tenant shall pay for all submetered electrical
charges for his Premises.
(4) Cost of all maintenance and service agreement for the Building and the
equipment therein, including but not limited to, security and energy management
services, window cleaning and elevator maintenance. Tenant shall pay all
janitorial service for his floor.
(5) Cost of all insurance relating to the Building, including, but not limited
to, the cost of casualty and liability applicable to the Building and
Landlord's personal property used in connection therewith.
(6) Cost of repairs and general maintenance (excluding repairs and general
maintenance paid by proceeds of insurance or by Tenant or other third parties).
(7) A management fee for the manager of the Building, at three per cent (3.0%)
annually of gross rental income of Building shall not be cumulative in Basic
Cost.
(8) The cost of any additional services not provided to the Building at the
Lease Commencement Date but thereafter provided by Landlord in the prudent
management of the Building.
(9) The cost of any capital improvements or alterations made to the Building
after the Lease Commencement Date that reduce other operating expenses or are
required under any governmental law or regulation that was not applicable to
the Building at the time it was constructed, such cost thereof to be amortized
over such reasonable period as Landlord shall determine together with interest
on the unamortized balance at the rate of ten per cent (10.0%) per annum or
such higher rates as may have been paid
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<PAGE> 5
by Landlord on funds borrowed for the purpose of constructing said capital
improvements.
(l0) The initial "Basic Cost" is stipulated to be $ 3.50 per square foot of
gross floor area of the Building not including electric and janitorial. In the
event that the actual basic cost for any lease year during the term of this
Lease exceeds the initial basic cost set out above, Tenant shall pay its
proportionate share of the first full year's after first year increases in the
basic cost for such year over the initial basic cost. Any increase payable by
Tenant under this provision shall be deemed additional rent and paid within
thirty (30) days of statement by Landlord. Notwithstanding any other provision
herein to the contrary, it is agreed that in the event the Building is not
fully occupied during the calendar year, an adjustment shall be made in
computing the basic cost for such year so that the basic cost shall be computed
for such year as though the Building had been ninety per cent (90%) occupied
during such year. In the event that specific Tenants are billed directly for
certain charges normally covered under operating expenses, Tenant's pro-rata
share will be appropriately adjusted. Tenant shall not pay any "Basic Cost" for
the year 1996.
4(c)ADDITIONAL RENT FOR REAL ESTATE TAXES
(1) For each full or partial Real Estate Tax Year during the term hereof
(including the first year), Tenant shall pay to Landlord as additional rent, in
addition to minimum annual rent, Tenant's proportionate share of the real
estate taxes (as defined below) for the Building in excess of the real estate
taxes for the Building for the real estate tax year in which the Building is
first assessed on a fully improved basis and which is the tax year immediately
preceeding the Commencement Date (the "Base Year"). Tenant's proportionate
share of real estate taxes shall be calculated by multiplying the difference
between the real estate taxes for the current real estate tax year and the Base
Year by the pro-rata share set forth in Paragraph 4 (b), provided, however,
that for any period during which the percentage of leased and occupied
rentable area in the Building shall be less than ninety per cent (90%) of the
total rentable area of the Building, the Tenant's rent for real estate taxes
shall be adjusted in the same manner as the Basic Costs under Paragraph
4.b.(10). Lease Real Estate Base Tax Year July l, 1996 through June 30, 1997.
(2) Landlord shall submit to Tenant a statement of any such real estate tax
increases and Tenant's proportionate share thereof and within ten (10) days
after delivery of such statement, Tenant shall pay to the Landlord as
additional rent its proportionate share of such real estate tax increase.
Landlord reserves the right to estimate the amount of such tax increase prior
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<PAGE> 6
to the commencement of any real estate tax year, in which event Tenant shall
pay one-twelfth (1/12th) of such amount with each installment of Basic Annual
Rent and there shall be a final statement and settlement for such real estate
tax year between Landlord and Tenant. Tenant's obligations to pay real estate
taxes shall be limited to the term of this Lease including any renewal
term(s)), however, Tenant's obligations under this Paragraph 4(c) shall survive
the termination of this Lease with regard to the final settlement for the year,
in which the Lease terminates. Tenant reserves the right to protest any
increase in real estate taxes.
(3) The term "Real Estate Taxes" shall mean the total amount of all taxes and
assessments, general and special, ordinary and extraordinary, foreseen and
unforeseen, now and hereafter assessed, levied or imposed or imposed upon the
Building and the land on which the Building is situated (the "Land"); together
with any tax in the nature of a real estate tax or any tax on income if imposed
in lieu of real estate taxes and assessments; and any taxes and assessments
which may hereafter be substituted for real estate taxes. In the event that the
method currently used by the Prince George's County or any other governmental
taxing authority for the computation of the assessed market value of the
Building and/or the land is discontinued or revised, the determination of the
amount in real estate taxes under this Paragraph 11 shall thereafter be made
according to a formula and procedure which most nearly approximates the method
currently in use. In the event that any business tax, rental tax or other taxes
which are now or hereafter levied upon (i) Tenant's use or occupancy of the
demised premises, (ii) Tenant's leasehold improvements, (iii) Tenant's business
at the demised premises, are enacted, changed or altered so that any of such
taxes are levied against Landlord, or in the event that the mode of collection
of such taxes is changed so that Landlord is responsible for collection or
payment of such taxes, any and all such taxes shall be payable in full by Tenant
if directly assessed against it or be a part of the increase in real estate
taxes if assessed against all tenants and Tenant shall pay to Landlord Tenant's
proportionate share of the full amount of all of such taxes as provided in this
Paragraph 4.
5. DEPOSIT
Tenant, concurrently with the execution of this Lease, has deposited with the
Landlord a good faith deposit and the first month's rent each in the amount of
eight thousand two hundred ninety seven and 67/100 DOLLARS ($8,297.67). Both
the first month's rent and the security deposit shall be held by Meyers,
Billingsley, Rodbell & Rosenbaum, P.A. (Escrow Agent) without interest. Said
rent and security deposit shall be released to Landlord upon issuance of Use &
Occupancy permit for this Premises. The security deposit shall be applied to
the cost of repairing or replacing any equipment damaged
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<PAGE> 7
or removed from the Premises and towards repair of damage (other than ordinary
wear and tear) to the demised Premises or for any other liabilities or
indebtedness of Tenant to Landlord. This deposit is not to be used or applied
by Tenant as a substitute for rent due any month but may be so applied by
Landlord at any time at Landlord's option. The use, application or retention of
the security deposit, or any portion thereof, by Landlord shall not prevent
Landlord from exercising any other right or remedy provided by this Lease or by
law and shall not operate as a limitation on any recovery to which Landlord may
otherwise be entitled. If any portion of the security deposit is used, applied
or retained by Landlord for the purpose set forth above, Tenant agrees, within
ten (10) days after a written demand therefor is made by Landlord, to deposit
cash with the Landlord in an amount sufficient to restore the security deposit
to its original amount; however, nothing contained herein shall require
Landlord to make such demand upon Tenant. The balance of the security deposit,
if any, will be refunded to Tenant within thirty (30) days after the end of the
lease term and after Tenant has vacated said Premises after due notice to
Landlord.
6. TENDER OF POSSESSION
See Item 7, Addendum A
7. USE OF DEMISED PREMISES
Tenant shall use and occupy the demised Premises solely for the operation of a
four year post-secondary educational institution (College) subject to, and in
accordance with, all applicable zoning and other governmental regulations. The
Tenant will not obstruct or interfere with the rights of other tenants, or in
any way injure or annoy them or those having business with them, or conflict
with them, or conflict with the fire laws or regulations, or with any insurance
policy upon said Building or any part thereof, or with any statutes, rules or
regulations now existing or subsequently enacted or established by the local
state or federal governments. The Tenant shall not use or permit the demised
Premises, or any part thereof, to be used for any disorderly, unlawful or
hazardous purpose, nor for any purpose other than hereinbefore specified, and
will not manufacture any commodity therein, without the prior written consent
of Landlord. The Tenant agrees that he will keep the demised Premises and the
fixtures therein in good order and condition and will, at the expiration or
other termination of the term hereof surrender and deliver up the same in like
good order and condition as the same now is or shall be at the commencement of
the term thereof, ordinary wear and tear, and damage by the elements, fire, and
other casualty not due to the negligence of the Tenant, excepted.
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<PAGE> 8
8. INJURY TO PREMISES
All injury to the demised Premises or the Building of which they are a part,
caused by moving the property of Tenant into, in or out of, the said Building
and all breakage done by Tenant, or the agents, servants, employees and visitors
or Tenant, as well as any damage caused by fire due to the negligence of Tenant,
or his agents, servants, employees; and visitors shall be repaired by the
Tenant, at the expense of the Tenant. In the event that the Tenant shall fail to
do so, then the Landlord shall have the right to make such necessary repairs,
alterations and replacements, structural, non-structural or otherwise and any
charge or costs so incurred by the Landlord shall be paid by the Tenant with the
right on the part of the Landlord to elect in its discretion, to regard the same
as additional rent, in which event such cost or charge shall become additional
rent payable with the installment of rent next becoming due or thereafter
falling due under the terms of this Lease. This provision shall be construed as
an additional remedy granted to the Landlord and not in limitation of any other
rights and remedies which the Landlord has or may have in said circumstances.
9. TENANT'S LIABILITY
The Landlord, its agents and employees shall not be liable for any accident or
damage to property of Tenant resulting from the use or operation of elevators,
or heating, cooling, electrical or plumbing aparatus. All personal property of
the Tenant in the demised Premises or in the Building, shall be at the sole
risk of the Tenant. The Tenant covenants to save the Landlord and its agents
and employees harmless and indemnified from any loss, cost, expense or
liability incurred or claimed by reason of Tenant's neglect or use of the
demised Premises. Landlord and its agents and employees shall in no event be
liable for damage to property of Tenant resulting from water, steam or other
causes. It is further understood and agreed that the Tenant covenants to save
the Landlord, its agents and employees harmless and indemnified from all loss,
damage, liability or expenses incurred, suffered, or claimed by reason of
injury, loss, or damage to any person, or property, upon the demised Premises
resulting from the Tenant's negligence or negligent use of (i) the demised
Premises, (ii) said Building, (iii) anything therein including water, steam,
electricity, or other causes. Tenant as herein used shall refer to Tenant, its
agents and invitees.
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<PAGE> 9
10. LANDLORD'S LIABILITY
Landlord, its agents and employees assume no liability or responsibility
whatever with respect to the conduct and operation of the business to be
conducted in the demised Premises nor for any loss or damage of whatever kind
or by whomsoever caused, to personal property, documents, records, monies or
goods of the Tenant or to anyone in or about the Premises by consent of the
Tenant, however caused or unless due in whole or in parts of acts of negligence
on the part of the Landlord, agents or servants, whether such acts be active or
passive and the Tenant agrees to hold the Landlord and its agents and employees
harmless against all such claims.
11. ALTERATION AND ADDITIONS
The Tenant agrees not to make any additions or alterations in or upon the
demised Premises without the previous consent in writing of the Landlord; and
that such additions must conform to all rules and regulations from time to time
established by the Fire Underwriters Association to meet all the requirements
of Federal, Local and Municipal Governments. Any alterations, improvements and
additions, including permanent or attached (but not portable) equipment or
fixtures shall become and be considered a part of the Building (unless special
arrangements in writing to the contrary are made). Except Tenant improvement
work.
It is distinctly understood that all alterations, installations, changes,
replacements, additions to or improvements upon the demised Premises, (whether
with or without Landlord's consent) shall at the election of the Landlord,
remain upon the demised premises and be surrendered with the demised Premises
at the expiration or sooner termination of this Lease without disturbance,
molestation or injury. Should the Landlord elect that certain alterations,
installations, changes, replacement, additions to or improvements upon the
demised Premises be removed except Tenant improvement work and alterations as
shown on Exhibit E, upon termination of this Lease or upon termination of any
renewal period hereof, the Tenant hereby agrees to cause same to be removed at
the Tenant's sole cost and expense and should Tenant fail to remove the same,
then and in such event the Landlord shall cause same to be removed at the
Tenant's sole risk and expenses and the Tenant hereby agrees to reimburse the
Landlord for the cost of such removal together with any and all damages which
the Landlord may suffer and sustain by reason of the failure of the Tenant to
remove the same.
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<PAGE> 10
12. LEASEHOLD IMPROVEMENTS AND ALTERATIONS
Tenant agrees to provide Landlord with leasehold improvement plans as specified
in Exhibit E attached hereto and made a part hereof. The cost of all leasehold
improvements will be borne by Tenant. Within twenty one (21) days of Lease
execution, Tenant agrees to furnish to Landlord its final partition and other
layout requirements, plans and specifications, including telephone, and
electrical outlets, finishes, flooring, special lighting and any additional
improvements to be constructed therein. It is agreed that time is of the
essence in furnishing said requirements, plans and/or specifications to
Landlord. This provision of the Lease constitutes notice to Tenant of the
foregoing requirement. No further request or notice from Landlord to Tenant is
required. Tenant shall have his own contractor perform all Tenant work in his
Premises whom he shall be responsible to pay. Tenant shall provide electric
submeters for Landlord to read monthly for his cost of electricity for his
Premises and paid within seven (7) days of receipt of invoice for electrical
cost.
13. ASSIGNMENT AND SUBLETTING
Tenant will not sublet nor assign the demised Premises or any part thereof, or
transfer possession of occupancy thereof, to any person, partnership, firm or
corporation under this Lease, without the prior written consent of Landlord,
which shall not be unreasonably withheld, nor shall any subletting or
assignment hereof be effected by operation of law or otherwise than by the
prior written consent of Landlord. In the event that Tenant requests Landlord's
consent to sublet any part of the demised Premises (which request must be made
in writing), Landlord shall have the option of amending this Lease as follows:
(i) Paragraph 1 shall be amended to exclude said part of the Premises which is
the subject of Tenant's request from the demised Premises as described in
Paragraph 1; Paragraph 3(a) and 4(b) shall be amended to effect a proportionate
reduction in the minimum annual rent, rent adjustments and other charges
payable by Tenant pursuant to these paragraphs, reflecting the reduction in
square footage of gross floor and comprising the demised Premises after the
amendment and (ii) Exhibit B shall be amended to show the outline on the plan
of the demised Premises, as amended. All other terms and conditions of this
Lease shall remain applicable to the demised Premises under this Lease as
amended, and Tenant shall execute documents to effect this amendment at
Landlord's request. Landlord's option to amend this Lease shall be exercisable
by submitting written notice thereof to Tenant within thirty (30) days
following Landlord's receipt of a written request from Tenant to sublet a part
of the demised Premises. In the event that Tenant requests Landlord's consent
to assign this Lease or sublet all of the demised Premises (which request must
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be in writing), Landlord shall upon receipt of such written request have the
option of terminating this Lease, which option shall be exercisable by
submitting written notice thereof to Tenant within thirty (30) days following
receipt of such a written request. Landlord's options shall in no way effect or
limit Landlord's right to withhold consent to Tenant's request. Consent by
Landlord to any assignment, transfer or subletting to any party shall not be
construed as a waiver of release of Tenant from the terms of any covenant or
obligation under this Lease, nor shall a consent to any subsequent assignment,
transfer or subletting to another person, partnership, firm or corporation. Any
assignment or subletting consented to by Landlord shall not relieve Tenant of
any of its primary responsibility for all obligations under this Lease, and
such consent by Landlord shall not be effective unless and until (i) Tenant
gives written notice thereof to Landlord, and (ii) such transferee, assignee or
sublessee shall deliver to Landlord (a) a written agreement in form and
substance satisfactory to Landlord pursuant to which transferee, assignee or
sublessee assumes all of the obligations and liabilities of Tenant hereunder,
and (b) a certified copy of the assignment agreement or sublease. Any
assignment, transfer or subletting without Landlord's written consent shall be
void, and shall, at the option of Landlord, constitute a default under the
terms of this Lease. If at any time during the term of this Lease any part of
all or the shares of Tenant's stock or Tenant's partnership interests shall be
transferred by sale, assignment, merger, operation of law or other disposition
so as to result in a transfer of more than twenty-five per cent (25%) of the
Tenant's stock or partnership interests, such transfer shall be deemed as an
assignment and, therefore, prohibited without the express written consent of
Landlord. Any such request to assign or sublet shall contain the name,
business, and financial statement of the proposed tenant, and Landlord shall
have the right to request such further information as it deems necessary.
Tenant may assign Lease to any owned or controlled entity.
14. FIRE LAWS
The Tenant will not do or permit anything to be done in the demised Premises or
the Building of which they form a part or bring or keep anything therein which
shall in any way increase the rate of fire or other insurance on said Building,
or on the property kept therein, or obstruct, or interfere with the rights of
other tenants, or in any way injure or annoy them, or those having business
with them, or conflict with them, or conflict with the fire laws or regulations
or with any insurance policy upon said Building or any part thereof or with any
statutes, rules or regulations enacted or established by the jurisdiction in
which the Building is located.
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15. INSPECTIONS
Tenant further agrees that it will allow the Landlord, its agent or employees
to enter the demised Premises at all reasonable times to examine, inspect or
protect the same or prevent damage or injury to the same and/or to any other
portion of the Building or to make such alterations and repairs as the Landlord
may deem necessary, or to exhibit the same to prospective tenants during the
last nine (9) months of the term of this Lease.
16. SIGNS ADVERTISING AND MOVING OF EQUIPMENT
Tenant further agrees that no sign, advertisement display of notice shall be
inscribed, painted or affixed on any part of the outside or inside of the
demised Premises or Building, except with Landlord's approval, which approval
shall not be unreasonably withheld, conditioned or delayed, and then only in
such size, color and style as the Landlord shall approve; and complies with
Prince George's County codes and regulations. Tenant's signage shall be
approved before signing of Lease. The Landlord shall have the right to
prescribe the weight, and method of installation and position of safes or other
heavy fixtures or equipment; that all damage done to the Building by taking in
or removing a safe or any other article of Tenant's office equipment, or due to
its being in the Premises, shall be repaired at the expense of the Tenant. No
freight, furniture or other bulky matter of any description will be received
into the Building or carried in the elevators, except as approved by the
Landlord. All moving of furniture, material and equipment shall be under the
direct control and supervision of the Landlord, who shall however, not be
responsible for any damages to or charges for moving same. Tenant agrees
promptly to remove from the public area adjacent to said Building any of
Tenant's merchandise there delivered or deposited.
17. OFFICE MACHINERY AND EQUIPMENT
Tenant is responsible for all electrical usage of electricity for the operation
of any and all office equipment. Landlord is responsible for supplying,
furnishing and maintaining plumbing system, heating system and air conditioning
system but not the cost of electricity. Landlord is also responsible for
structural, plate glass, both inside and outside and roof.
18. LIGHT BULBS AND TUBES
Landlord hereby agrees, during the term of this Lease and any renewal or option
period, to replace, as necessary, all light bulbs and tubes for standard
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lighting fixtures in the Building. Tenant hereby agrees that, during the term of
the Lease, any renewal or option period, Landlord shall replace, as necessary,
when so notified by Tenant, and at Tenant's cost, all light bulbs and tubes for
nonstandard lighting fixtures installed in the demised Premises.
19. MECHANICS LIEN
Tenant shall keep the Premises and Building free from any liens arising out of
any work performed, material furnished or obligation incurred by or for the
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be released of record by payment
or posting of a proper bond, Landlord shall have, in addition to all other
remedies provided herein by any law, the right, but not the obligation, to
cause such lien to be released by such means as Landlord deems proper,
including payment of the claim giving rise to such lien. All such sums paid and
all expenses incurred by Landlord in connection therewith shall be payable to
Landlord by Tenant with interest at the rate of one and one-half per cent
(1.50%) per month from the date of payment and shall be payable to Landlord by
Tenant on demand.
20. RULES AND REGULATIONS
The Tenant covenants that the rules and regulations set forth in Exhibit D
attached hereto, and such other further rules and regulations or modifications
thereof as the Landlord may make and which the Landlord's judgement are needful
for the general well-being, safety, care and cleanliness of the demised
Premises and the Building of which they are a part together with their
appurtenances, shall be faithfully kept, observed and performed by the Tenant,
and by Tenant's agents, servants, employees and guests unless waived in writing
by the Landlord.
21. INSURANCE
Landlord shall insure the Building, of which the demised Premises are a part,
against damage by fire, including extended coverage in any amount Landlord in
its sole discretion shall deem adequate, and shall maintain such insurance
throughout the term hereby demised. During the term Tenant shall insure all of
its property in the demised Premises against damage by fire, extended coverage,
vandalism and malicious mischief, water damage, and sprinkler leakage, if such
policy or policies is available, in an amount selected by Tenant which shall,
in any event, be adequate to satisfy any co-insurance requirements of the
policies providing such insurance.
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Notwithstanding anything to the contrary, under no circumstances shall Landlord
have any obligation to repair or replace any of Tenant's equipment, fixtures,
furnishings or personal property. In addition, Tenant shall also maintain with
respect to the demised Premises, comprehensive public liability insurance, with
minimum limits of $1,000,000/$3,000,000 for personal injury, and $500,000 for
property damage.
Tenant shall maintain the insurance coverage required herein with a company or
companies acceptable to the Landlord. The comprehensive public liability
insurance policy shall include the Landlord and its Managing Agent as
additional named insured, as well as Tenant, against bodily injury to or death
or persons, and against property damage as herein provided. Tenant shall
deliver certificate of insurance indicating the above specified coverage to the
Landlord upon the commencement of the term of the Lease, and continuing
evidence of such coverage annually. Such insurance policy or policies shall be
in a form reasonably satisfactory to the Landlord and its Managing Agent, and
shall be placed with a company qualified to do business in the jurisdiction in
which the demised Premises are located, and shall provide that it (they) cannot
be canceled without at least ten (10) days prior written notice to the
Landlord.
Neither landlord nor Tenant shall be liable (by way or subrogation or
otherwise) to the other party (or to any insurance company insuring the other
party) for any loss or damage to any property of the Landlord or Tenant, as the
case may be, covered by insurance, even though such loss or damage might have
been occasioned by the negligence of the Landlord or Tenant, or their
respective agents, employees, invitees, etc. This release shall be in effect
only so long as the applicable insurance policies shall contain a clause or
endorsement to the effect that the aforementioned waiver shall not effect the
right of the insured to recover under such policies; each party shall use its
best efforts (including payment of additional premium) to have its insurance
policies contain the standard waiver of subrogation clause. In the event
Landlord's or Tenant's insurance carrier declines to include such carrier's
policies as standard waiver of subrogation clause, Landlord or Tenant as the
case may be, shall promptly notify the other party, in which event, the other
party shall not be required to have its insurance policies contain such waiver
of subrogation clause and this subparagraph shall be of no force and effect.
Tenant shall insure contents and Tenant improvements in his Premises.
22. SERVICES
Landlord shall furnish reasonably adequate electrical panels, water and
automatically operated elevator service, during Building hours as specified in
Addendum A. Landlord shall provide routine maintenance, painting and
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electrical lighting service for all public areas and special service areas
inside and outside of the Building, in the manner and to the extent deemed by
Landlord to be standard. The electrical wiring, risers and other equipment in
the Building are not represented by Landlord to be adequate for any purpose
other than general office use including standard office machines of low
electrical consumption and the Landlord does not provide an uninterrupted
power source, power filters and conditioners. Tenant agrees that it will not
make any use of the electrical equipment of the Building which exceeds the
capacity of such equipment. Failure by Landlord, beyond Landlord's control, to
any extent to furnish these defined services, or any cessation thereof, shall
not render Landlord liable in any respect for damages to either person or
property, nor shall such events be construed an eviction of Tenant, nor work an
abatement of rent, nor relieve Tenant from fulfillment of any term, condition,
covenant or agreement herein.
23. PARKING
Landlord agrees to provide for the use of Tenant in common with others,
sufficient parking spaces in the parking area for the Building to meet County
standards. The Landlord reserves the right to promulgate reasonable rules and
regulations relating to the use of such parking area, including such
limitations as may in the opinion of the Landlord be necessary and desirable
for the use of each parking space. See Addendum A Item #8.
24. TENANT'S BANKRUPTCY LANDLORD'S REMEDIES
A. The following shall be events of bankruptcy under the Lease:
(l) Tenant's becoming insolvent, as that term is defined in Title 11 of the
United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq. (the
"Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(2) The appointment of a receiver or custodian for any or all of Tenant's
property or assets, or the institution of a foreclosure action upon any of
Tenant's real or personal property;
(3) The filing of a voluntary petition under the provisions of the Bankruptcy
Code or Insolvency Laws;
(4) The filing of an involuntary petition against Tenant as the subject debtor
under the Bankruptcy Code or Insolvency Laws, which is either not
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dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is later; or
(5) Tenant's making or consenting to an assignment for the benefit of creditors
or a common law composition of creditors.
B. In the event of Tenant's bankruptcy, Landlord at its option may, in addition
to all other rights and remedies provided in the Lease, at law or in equity:
(1) Terminate this Lease by giving written notice to Tenant; provided, however,
that this section 24 B (1) shall have no effect while a case in which Tenant is
the subject debtor under the Bankruptcy Code is pending, unless Tenant or its
trustee is unable to comply with the provisions of section 24 B (4) and (5)
below. At all other times this Lease shall automatically cease and terminate
and Tenant shall be immediately obligated to quit the Premises upon the giving
of notice pursuant to this section 24 B (1). Any other notice to quit, or
notice of Landlord's intention to re-enter is hereby expressly waived. If
Landlord elects to terminate this Lease, everything contained in this Lease on
the part of Landlord to be done and performed shall cease without prejudice,
subject, however, to the rights of Landlord to recover from Tenant all rent and
any other sums accrued up to the time of termination or recovery of possession
by Landlord, whichever is later, and any other monetary damages or loss or
reserved rent sustained by Landlord.
(2) Upon termination of this Lease pursuant to section 24 B (l), Landlord may
proceed to recover possession under and by virtue of the provisions of the laws
of the applicable jurisdiction, or by such other proceedings, including
re-entry and possession, as may be applicable.
(3) Without regard to any action by Landlord as authorized by section 24 B (1)
and (2) above, Landlord may, at its discretion, exercise all the additional
provisions set forth below in section 28.
(4) In the event Tenant becomes the subject debtor in a case pending under the
Bankruptcy Code, Landlord's right to terminate this Lease pursuant to section
24 B (l) shall be subject to the rights of the trustee in Bankruptcy to assume
or assign this Lease. The trustee shall not have the right to assume or assign
this Lease unless the trustee: (i) promptly cures all defaults under this
Lease; (ii) promptly compensates Landlord for monetary damages incurred as a
result of such default; and (iii) provides adequate assurance of future
performance on the part of Tenant as debtor in possession or on the part of the
assignee Tenant.
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(5) Landlord and Tenant hereby agree in advance that adequate assurance of
future performance, as used in section 24 B (4) above, shall mean that all of
the following minimum criteria must be met: (i) Tenant's gross receipts in the
ordinary course of business during the thirty (30) day period immediately
preceeding the initiation of the case under the Bankruptcy Code must be at
least two (2) times greater than the next payment of rent due under this Lease;
(ii) both the average and median of Tenant's gross receipts in the ordinary
course of business during the six (6) month period immediately preceeding the
initiation of the case under the Bankruptcy Code must be at least two (2) times
greater that the next payment of rent due under this Lease; (iii) Tenant must
pay its estimated pro-rata share of the cost of all services provided by
Landlord (whether directly or through agents or contractors and whether or not
previously included as part of the Basic Monthly Rent) in advance of the
performance or provision of such services; (iv) the trustee must agree that
Tenant's business shall be conducted in a first class manner, and that no
liquidating sales, auctions, or other non-first class business operations shall
be conducted on the Premises; (v) the trustee must agree that the use of the
Premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and (vi) the trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the Building.
(6) In the event Tenant is unable to (i) cure its defaults; (ii) reimburse the
Landlord for its monetary damages; (iii) pay the rent due under this Lease, and
all other payments required of Tenant under this Lease when due; or (iv) meet
the criteria and obligations imposed by section 24 B (5) above, Tenant agrees
in advance that it has not met its burden to provide adequate assurance of
future performance, and this Lease may be terminated by Landlord in accordance
with section 24 B (1) above.
25. RESTORATION AFTER FIRE
In case of damage by fire or other casualty to the demised Premises of any part
thereof, except by Tenant, the Landlord shall have ninety (90) days within
which to repair and restore the same without terminating this Lease. Should the
Landlord elect to repair and restore the damaged portion of said Premises, then
during the period that Tenant is deprived of the use of the damaged portion of
said Premises, Tenant shall be required to pay rental covering only that part
of the premises that it is able to occupy; the rent for the remaining space
shall be that portion of the total rent which amount of square foot area
remaining that can be occupied bears to the total square foot area of all the
Premises covered by this Lease. If during the term of this Lease, the Premises
shall be so damaged by fire or other casualty as to be
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untenantable, then unless said damage be repaired within ninety (90) days
thereafter as herein specified, either party hereto, upon written notice to the
other party given at any time following the expiration of ninety (90) days
after said fire or other casualty, may terminate this Lease, in which case the
rent and additional rent shall be apportioned and paid to the date to said fire
or other casualty. In case the Building, generally, of which the demised
Premises are a part is so severely damaged or destroyed by fire or other
casualty (although the demised Premises may not be affected) that the Landlord
shall decide within a reasonable time not to rebuild or reconstruct said
Building, then this Lease and tenancy hereunder shall terminate. No
compensation or claim or diminution of rent will be allowed or paid, by
Landlord by reason of inconvenience, annoyance or injury to business, arising
from the necessity of repairing the demised Premises or any portion of the
Building of which they are a part, however, the necessity may occur.
26. HAZARDOUS MATERIALS
Tenant shall not cause or permit any "Hazardous Materials" (as defined below)
to be brought upon, kept or used in or about the Building by Tenant or any
subtenant or any of their respective agents, employees, contractors, licensees
or invitees. If Tenant breaches the obligations stated in the preceeding
sentence, or if the presence of any Hazardous Materials in or about the
Building caused or permitted by Tenant results in contamination of the
Building, or if contamination of the Building or the Premises by any Hazardous
Materials otherwise occurs as a result of the activities of Tenant in, on or
about the Premises or the Building, the Tenant shall indemnify, protect, defend
and hold Landlord harmless against all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including diminution in value of the
Building, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorney's fees, consultant fees and expert
fees) which arise during or after the term as a result of such breach and/or
contamination. This indemnification, which is made for adequate separate
consideration received on the execution hereof, includes but is not limited to
costs incurred in connection with any investigation of site conditions and any
clean up, remedial, removal or restoration work required by any governmental or
quasi-governmental authority because of any Hazardous Materials being present
in the soil or ground water on or under the Premises of the Building. Without
limiting the foregoing, if the presence of any Hazardous Material on the
Premises of the Building caused or permitted by Tenant results in contamination
of the Premises or the Building, Tenant shall promptly take all actions at its
sole cost and expense as is necessary to return the Premises or the Building to
its condition existing prior to the introduction of such Hazardous Materials;
provided that Landlord's approval of such actions shall first be obtained,
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which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, Tenant shall not be liable for Hazardous Materials existing within
the Premises or the Building that have been brought upon, kept or used by
Landlord or other tenants within the Building.
As used herein, the term "Hazardous Materials" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any governmental
or quasi-governmental authority; such term includes but is not limited to any
material or substance which is (a) petroleum; (b) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317); (c) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 12 U.S.C.
Section 6901 et seq. (12 U.S.C. Section 6903); or (d) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601).
27. CONDEMNATION
Tenant agrees that if the said demised Premises, or any part thereof, shall be
taken or condemned or sold for public or quasi public use or purpose by or to
any competent authority, this Lease shall fully terminate as of the date of any
such taking and Tenant shall have no claim against the Landlord and shall not
have any claim or right to any portion of the amount that may be awarded as
damages or paid as a result of any such condemnation; and all rights of the
Tenant to damages therefor, if any, are hereby assigned by the Tenant to the
Landlord. And upon such condemnation or taking the term of this Lease shall
cease and terminate from the date of such governmental taking or condemnation,
and the Tenant shall have no claim against the Landlord for the value of any
unexpired term of this Lease, leasehold improvements of goodwill. If Tenant has
any claim, permitted by Maryland Law, not reducing Landlord's claim, Tenant may
pursue legal action only if it does not interfere with Landlord's claim.
28. TENANT'S DEFAULT
A. Each of the following shall constitute an event of default of this Lease by
Tenant:
(l) Tenant fails to pay any installment or other payment of rent including
without limitation Basic Monthly Rent or Additional Rent or any other monetary
sum due Landlord pursuant to this Lease within ten (10) business days of the
date due with written notice.
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(2) Tenant fails to observe or perform any of the other covenants, terms,
conditions or provisions of this Lease to be observed or performed by Tenant
and Tenant fails to cure such default within thirty (30) days after written
notice thereof to Tenant unless such failure is of such character that it
cannot be cured within thirty (30) days; provided, however, Tenant commences to
cure such default within the thirty (30) day period and diligently proceeds to
cure the default;
(3) the interest of the Tenant in this Lease is levied upon under execution or
other legal process; and
(4) Tenant abandons the Premises.
B. In the event of any default of this Lease by Tenant, Landlord at its option,
without further notice or demand to Tenant, may, in addition to all other
rights and remedies provided in this Lease, at law or in equity:
(1) terminate this Lease and Tenant's right of possession of the Premises, and
recover all damages to which Landlord is entitled under law, specifically
including, without limitation, rent for the balance of the term; all of
Landlord's expenses of reletting (including reasonable repairs, reasonable
alterations, reasonable legal fees and a reasonable brokerage commission); or
(2) terminate Tenant's right of possession of the Premises without terminating
this Lease, in which event Landlord may, but shall not be obligated to, relet
the Premises, or any part thereof for the account of Tenant, for such rent and
term and upon such terms and conditions as are acceptable to Landlord in its
sole and absolute discretion.
For purposes of such reletting, Landlord is authorized to make repairs and
alterations to the Premises to the extent reasonably necessary. If Landlord
fails or refuses to relet the Premises or if the Premises are relet and a
sufficient sum is not realized there from after payment of all of Landlord's
expenses of reletting (including but not limited to expenses for reasonable
repairs and reasonable alternations, reasonable legal fees and a reasonable
brokerage commission) to satisfy the payment when due of rent reserved under
this Lease for each such monthly period, Tenant shall pay Landlord such
deficiency on the first day of each month during the term. For purposes hereof,
Landlord agrees to use its best efforts to re-lease the Premises. Tenant agrees
that Landlord may file suit to recover any sums due to Landlord hereunder from
time to time and that such suit or recovery of any amount due Landlord
hereunder shall not be any defense to any subsequent actions brought for any
amount not theretofore reduced to judgment in favor
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of Landlord. In the event Landlord elects, pursuant to this paragraph B of
section 28, to terminate Tenant's right of possession without terminating this
Lease, Landlord may, at Landlord's option, enter into the Premises, remove
Tenant's sign and other evidence of tenancy, and take and hold possession
thereof provided such action shall not terminate this Lease or release Tenant,
in whole or in part, from Tenant's obligation to pay the rent reserved
hereunder for the term or from any other obligation of Tenant under this Lease.
Any and all property which may be removed from the Premises by the Landlord
pursuant to the authority of this Lease or of law to which the Tenant is or may
by entitled, may be handled, removed or stored by the Landlord at the sole
risk, cost and expense of the Tenant, and the Landlord shall in no event be
responsible for the preservation or safekeeping thereof. The Tenant shall pay
to the Landlord, upon demand, any and all expenses incurred in such removal and
all storage charges against such property so long as the same shall be in the
Landlord's possession or under the Landlord's control. Any such property of the
Tenant not retaken from storage by the Tenant within thirty (30) days after the
end of the term, however terminated, shall be conclusively presumed to have
been conveyed by the Tenant to the Landlord under this Lease and this Lease
shall serve as a bill of sale without further payment of credit by the Landlord
to the Tenant. Tenant hereby grants to Landlord a first lien upon the interest
of Tenant in such property to secure the payment of monies due under this
Lease, which lien may be enforced in equity. Any default by Tenant of any term
or condition hereof other than the payment of sums due hereunder may be
restrained or enforced by injunction.
C. Tenant shall pay upon demand, all costs and expenses, including reasonable
attorney's fees, incurred by Landlord in enforcing the observance and
performance by Tenant of all covenants, conditions and provisions of this Lease
to be observed and performed by Tenant, or resulting from Tenant's default
under this Lease.
D. No provision of this Lease shall be deemed to have been waived by Landlord
unless such waiver shall be in writing signed by the Landlord. No payment by
Tenant or receipt by Landlord of the lesser amount than the monthly
installments of Basic Monthly Rent or Additional Rent herein stipulated shall
be deemed to be other than on account of the earliest stipulated rent nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and the Landlord may
accept such check or payment without prejudice to the Landlord's right to
recover the balance of such rent or pursue any other remedy in this Lease
provided.
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29. LANDLORD'S DEFAULT
In the event that Landlord fails to meet its obligations under the terms and
conditions hereof, Tenant shall be entitled in addition to all other remedies
at law or in equity to reasonable attorney's fees and court costs.
30. HOLDING OVER
If the Tenant shall, with the knowledge and consent of the Landlord, continue
to remain in the Premises after the expiration of the term of this Lease, then
and in that event, Tenant shall, by virtue of this agreement become a tenant by
the month at one hundred twenty five per cent (125%) of the rental per month as
was due for the last month of the agreed term hereof, commencing said monthly
tenancy with the first day next after the end of the term above demised; and
said Tenant shall give to the Landlord at least thirty (30) days written notice
of any intention to quit said Premises, and Tenant shall be entitled to thirty
(30) days written notice to quit said Premises, except in the event of
nonpayment of rent in advance or of the breach of any covenant by the said
Tenant, in which event the said Tenant shall be considered as holding over
after the expiration of the term hereby created. In such event or if the
Landlord shall desire to regain possession of said Premises promptly at the
expiration of the term aforesaid, Landlord, at its opinion, may forthwith
re-enter and take possession of said Premises without process, or by any legal
process in force in the jurisdiction in which the Premises is situated.
31. JURY TRIAL AND REDEMPTION RIGHTS
The parties hereto shall and they hereby agree to trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy
of the leased Premises and/or any claim or injury to or damage. In the event
Landlord commences any proceedings for non-payment of rent, minimum rent,
percentage rent or additional rent, Tenant will not interpose any counterclaim
of whatever nature or description in any such proceedings. This shall not,
however, be construed as a waiver of the Tenant's right to assert such claim in
any separate action or actions brought by the Tenant. Tenant waives any and all
statutory and common law rights it may have to redeem the Premises in any
action brought by the Landlord.
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<PAGE> 23
32. NO PARTNERSHIP
Nothing contained in this Lease shall be deemed or construed to create a
partnership of joint venture of or between Landlord and Tenant, or create any
other relationship between the parties hereto other than that of Landlord and
Tenant.
33. SUBORDINATION
This Lease is subject and subordinate to all ground or underlying leases and to
any mortgages and/or deeds of trust which may now or hereafter affect such
leases or the real property of which the demised Premises form a part, and to
all renewals, modifications, consolidations, replacement and extension thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required by any mortgage or trustee. In conformation of such
subordination, Tenant shall execute promptly any certificate that Landlord may
request. Tenant hereby constitutes and appoints Landlord the Tenant's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of Tenant, said appointment to be a power during the term of this Lease
coupled with an interest and irrevocable. Provided, however, that
notwithstanding the foregoing, the party secured by any such deed of trust
shall have the right to recognize this Lease and, in the event of the
foreclosure sale under such deed of trust, this Lease shall continue in full
force and effect at the option of the party secured by any such deed of trust
of the purchaser under any such foreclosure sale; and Tenant covenants and
agrees that it will, at the written request of the party secured by any such
deed of trust, execute, acknowledge and deliver and such instrument that
acknowledges its attornment to the new Landlord.
34. ESTOPPEL CERTIFICATE
Tenant shall, without charge therefor, at any time and from time to time,
within five (5) days after request therefor by Landlord, execute, acknowledge
and deliver to Landlord a written estoppel certificate, in recordable form,
certifying to Landlord, any mortgage, assignee of a mortgagee, any master
lessor, or any purchaser of the Premises or any other persons designated by
Landlord, as of the date of such estoppel certificate; (i) that Tenant is in
possession of the Premises, has unconditionally accepted the same and is
currently paying the rent and additional rent reserved hereunder; (ii) that
this Lease is unmodified and in full force and effect (or if there has been a
modification, that the same is in full force as modified and setting forth such
modifications), (iii) whether or not there are existing set-offs, abatements or
defenses against the enforcement of any right or remedy of Landlord, or any
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<PAGE> 24
duty or obligation of Tenant, hereunder (and, if so, specifying the same in
detail); (iv) the dates, if any, to which any rent or other charges have been
paid in advance; (v) that Tenant has no knowledge of any incurred defaults on
the part of Landlord under this Lease (or if Tenant has knowledge of any such
incurred defaults, specifying the same in detail); and (vi) that Tenant has no
knowledge of any event having accrued that authorizes the termination of this
Lease by Tenant (or if Tenant has knowledge, specifying the same in detail).
35. BUSINESS PURPOSE
All parties hereby confirm that the Premises are leased exclusively for
business, commercial and mercantile purposes. Notwithstanding anything to the
contrary, the Premises shall not be used in whole or in part for any
residential purpose, and shall not be subject to any rent control act or
redemption right relating to residential leases or any other provision of law
now or hereafter in effect in the jurisdiction in which the Building is
located.
36. ENTIRE AGREEMENT
This Lease, together with accompanying Addendum A and Exhibits A, C, D and E
contains the entire and only agreement between the parties, and no oral
statement or representations or prior written matter not contained or referred
to in this instrument shall have any force or effect. This Lease shall not be
modified in any way except by a writing subscribed by both parties hereto. The
failure of Landlord or Tenant to insist upon strict performance by the other of
any of the covenants or conditions of this Lease in any one or more instance
shall not be construed as a waiver or relinquishment for the failure of any of
such covenant or conditions, but the same shall be and remain in full force and
effect. No waiver of any provision of this Lease shall be deemed to have been
made unless in writing and signed by the party to be charges therewith. It is
agreed that all rights, remedies and liabilities herein give to or imposed upon
either of the parties hereto, shall extend to their respective heirs,
executors, administrators, and except as otherwise expressly provided in this
Lease, their successors and assigns.
37. PERMITTED USES EXCLUSIVE
All parties hereby confirm that the demised Premises are leased exclusively for
uses a specified herein, and such other ancillary and related uses as Landlord
may approve. Notwithstanding any provisions to the contrary, the demised
Premises shall not be used in whole or in part for any residential purposes,
and shall not be subject to any rent control act or redemption right,
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<PAGE> 25
relating to residential leases, or any other such provision of law now or
hereafter in effect in the jurisdiction in which the demised Premises are
located.
38. INVALIDITY OF TERMS
If any provision of this Lease shall at any time be deemed to be invalid or
illegal by any court of competent jurisdiction, this Lease shall not be
invalidated thereby; and in such event this Lease shall be read and construed
as if such invalid or illegal provision only had not been contained herein,
thereby reserving all of the other terms, conditions and provisions of this
Lease.
39. NOUNS
Feminine or neuter pronouns shall be substituted for masculine form, and the
plural shall be substituted of the singular number, in any place or places
herein which the context may require such substitution or substitutions. The
Landlord herein for convenience has been referred to in neuter form.
40. BROKERAGE
Landlord and Tenant each represent that they had no dealings with any real
estate broker, finder or other persons, with respect to this Lease in any
manner, except Irving L. Kidwell, Broker (hereinafter called "Broker").
Landlord and Tenant agree to indemnify and hold each other harmless against and
from any claims for brokerage commissions or other fees and costs, expenses and
liabilities in connection therewith, including, without limitations, attorney's
fees and expenses, arising out of any dealings had by Tenant with any broker
other than "Broker". Landlord shall pay any commissions or fees that are
payable to the "Broker" with respect to this Lease, in accordance with the
provisions of a separate commission contract.
41. NOTICES
All notices required or desired to be given hereunder by either party to the
other shall be considered given when sent by certified or registered mail,
first class prepaid or return receipt requested. Notices to the respective
parties shall be addressed as follows:
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<PAGE> 26
If to the Landlord: If to Tenant:
Nicowski Limited Partnership Strayer College, Inc.
4710 Auth Place, Suite 120 1025 15th Street, N.W.
Camp Springs, Maryland 20746 Washington, D.C. 20005
Copies To: Copies To:
Meyers, Billingsley, Rodbell Irving L. Kidwell, Broker
and Rosenbaum, P.A. 4716 Pontiac Street, Suite 300
Atten: William v. Meyers College Park, Maryland 20740
6801 Kenilworth Ave., Suite 400
Bershire Building
Riverdale, Maryland 20737
Either party may, by like written notice, designate a new address to which such
notices shall be directed.
42. EFFECTIVE DATE
For all purposes hereof, the "Effective Date" of this Lease shall be the date
upon which this Lease shall have been executed and delivered by both Landlord
and Tenant. Prior to such "Effective Date", neither this Lease nor anything
herein contained shall be legally binding on either Landlord or Tenant, and the
submission of this Lease by Landlord to Tenant prior to such "Effective Date"
for examination or consideration by Tenant or discussion between Landlord and
Tenant shall not constitute a reservation of or option for the demised Premises
or create any legal obligation or liability whatsoever on Landlord.
43. APPLICABLE LAW AND BINDING NATURE
This Lease shall be construed under the laws of Maryland. This Lease shall be
binding upon the heirs, personal representatives, successors, grantees and
assigns of the respective parties hereto.
44. QUIET ENJOYMENT
Upon payment by Tenant of the rents herein provided, and upon the observance
and performance of all the covenants, terms and conditions on Tenant's part to
be observed and performed, Tenant shall peaceably and quietly hold and enjoy
the Premises for the term hereby demised without hindrance or interruption by
Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject,
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<PAGE> 27
nevertheless to the terms and conditions of this Lease, any mortgage and/or
deed of trust to which this Lease is subordinate.
IN WITNESS WHEREOF the parties hereto have executed this Lease.
WITNESS: LANDLORD:
Nicowski Limited Partnership
/s/ EARLINE T. KELLEY By: /s/ MARGARET NICOWSKI
- --------------------------- ------------------------
Date: 7/26/96
------------------
WITNESS: TENANT:
Strayer College, Inc.
/s/ A. KAREY By: /s/ HARRY T. WILKINS
- --------------------------- ---------------------------
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<PAGE> 28
ADDENDUM "A" TO OFFICE BUILDING LEASE
THIS ADDENDUM TO OFFICE BUILDING LEASE made this 26th day of July 1996, by and
between Nicowski Limited Partnership, a Maryland Partnership hereinafter
referred to as "Landlord", and Strayer College, Inc., a Maryland Corporation
hereinafter referred to as "Tenant"
WITNESSETH
THIS ADDENDUM TO OFFICE BUILDING LEASE is to be attached to and made a part of
that certain Office Building Lease of even date herewith by and between
Landlord and Tenant, leasing and demising approximately 9686 square feet of
gross floor area known as Suite 200 , 4710 Auth Place Camp Springs Prince
George's County Maryland 20746, said lease being hereinafter referred to as the
"Lease". The Lease is hereby modified to incorporate the following provisions:
1. Renewal Options.
Tenant shall have the option to renew this Lease for a term of one (1) year
upon the same terms and conditions as are provided herein, except that the
rental during the first said renewal term shall be increased during each year
of said renewal term to account for increases in accordance with Section 4 of
this Lease. Tenant shall have the further option to renew this Lease for an
additional term of two (2) one (l) year options upon the same terms and
conditions as are provided herein, except that the rental during said second
renewal term shall be increased during each year of said renewal term to
account for increases in accordance with Paragraph 4. Each of said options
shall be exercised by Tenant giving written notices as provided herein to
Landlord, at least six (6) months before the expiration of either of the
foregoing options provided that, at the time of the exercise of said option,
Tenant shall not be in default hereunder, beyond any applicable cure period.
2. Real Estate Tax Increases.
Base Year: July 1, 1996 through June 30, 1997
3. Additional Improvements.
Landlord shall install Fire Sprinkler System on second floor and provide
sprinkler heads in accordance with Tenant's plan layout and the county fire
code; and any electrical work needed for said sprinkler system.
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<PAGE> 29
Landlord shall provide four (4) lighting poles with sufficient heads to
illuminate rear lot #1 parking area. Lot #1 in rear shall have all damaged
blacktop removed to a depth of five (5) inches and properly packed, tamped and
rolled. The damaged area contains approximately four thousand (4,000) square
feet. A spec Seal Coat shall be applied to the entire one acre lot and striped
for parking at a ratio of sixty per cent (60%) compact cars and forty per cent
(40%) regular cars.
4. Building Hours.
Monday through Friday 8:00 am - 5:00 pm
5:00 pm - 10:00 pm
Saturday 8:00 am - 6:00 pm
5. Signage. See Lease
6. Right of Refusal.
Tenant shall have the right of first refusal on any contiguous space, including
third (3rd) floor at the rent per square foot then due under existing lease.
7. Contingencies/Holding Period.
Tenant's obligations under this Lease are contingent upon Tenant obtaining all
state and county approvals required for Tenant's operation of an educational
institution, including the issuance of a Certificate of Use and Occupancy for
the Premises and the approval of any zoning of special exception necessary for
Tenant to operate its intended use on the Premises and utilize all parking
spaces contemplated by this Lease (collectively referred to as the
"Approvals"). Tenant shall be responsible for obtaining all such approvals. In
the event the approvals have not been obtained within one year following the
date of full execution of this Lease or it is determined sooner that approvals
will not be received, then either Landlord or Tenant may, upon written notice
to the other, terminate this Lease, and in such event the parties shall have no
further obligations to one another hereunder (except for "Holding Period
Payments" incurred to the date of said termination as described below) and any
security deposit posted by Tenant shall be returned to Tenant.
Notwithstanding anything to the contrary contained in Section 2 of the Lease,
the parties agree that the Commencement Date (whereby full rental payments shall
be due) shall be the date on which all the Tenant improvements have been
completed and all approvals have been obtained, including but not limited to the
Certificate of Use and Occupancy for the Premises. The parties further agree
that the term of the Lease shall expire four years from
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<PAGE> 30
the date of the Commencement Date. The parties agree to sign the Agreement
attached hereto as Exhibit C to reflect the exact date of the Commencement
Date.
In consideration of Landlord's agreement to delay the Commencement Date until
after all approvals have been obtained and Tenant work completed, Tenant hereby
agrees to pay to Landlord the sum of four thousand thirty five and 83/100
DOLLARS ($4,035.83) per month (the "Holding Period Payment") commencing one
hundred twenty (120) days after full execution of this Lease and ending upon
the Commencement Date, as modified herein (the "Holding period"). This payment
shall be due on the first day each month, and should the period for this
payment begin or end on any date other than the first of the month, the payment
for said month shall be prorated on a daily basis. The Landlord shall tender
possession of the Premises to Tenant when Building permit is obtained, and the
Tenant shall be entitled to occupy and use the Premises during the entire time
period of the Hold Period for Tenant improvement work and for the use as
contemplated by this Lease. Once these contingencies have beef satisfied and
the Commencement Date begins, Section 3 shall fully control rent payments.
8. Parking Spaces.
Add at end of Paragraph 23: Landlord agrees that Tenant shall have the use, in
common with other tenants, of twenty seven (2 parking spaces adjacent to
building of which Premises is a par twenty four (24) hour per day, six (6) days
per week. In addition, Tenant shall have the right to use in common with other
tenants on hundred fifty four (154) parking spaces adjacent to the Building of
which the Premises is a part after 5:00 pm Monday through Friday and all day
Saturday. Tenant shall have the exclusive right to use one hundred (100)
parking spaces on a one (1) acre lot in rear of Building identified on site
plan attached hereto, which is incorporated herein by references as additional
parking lot #1.
Except as modified above, or otherwise mutually agreed to in writing, all other
terms and conditions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have set their hands and seals as of the dates
hereinafter set forth.
WITNESS: LANDLORD:
Nicowski Limited Partnership
/s/ EARLINE T. KELLEY By: /s/ MARGARET NICOWSKI
- --------------------------- ------------------------
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<PAGE> 31
Date: 7/26/96
WITNESS: TENANT:
Strayer College, Inc.
/s/ A. KAREY By: /s/ HARRY T. WILKINS
- -------------------------- -----------------------
Date: 7/24/96
/s/ A. KAREY /s/ JANENE EIGHNEY-CABATER
- -------------------------- --------------------------
Secretary
Date: 7/24/96
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<PAGE> 32
EXHIBIT A - RENT SCHEDULE
Rent Payment Schedule for Term of Office Building Lease made this 26th day of
July 1996 , by and between Nicowski Limited Partnership, a Maryland Partnership
hereinafter referred to as "Landlord" and Strayer College, Inc., a Maryland
Corporation hereinafter referred to as "Tenant".
W I T N E S S E T H :
THIS EXHIBIT "A" OFFICE BUILDING LEASE for Rent Schedule for Term of Lease is
to be attached to and made a part of that certain Office Building Lease of even
date herewith by and between Landlord and Tenant leasing Suite 200 , 4710 Auth
Place Camp Springs, Maryland 20746. This rent schedule shall follow after
Paragraph 3(a) of basic Lease commencing with 3rd year of Lease.
<TABLE>
<CAPTION>
MINIMUM MONTHLY BASIC
TERM YEAR ANNUAL RENT INSTALLMENTS RATE
<S> <C> <C> <C> <C>
11/01/96-10/31/97 l 99,572.04 8,297.67 10.28
11/01/97-10/31/98 2 102,559.20 8,546.20 10.58
11/01/98-10/31/99 3 105,636.00 8,803.00 10.90
11/01/99-10/31/2000 4 108,805.08 9,067.09 11.23
</TABLE>
LANDLORD:
Nicowski Limited Partnership
/s/ EARLINE T. KELLY By: /s/ MARGARET NICOWSKI
- ---------------------------- -----------------------
Witness Date: 7/26/96
TENANT:
Strayer College, Inc.
/s/ A. KAREY By: /s/ HARRY T. WILKINS
- --------------------------- -----------------------
Witness Date: 7/24/96
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<PAGE> 1
Exhibit 10.15
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (this "Lease") is dated as of the 17
day of June 1996, by and between 1133 FIFTEENTH STREET LIMITED
PARTNERSHIP, a District of Columbia limited partnership ("Landlord"), and
STRAYER COLLEGE, INC., a Maryland Corporation ("Tenant").
ARTICLE I
DEFINITIONS
1.1 Building: a twelve (12) story building containing
approximately one hundred eighty-six thousand eight hundred eighty six
(186,886) square feet of office rentable area and one hundred ninety thousand
seven hundred nineteen (190,719) square feet of total rentable area as of the
date hereof and located at 1133 Fifteenth Street, N.W., Washington, D.C. 20005.
1.2 Premises: approximately six thousand six hundred
ninety-six (6,696) square feet of rentable area located on the first (1st)
floor of the Building, as more particularly designated on Exhibit A.
1.3 Lease Term: one hundred twenty (120) months.
1.4 Anticipated Delivery Date: twenty (20) days after
the earliest to occur of the day (a) Landlord receives written notice from
Tenant that the Permits (as defined in Section 3.3(b)) have been obtained, or
(b) Landlord receives written notice that Tenant waives the conditions
described in Section 3.3(b)), or (c) the termination period set forth in
Section 3.3(b) expires without Tenant having terminated the Lease in accordance
therewith.
1.5 Base Rent: the amount set forth in Section 4. 1(a).
1.6 [Intentionally Deleted].
1.7 Operating Charges Base Year: calendar year 1996.
1.8 Real Estate Taxes Base Year: calendar year 1996.
1.9 Security Deposit Amount: ten thousand dollars
($10,000.00).
1.10 Brokers: CB Commercial Real Estate Group, Inc., 1001
Pennsylvania Avenue, N.W., Washington, D.C. 20004-2505 and Smithy Braedon
Company, 1150 Connecticut Avenue, N.W., Washington, D.C. 20036.
1.11 Tenant Notice Address: 1025 Fifteenth Street, N.W.,
Washington, D.C. 20005, Attn: Ron K. Bailey.
1.12 Landlord Notice Address; c/o Carr Real Estate
Services, Suite 700, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006,
Attention: Property Manager: 1133 Fifteenth Street, with a copy to Clark
Enterprises, Inc., 15th Floor, 7500 Old Georgetown Road, Bethesda, Maryland
20814-5122, Attention: Mr. Lawrence C. Nussdorf.
1.13 Building Hours: 8:00 am to 8:00 p.m. on Monday
through Friday (excluding legal public holidays) and 9:00 a.m. to 6:90 p.m. on
Saturday (excluding legal public holidays), and such other hours, if any, as
Landlord from time to time determines.
1.14 Guarantor(s): None.
ARTICLE II
PREMISES
2.1 Tenant leases the Premises from Landlord for the term
and upon the conditions and covenants set forth in this Lease. Tenant will have
the non-exclusive right to use the common and public areas of the Building.
Except as may otherwise be expressly provided in this Lease, the lease of the
Premises does not include the right to use the roof, mechanical rooms,
electrical closets, janitorial closets, telephone rooms, parking areas or other
non-common or non-public areas of the Building.
<PAGE> 2
ARTICLE III
TERM
3.1 All of the provisions of this Lease shall be in full
force and effect from and after the date first above written. The Lease Term
shall commence on the Lease Commencement Date specified in Section 3.2. If the
Lease Commencement Date is not the first day of a month, then the Lease Term
shall be the period set forth in Section 1.3 plus the partial month in which the
Lease Commencement Date occurs. The Lease Term shall also include any properly
exercised renewal or extension of the term of this Lease.
3.2 The "Lease Commencement Date" shall be the earliest
to occur of (a) sixty-nine (69) days (plus that number of days remaining prior
to the Permit Termination Date after tenant notifies landlord that Permits have
been received by tenant) after the date the Premises are delivered to Tenant,
or (b) the date on which the work and materials to be provided pursuant to
Exhibit B are substantially complete as determined pursuant to Exhibit B, or
(c) the date on which Tenant commences operations in the Premises. Promptly
after the Lease Commencement Date is ascertained, Landlord and Tenant shall
execute the certificate confirming the Lease Commencement Date attached to this
Lease as Exhibit D.
3.3 (a) It is presently anticipated that the Premises
will be delivered to Tenant on or about the Anticipated Delivery Date. However,
Tenant acknowledges that (1) approximately six hundred fifty (650) square feet
of the Premises (the "Mayflower Space") currently are leased to Mayflower Valet
("Mayflower") pursuant to a lease between Landlord and Mayflower (the
"Mayflower Lease"); (2) certain other square feet of the Premises (the "DCC
Space") currently are leased to DeLeuw, Cather & Company ("DCC") pursuant to a
storage space lease between Landlord and DCC (the "DCC Lease"); and (3) certain
other square feet of the Premises (the "EAWS Space") currently are leased to
Europ Assistance Worldwide Services, Inc. ("EAWS") pursuant to a storage space
lease between Landlord and EAWS (the "EAWS Lease"). The Mayflower Space, DCC
Space and EAWS Space shall hereinafter be referred to collectively as the
"Occupied Space." Mayflower, DCC and EAWS have each entered into an agreement
with Landlord (collectively, the "Termination Agreements"), which provides that
the Mayflower Lease shall terminate and that DCC and EAWS will surrender and
vacate the DCC Space and EAWS Space, respectively, effective as of the
fifteenth (15th) day after Landlord notifies Mayflower, DCC and EAWS that this
Lease has been fully executed and the termination period set forth in Section
3.3(b) shall have expired without Tenant having terminated this Lease. Landlord
shall notify Mayflower, DCC and EAWS promptly after the same has occurred.
Notwithstanding the foregoing, if Mayflower, DCC or EAWS fail to vacate all or
any portion of the Occupied Space on or before the Occupied Space Termination
Date (as defined below), then Landlord shall not have any liability whatsoever,
and this Lease shall not be rendered void or voidable as a result thereof,
provided, however, that, if Mayflower, DCC or EAWS fail to vacate all or any
portion of the Occupied Space on or before the one hundred twentieth (120th)
day after the date this Lease is fully executed (the "Occupied Space
Termination Date"), then Tenant shall have the right to terminate this Lease as
set forth below. If Tenant desires to so terminate this Lease, such termination
right shall be exercised by providing written notice to Landlord thereof only
during the period commencing on the one hundred twenty-first (121st) day and
ending on the one hundred twenty-fifth (125th) day after the date this Lease is
fully executed and if Tenant does not so exercise its termination right during
such period, then Tenant shall be deemed to have waived its right to terminate
this Lease under thin Section 3.3(a).
(b) From and after the date Tenant executes this
Lease, Tenant shall use all due diligence and good faith efforts to obtain as
expeditiously as possible all permits, certificates of occupancy and other
approvals and documents required in connection with the commencement and
completion of Tenant's Work (as defined in Exhibit B) and the use and occupancy
of the Premises, including, but not limited to, the building permit for
Tenant's Work (the "Building Permit") and any necessary license from the
District of Columbia educational authorities (the "Education License")
(collectively, the "Permits"). If minor modifications are at any time required
by governmental authorities to any plans or specifications which are prepared
and submitted by Tenant, then, Tenant shall be obligated to make such
modifications. At Landlord's request, Tenant shall permit Landlord to assist
Tenant in obtaining all such permits and other items.
(i) Promptly after this Lease is fully executed,
Tenant shall submit all necessary applications to all
appropriate governmental authorities in order to obtain the
Education License. As soon as practicable following Landlord's
approval of the Final Construction Documents (as defined in
Paragraph 4(c) of Exhibit B), Tenant shall submit all necessary
applications to all appropriate governmental authorities in
order to obtain the Building Permit. Tenant shall be
responsible for all fees in connection therewith and shall
diligently and in
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<PAGE> 3
good faith pursue the applications so that the Permits can be
issued as soon as practicable. Tenant shall keep Landlord
informed of all developments regarding the status of the permit
process and shall, at a minimum, provide weekly reports to
Landlord. Tenant shall consult with Landlord regarding any
problems or issues encountered during the permit process and
will seek Landlord's advice with respect thereto. Tenant shall
notify Landlord of, and afford Landlord the right to attend and
participate in, all conferences (telephonic or otherwise)
involving Tenant and/or any representative of the local
governmental authorities during the permit process. Tenant
shall cause Landlord to receive copies of all correspondence
relating to the permit process. Tenant shall advise Landlord in
writing of the issuance of each Permit not later than the first
business day immediately following issuance thereof.
(ii) If, after using all due diligence and good faith
efforts, Tenant is unable to secure the Building Permit and
the Education License within twenty-one (21) days after the
date this Lease is fully executed (the "Permit Termination
Date") and provided no default then exists under this Lease,
then Tenant shall have the right to terminate this Lease by
giving written notice to Landlord not later than the second
business day after the Permit Termination Date. If this Lease
is not terminated timely as aforesaid, then Tenant's
termination rights set forth above shall immediately lapse
and be of no further force or effect and this Lease shall
remain in full force and effect. If Tenant terminates this
Lease in accordance with this Section 3.3(b), then Tenant
shall deliver to Landlord, together with the termination
notice, and as a condition precedent to the effectiveness
thereof, a termination fee equal to the costs incurred by
Landlord in connection with this Lease and Tenant's
anticipated occupancy of the Premises, including, but not
limited to, legal fees related to the Lease and the
Termination Agreements and review of Tenant's plans.
Notwithstanding anything herein to the contrary, the Permit
Termination Date shall not be delayed in accordance with
Section 25.21.
3.4 "Lease Year" shall mean a period of twelve (12)
consecutive months commencing on the Lease Commencement Date, and each
successive twelve (12) month period thereafter; provided, however, that if the
Lease Commencement Date is not the first day of a month, then the second Lease
Year shall commence on the first day of the month immediately succeeding the
month in which the first anniversary of the Lease Commencement Date occurs.
3.5 (a) Subject to and in accordance with the terms and
conditions of this Section, Tenant shall have the right to terminate this Lease
as of the last day of the seventh (7th) Lease Year (the "Termination Date").
Tenant may exercise such right only by giving Landlord written notice thereof
("Termination Notice") not later than nine (9) months prior to the Termination
Date (the "Termination Deadline"). If Tenant timely exercises such right, and as
a condition precedent to the effectiveness thereof, Tenant shall deliver to
Landlord, with the Termination Notice, a termination payment equal to the sum of
(1) one-half ( 1/2) of the Base Rent payable during the seventh (7th) Lease Year
, plus (2) one-half ( 1/2) of any additional rent payable during the seventh
(7th) Lease Year (including, but not limited to, Tenant's proportionate share of
Operating Charges and Real Estate Taxes), plus (3) the Unamortized Loan Amount
(as determined in Section 3.5(b) below). Such termination payment shall be in
addition to, and not in lieu of, the rental payments due through the Termination
Date. If the amount of the termination payment cannot be finally determined as
of the Termination Deadline, then Tenant shall pay to Landlord, not later than
the Termination Deadline, Landlord's reasonable estimate of the amount of such
payment, and any reconciliation necessary shall be made by Landlord, and any
resulting amount due shall be paid by Tenant or refunded by Landlord, as
applicable, not later than ten (10) business days after Landlord finally
determines such sums and sends Tenant written notice thereof. Notwithstanding
anything to the contrary herein, in the event that an Event of Default has
occurred at any time during the Lease Term (whether before or after the date of
the Termination Notice) or an event exists at the time the Termination Notice is
delivered (or at any time prior to the Termination Date) which event with notice
and/or the passage of time would constitute an Event of Default if not cured
within the applicable cure period, then, at Landlord's sole option, the
Termination Notice shall be deemed void and of no further force and effect. If
Landlord elects to void Tenant's Termination Notice in accordance with the
immediately preceding sentence, this Lease shall continue in full force and
effect and Landlord shall promptly return the Termination Payment to Tenant. If
Tenant does not timely exercise its right of termination pursuant to this
Section, then such right shall immediately lapse and be of no further force or
effect.
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(b) The Unamortized Loan Amount shall be the
then-current balance of the Assumed Loan as of the Termination Date. The
Assumed Loan shall be a hypothetical loan made by Landlord to Tenant as of the
Lease Commencement Date. The original principal amount of the Assumed Loan
shall be deemed to be all costs and expenses incurred by Landlord in connection
with this Lease and any amendments hereto as reasonably calculated by Landlord,
including, but not limited to, the Improvements Allowance (as defined in
Exhibit B hereto), brokerage commissions, legal fees and costs of any other
abatement, allowance or concession. Interest shall be deemed to accrue from
time to time on the outstanding principal balance of the Assumed Loan at an
annual rate of ten percent (10%) compounded quarterly. For each full monthly
payment of Base Rent paid by Tenant to Landlord, Tenant shall be deemed to have
paid concurrently with such monthly payment to Landlord that amount which, in
one hundred twenty (120) equal consecutive monthly installments of such amount,
would fully amortize the original principal amount of the Assumed Loan and all
interest earned thereon.
ARTICLE IV
BASE RENT
4.1 (a) From and after the Lease Commencement Date,
Tenant shall pay the Base Rent as follows:
<TABLE>
<CAPTION>
ANNUAL BASE RENTAL RATE PER
LEASE YEAR BASE RENT SQUARE FOOT
<S> <C> <C>
1 $ 133,920 $ 20.00
2 136,598.40 20.40
3 139,343,76 20.81
4 142,089.12 21.22
5 144,968.40 21.65
6 161,507.52 24.12
7 164,721.60 24.60
8 168,069.60 25.10
9 171,417.60 25.60
10 174,832.56 26.11
</TABLE>
4.2 The Base Rent shall be due and payable in equal
monthly installments in advance on the first day of each month during each
Lease Year. Concurrently with Tenant's execution of this Lease, Tenant shall
pay an amount equal to one (1) monthly installment of the Base Rent payable
during the first Lease Year, which amount shall be credited toward the monthly
installment of the Base Rent payable for the first full calendar month of the
Lease Term. If the Lease Commencement Date is not the first day of a month,
then the Base Rent from the Lease Commencement Date until the first day of the
following month shall be prorated on a per diem basis at the rate of
one-thirtieth (1/30th) of the monthly installment of the Base Rent payable
during the first Lease Year, and Tenant shall pay such prorated installment of
the Base Rent on the Lease Commencement Date.
4.3 All sums payable by Tenant under this Lease, whether
or not stated to be Base Rent, additional rent or otherwise, shall be paid to
Landlord in legal tender of the United States, without setoff, deduction or
demand, at the Landlord Payment Address, or to such other party or such other
address as Landlord may designate in writing. Landlord's acceptance of rent
after it shall have become due and payable shall not excuse a delay upon any
subsequent occasion or constitute a waiver of any of Landlord's rights
hereunder. If any sum payable by Tenant under this Lease is paid by check which
is returned due to insufficient funds, stop payment order, or otherwise, then:
(a) such event shall be treated as a failure to pay such sum when due; and (b)
in addition to all other rights and remedies of Landlord hereunder, Landlord
shall be entitled (i) to impose a returned check charge of Fifty Dollars
($50.00) to cover Landlord's administrative expenses and overhead for
processing, and (ii) to require that all future payments be remitted by wire
transfer, money order, or cashier's or certified check.
ARTICLE V
INCREASES IN OPERATING CHARGES AND REAL ESTATE TAXES
5.1 For the purposes of this Article V, the term
"Building" shall be deemed to include the site upon which the Building is
constructed (which site is sometimes referred to herein as the "Land").
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If the Building is operated as a part of a complex of buildings or in
conjunction with other buildings or parcels of land, then Landlord shall prorate
the common expenses and costs with respect to each such building or parcel of
land in such manner as Landlord, in its sole but not arbitrary judgment, shall
determine.
5.2 (a) From and after the Lease Commencement Date,
Tenant shall pay as additional rent Tenant's proportionate share of the amount
by which Operating Charges (as defined in Section 5.2(b)) for each calendar
year falling entirely or partly within the Lease Term exceed a base amount (the
"Operating Charges Base Amount") equal to the Operating Charges incurred during
the Operating Charges Base Year. Tenant's proportionate share with respect to
Operating Charges shall be that percentage which is equal to a fraction, the
numerator of which is the number of square feet of rentable area in the
Premises, and the denominator of which is the number of square feet of total
rentable area from time to time in the Building (excluding storage, roof and
garage space).
(b) "Operating Charges" shall mean the sum of all
expenses incurred by Landlord in the ownership, operation, maintenance, repair
and cleaning of the Building, including, but not limited to, the following:
(i) charges for electricity and HVAC services supplied to the public and common
areas and facilities of the Building, as reasonably estimated by Landlord, and
all gas, water, sewer and other utility charges of every type and nature
supplied to all or any portion of the entire Building (excluding electricity
supplied to the areas of the Building leased (or leaseable) to tenants); (2)
premiums and other charges for insurance; (3) management fees and personnel
costs of the Building; (4) costs of service and maintenance contracts relating
to the Building as a whole; (5) maintenance, repair and replacement expenses
and supplies which are deducted by Landlord in computing its federal income tax
liability; (6) depreciation for capital expenditures made by Landlord to reduce
operating expenses or to comply with legal or insurance requirements applicable
to the Building after the date hereof or to replace existing equipment or
machinery used in connection with the operation or maintenance of the Building,
such capital costs to be amortized over such reasonable period as Landlord
shall determine, together with interest at the rate paid by Landlord on any
funds borrowed for such expenditures; (7) charges for janitorial and cleaning
services and supplies furnished to the public and common areas and facilities
of the Building; (8) any business, professional and occupational license tax
payable by Landlord with respect to the Building; (9) reasonable reserves for
replacements, repairs and contingencies; (10) costs of snow removal; and (11)
except as otherwise specifically set forth in this Section 5.2(b), any other
expenses incurred by Landlord in maintaining, repairing, operating or cleaning
the Building. Operating Charges shall not include: (i) principal or interest
payments on any Mortgages (as defined in Section 21.1); (ii) leasing
commissions or legal fees with respect to the negotiation of leases; (iii)
capital expenditures, except as specified above; (iv) the costs of special
services and utilities separately paid by particular tenants of the Building;
(v) costs which are reimbursed to Landlord by insurers or by governmental
authorities in eminent domain proceedings; (vi) advertising for vacant space in
the Building: (vii) the cost of tenant improvements; and (viii) costs and
expenses directly and solely relating to the management, operation, cleaning,
repairing and maintenance of the Garage.
(c) If the average occupancy rate for the Building
during any calendar year (including the Operating Charges Base Year) is less
than one hundred percent (100%), then Operating Charges for such year shall be
deemed to include all additional expenses, as reasonably estimated by Landlord,
which would have been incurred during such year if such average occupancy rate
had been one hundred percent (100%).
(d) Tenant shall make estimated monthly payments to
Landlord on account of the amount by which Operating Charges that are expected
to be incurred during each calendar year (or portion thereof) would exceed the
Operating Charges Base Amount. At the beginning of the Lease Term and at the
beginning of each calendar year thereafter, Landlord may submit a statement
setting forth Landlord's reasonable estimate of such excess and Tenant's
proportionate share thereof. Tenant shall pay to Landlord on the first day of
each month following receipt of such statement, until Tenant's receipt of the
succeeding annual statement, an amount equal to one-twelfth (1/12) of each such
share (estimated on an annual basis without proration pursuant to Section 5.4).
From time to time during any calendar year, Landlord may revise Landlord's
estimate and adjust Tenant's monthly payments to reflect Landlord's revised
estimate. Within approximately one hundred twenty (120) days after the end of
each calendar year, or as soon thereafter as is feasible, Landlord shall submit
a statement showing (1) Tenant's proportionate share of the amount by which
Operating Charges incurred during the preceding calendar year exceeded the
Operating Charges Base Amount, and (2) the aggregate amount of Tenant's
estimated payments made on account of Operating Charges during such year. If
such statement indicates that the aggregate amount of such estimated payments
exceeds Tenant's actual liability, then Landlord shall credit the net
overpayment toward Tenant's next estimated payment(s) pursuant to this Section.
If such statement indicates that Tenant's actual liability exceeds the
aggregate amount of such estimated payments, then Tenant shall pay the amount
of such excess as additional rent.
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<PAGE> 6
(e) For a period of ninety (90) days after Tenant's
receipt of such statement, Tenant, or an independent, certified public
accountant who is hired by Tenant on a noncontingent fee basis and who offers a
full range of accounting services and is reasonably acceptable to Landlord,
shall have the right, during regular business hours and after giving at least
ten (10) days' advance written notice to Landlord, to inspect and complete an
audit of Landlord's books and records relating to Operating Charges for the
immediately preceding calendar year; or, at Landlord's sole discretion and in
lieu of such audit, Landlord will provide Tenant with an audited statement
prepared by an independent, certified public accountant or certified by an
officer of Landlord as being true, complete and correct. Tenant shall (and
shall cause its employees, agents and consultants to) keep the results of any
such audit or audited statement strictly confidential. If such audit or audited
statement shows that the amounts paid by Tenant to Landlord on account of
increases in Operating Charges exceed the amounts to which Landlord is entitled
hereunder, Landlord shall credit the amount of such excess toward the next
monthly payments of Operating Charges due hereunder. All costs and expenses of
any such audit or audited statement shall be paid by Tenant. If Tenant does not
notify Landlord in writing of any objection to any statement within ninety (90)
days after receipt thereof then Tenant shall be deemed to have waived such
objection.
5.3 (a) Tenant shall pay as additional rent Tenant's
proportionate share of the amount by which Real Estate Taxes (as defined in
Section 5.3(b)) for each calendar year falling entirely or partly within the
Lease Term exceed a base amount (the "Real Estate Taxes Base Amount") equal to
the Real Estate Taxes incurred during the Real Estate Taxes Base Year, as
finally determined. Tenant's proportionate share with respect to Real Estate
Taxes shall be that percentage which is equal to a fraction, the numerator of
which is the number of square feet of rentable area in the Premises, and the
denominator of which is the number of square feet of total rentable area from
time to time in the Building (excluding storage, roof and garage space).
(b) "Real Estate Taxes" shall mean (1) all real
estate taxes, vault and/or public space rentals, business district or arena
taxes, special user fees, rates, and assessments (including general and special
assessments, if any), ordinary and extraordinary, foreseen and unforeseen,
which are imposed upon Landlord or assessed against the Building or the Land or
Landlord's personal property used in connection therewith, (2) any other
present or future taxes or governmental charges that are imposed upon Landlord
or assessed against the Building or the Land which are in the nature of or in
substitution for real estate taxes, including any tax levied on or measured by
the rents payable by tenants of the Building, and (3) expenses (including,
without limitation, reasonable attorneys' and consultants' fees and court
costs) incurred in reviewing, protesting or seeking a reduction of real estate
taxes, whether or not such protest or reduction is ultimately successful.
Subject to the foregoing, Real Estate Taxes shall not include any inheritance,
estate, gift, franchise, corporation, net income or net profits tax assessed
against Landlord from the operation of the Building.
(c) If during any calendar year (including the Real
Estate Taxes Base Year) the Building is not fully assessed for tax purposes
because the Building is less than fully occupied, then Real Estate Taxes for
such year shall be deemed to include all additional taxes, as reasonably
estimated by Landlord, which would have been incurred during such year if the
Building had been fully assessed.
(d) Tenant shall make estimated monthly payments to
Landlord on account of the amount by which Real Estate Taxes that are expected
be incurred during each calendar year would exceed the Real Estate Taxes Base
Amount. At the beginning of the Lease Term and at the beginning of each
calendar year thereafter, Landlord may submit a statement setting forth
Landlord's reasonable estimate of such amount and Tenant's proportionate share
thereof. Tenant shall pay to Landlord on the first day of each month following
receipt of such statement, until Tenant's receipt of the succeeding annual
statement, an amount equal to one-twelfth (1/12) of such share (estimated on an
annual basis without proration pursuant to Section 5.4). From time to time
during any calendar year, Landlord may revise Landlord's estimate and adjust
Tenant's monthly payments to reflect Landlord's revised estimate. Within
approximately one hundred twenty (120) days after the end of each calendar
year, or as soon thereafter as is feasible, Landlord shall submit a statement
showing (1) Tenant's proportionate share of the amount by which Real Estate
Taxes incurred during the preceding calendar year exceeded the Real Estate
Taxes Base Amount, and (2) the aggregate amount of Tenant's estimated payments
made during such year. If such statement indicates that the aggregate amount of
such estimated payments exceeds Tenant's actual liability, then Landlord shall
credit the net overpayment toward Tenant's next estimated payment(s) pursuant
to this Section. If such statement indicates that Tenant's actual liability
exceeds the aggregate amount of such estimated payments, then Tenant shall pay
the amount of such excess as additional rent.
5.4 If the Lease Term commences or expires on a day other
than the first day or the last day of a calendar year, respectively, then
Tenant's liabilities pursuant to this Article for such calendar year shall be
apportioned by multiplying the respective amount of Tenant's proportionate
share thereof for
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<PAGE> 7
the full calendar year by a fraction, the numerator of which is the number of
days during such calendar year falling within the Lease Term, and the
denominator of which is three hundred sixty-five (365).
ARTICLE VI
USE OF PREMISES
6.1 (a) Tenant shall use and occupy the Premises solely
for general (non-medical and non-governmental) classroom purposes and ancillary
administrative office space compatible with first class office buildings in the
jurisdiction in which the Building is located, and for no other use or purpose.
Tenant shall not use or occupy the Premises for any unlawful purpose, or in any
manner that will violate the certificate of occupancy for the Premises or the
Building or that will constitute waste, nuisance or unreasonable annoyance to
Landlord or any other tenant or user of the Building, or in any manner that
will increase the number of parking spaces required for the Building or its full
occupancy as required by law. Tenant shall comply with all present and future
laws (including, without limitation, the Americans with Disabilities Act (the
"ADA") and the regulations promulgated thereunder, as the same may be amended
from time to time), ordinances (including without limitation, zoning ordinances
and land use requirements), regulations, orders and recommendations (including,
without limitation, those made by any public or private agency having authority
over insurance rates) (collectively, "Laws") concerning the use, occupancy and
condition of the Premises and all machinery, equipment, furnishings, fixtures
and improvements therein, all of which shall be complied with in a timely manner
at Tenant's sole expense. If any such Law requires an occupancy or use permit or
license for the Premises or the operation of the business conducted therein,
then Tenant shall obtain and keep current such permit or license at Tenant's
expense and shall promptly deliver a copy thereof to Landlord. Use of the
Premises is subject to all covenants, conditions and restrictions of record.
Tenant shall not use any space in the Building for the sale of goods to the
public at large or for the sale at auction of goods or property of any kind.
Tenant shall not conduct any operations, sales, promotions, advertising or
special events outside the Premises.
(b) Tenant shall keep that portion of the Premises
designated on Exhibit A as the lobby area (i) lighted twenty-four (24) hours a
day, and attended by a lobby attendant during any hours that Tenant may be
using the Premises, and (ii) fully furnished so as to give the appearance that
the Premises are in operation, as reasonably determined by Landlord.
(c) The common areas of the Building are accessible
from the Premises only through the emergency exit door located at the rear of
the Premises. Tenant shall install, at its sole cost and subject to Landlord's
approval as required in this Lease, an alarm on such door which shall be
connected to the Building alarm system and shall be activated on the opening of
such door. Tenant shall post a warning sign at the door stating that the door
is only to be used for emergency exit and that the alarm will sound if opened.
Tenant shall use best efforts to prohibit students and other Invitees access
through such emergency exit to any part of the Building. Tenant and its
Invitees shall have the same rights of access to the Building lobby area
through the front door of the Building as the general public.
6.2 Tenant shall pay before delinquency any business,
rent or other taxes or fees that are now or hereafter levied, assessed or
imposed upon Tenant's use or occupancy of the Premises, the conduct of Tenant's
business at the Premises, or Tenant's equipment, fixtures, furnishings,
inventory or personal property. If any such tax or fee is enacted or altered so
that such tax or fee is levied against Landlord or so that Landlord is
responsible for collection or payment thereof, then Tenant shall pay as
additional rent the amount of such tax or fee.
6.3 (a) Tenant shall not cause or permit any Hazardous
Materials to be generated, used, released, stored or disposed of in or about
the Building, provided that Tenant may use and store reasonable quantities of
standard cleaning materials as may be reasonably necessary for Tenant to
conduct normal general office use operations in the Premises. Tenant hereby
acknowledges receipt of that certain letter dated May 13, 1996 from Applied
Environmental, Inc., which discloses the presence of asbestos and/or certain
asbestos-containing materials in the Premises. At the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord free
of Hazardous Materials and in compliance with all Environmental Laws; provided,
however, that Tenant shall have no obligation to remove any Hazardous Materials
which were present in the Premises prior to Tenant's execution of this Lease
(and not brought onto the Premises by Tenant or any of its employees, agents or
contractors) unless removal thereof would not otherwise be required by law, but
is required in order for Tenant to complete Alterations in accordance with this
Lease or to complete the initial improvements in accordance with Exhibit B.
Notwithstanding anything contained in this Lease to the contrary, if Tenant
removes or attempts to remove any asbestos, or asbestos-containing materials
for any reason whatsoever, Tenant shall do so strictly in accordance with this
Lease and all Environmental Laws and any other applicable Laws and Tenant shall
employ qualified asbestos contractors approved by Landlord to perform the
removal, and only after notifying Landlord in writing of the location of the
Hazardous Materials Tenant proposes to
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remove prior to such removal. "Hazardous Materials" means (a) asbestos and any
asbestos containing material and any substance that is then defined or listed
in, or otherwise classified pursuant to, any Environmental Law or any other
applicable Law as a "hazardous substance," "hazardous material," "hazardous
waste," "infectious waste," "toxic substance," "toxic pollutant" or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic
Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids,
produced waters, and other wastes associated with the exploration, development
or production of crude oil, natural gas, or geothermal resources, and (c) any
petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas,
radioactive material (including any source, special nuclear, or by-product
material), medical waste, chlorofluorocarbon, lead or lead-based product, and
any other substance whose presence could be detrimental to the Building or the
Land or hazardous to health or the environment. "Environmental Law" means any
present and future Law and any amendments (whether common law, statute, rule,
order, regulation or otherwise), permits and other requirements or guidelines of
governmental authorities applicable to the Building or the Land and relating to
the environment and environmental conditions or to any Hazardous Material
(including, without limitation, CERCLA, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean
Air Act, 33 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f
et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C.
Section 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq., and any so-called "Super Fund" or "Super Lien" law, any Law
requiring the filing of reports and notices relating to hazardous substances,
environmental laws administered by the Environmental Protection Agency, and any
similar state and local Laws, all amendments thereto and all regulations,
orders, decisions, and decrees now or hereafter promulgated thereunder
concerning the environment, industrial hygiene or public health or safety).
(b) Notwithstanding any termination of this Lease,
Tenant shall indemnify and hold Landlord, its employees and agents harmless
from and against any damage, injury, loss, liability, charge, demand or claim
based on or arising out of the presence or removal of, or failure to remove,
Hazardous Materials generated, used, released, stored or disposed of by Tenant
or any Invitee in or about the Building, whether before or after Lease
Commencement Date. In addition, Tenant shall give Landlord immediate verbal and
follow-up written notice of any actual or threatened Environmental Default,
which Environmental Default Tenant shall cure in accordance with all
Environmental Laws and to the satisfaction of Landlord and only after Tenant
has obtained Landlord's prior written consent, which shall not be unreasonably
withheld. An "Environmental Default" means any of the following by Tenant or
any Invitee: a violation of an Environmental Law; a release, spill or
discharge of a Hazardous Material on or from the Premises, the Land or the
Building; an environmental condition requiring responsive action; or an
emergency environmental condition. Upon any Environmental Default, in addition
to all other rights available to Landlord under this Lease, at law or in
equity, Landlord shall have the right but not the obligation to immediately
enter the Premises, to supervise and approve any actions taken by Tenant to
address the Environmental Default, and, if Tenant fails to immediately address
same to Landlord's satisfaction, to perform, at Tenant's sole cost and expense,
any lawful action necessary to address same. If any lender or governmental
agency shall require testing to ascertain whether an Environmental Default is
pending or threatened, then Tenant shall pay the reasonable costs therefor as
additional rent. Promptly upon request, Tenant shall execute from time to time
affidavits, representations and similar documents concerning Tenant's best
knowledge and belief regarding the presence of Hazardous Materials at or in the
Building, the Land or the Premises.
6.4 Landlord at its expense (subject to reimbursement
pursuant to Article V to the extent permitted thereby) shall take steps
necessary to comply with Title III of the ADA to the extent same applies
directly to the common areas of the Building as a whole; provided, however, that
to the extent any non-compliance is a result of the use or occupancy of the
Premises or any action or inaction of Tenant or any Invitee, or if any
improvements made by Landlord to comply with the ADA benefit solely the
Premises, then such compliance shall be at Tenant's cost. Tenant at its sole
cost and expense shall be solely responsible for taking any and all measures
which are required to comply with the ADA concerning the Premises (including
means of ingress and egress thereto) and the business conducted therein. Any
Alterations made or constructed by Tenant for the purpose of complying with the
ADA, or which otherwise require compliance with the ADA shall be done in
accordance with this Lease; provided, that Landlord's consent to such
Alterations shall not constitute either Landlord's assumption, in whole or in
part, of Tenant's responsibility for compliance with the ADA, or representation
or confirmation by Landlord that such Alterations comply with the provisions of
the ADA.
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ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1 Tenant shall not assign, transfer or otherwise
encumber (collectively, "assign") this Lease or all or any of Tenant's rights
hereunder or interest herein, or sublet or permit anyone to use or occupy
(collectively, "sublet") the Premises or any part thereof, without obtaining
the prior written consent of Landlord, which consent may be withheld or granted
in Landlord's sole and absolute discretion. Notwithstanding any of the
foregoing to the contrary, provided Tenant is not in default hereunder this
Lease, and subject to Landlord's rights and Tenant's obligations pursuant to
Section 7.5 below, Landlord shall not unreasonably withhold its consent to any
proposed subletting of the Premises. For purposes of the immediately preceding
sentence, it shall be reasonable for Landlord to withhold its consent if, for
example: (i) the proposed subtenant is engaged in a business, or the Premises
will be used in a manner, that is inconsistent with the first-class image of
the Building; or (ii) Landlord is not satisfied with the financial condition of
the proposed subtenant; or (iii) the initial Tenant does not remain fully
liable as a primary obligor for the payment of all rent and other charges
payable by Tenant hereunder and for the performance of all other obligations of
Tenant hereunder; or (iv) the proposed subtenant is a governmental or
quasi-governmental agency. No assignment or right of occupancy hereunder may be
effectuated by operation of law or otherwise without the prior written consent
of Landlord. Any assignment or subletting, Landlord's consent thereto, or
Landlord's collection or acceptance of rent from any assignee or subtenant
shall not be construed either as waiving or releasing Tenant from any of its
liabilities or obligations under this Lease as a principal and not as a
guarantor or surety, or as relieving Tenant or any assignee or subtenant from
the obligation of obtaining Landlord's prior written consent to any subsequent
assignment or subletting. As security for this Lease, Tenant hereby assigns to
Landlord the rent due from any assignee or subtenant of Tenant. For any period
during which Tenant is in default hereunder, Tenant hereby authorizes each such
assignee or subtenant to pay said rent directly to Landlord upon receipt of
notice from Landlord specifying same. Landlord's collection of such rent shall
not be construed as an acceptance of such assignee or subtenant as a tenant.
Tenant shall not mortgage, pledge, hypothecate or encumber (collectively
"mortgage") this Lease without Landlord's prior written consent, which consent
may be granted or withheld in Landlord's sole and absolute discretion. Tenant
shall pay to Landlord all expenses (including attorneys' fees and accounting
costs) incurred by Landlord in connection with Tenant's request for Landlord to
give its consent to any assignment, subletting, or mortgage. Tenant shall
notify Landlord prior to engaging a real estate broker in connection with any
proposed assignment or sublease. Any sublease, assignment or mortgage shall, at
Landlord's option, be effected on forms approved by Landlord. Tenant shall
deliver to Landlord a fully-executed copy of each agreement evidencing a
sublease, assignment or mortgage within ten (10) days after Tenant's execution
thereof.
7.2 If Tenant is a partnership, then any event (whether
voluntary, concurrent or related) resulting in a dissolution of Tenant, any
withdrawal or change (whether voluntary, involuntary or by operation of law) of
partners owning a controlling interest in Tenant (including each general
partner), or any structural or other change having the effect of limiting the
liability of the partners shall be deemed a voluntary assignment of this Lease
subject to the provisions of this Article. If Tenant is a corporation (or a
partnership with a corporate general partner), then any event (whether
voluntary, concurrent or related) resulting in a dissolution, merger,
consolidation or other reorganization of Tenant (or such corporate general
partner), or the sale or transfer or relinquishment of the interest of
shareholders who, as of the date of this Lease, own a controlling interest of
the capital stock of Tenant (or such corporate general partner), shall be deemed
a voluntary assignment of this Lease subject to the provisions of this Article;
provided, however, that the foregoing portion of this sentence shall not apply
to corporations whose stock is traded through a national or regional exchange or
over-the-counter market. If Tenant is a limited liability company, then any
dissolution of Tenant r a withdrawal or change, whether voluntary, involuntary
or by operation of law, of members owning a controlling interest in Tenant shall
be deemed a voluntary assignment of this Lease. In addition, a transfer of all
or substantially all of the assets of Tenant, either by merger, consolidation,
or otherwise shall be deemed to be an assignment under this Article VII.
7.3 If at any time during the Lease Term Tenant desires
to assign, sublet or mortgage all or part of this Lease or the Premises, then
in connection with Tenant's request to Landlord for Landlord's consent thereto,
Tenant shall give notice to Landlord in writing ("Tenant's Request Notice")
containing: the identity of the proposed assignee, subtenant or other party
and a description of its business; the terms of the proposed assignment,
subletting or other transaction; the commencement date of the proposed
assignment, subletting or other transaction (the "Proposed Sublease
Commencement Date"); the area proposed to be assigned, sublet or otherwise
encumbered (the "Proposed Sublet Space"); the most recent financial statement
or other evidence of financial responsibility of such proposed assignee,
subtenant or other party; and a certification executed by Tenant and such party
stating whether or not any premium or other consideration is being paid for the
assignment, sublease or other transaction.
7.4 Intentionally Deleted.
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7.5 If any sublease or assignment (whether by operation
of law or otherwise, including without limitation an assignment pursuant to the
provisions of the Bankruptcy Code or any other Insolvency Law) provides that
the subtenant or assignee thereunder is to pay any amount in excess of the
rental and other charges due under this Lease, then whether such excess be in
the form of an increased monthly or annual rental, a lump sum payment, payment
for the sale, transfer or lease of Tenant's fixtures, leasehold improvements,
furniture and other personal property, or any other form (and if the subleased
or assigned space does not constitute the entire Premises, the existence of
such excess shall be determined on a pro-rata basis), Tenant shall pay to
Landlord fifty percent (50%) of any such excess or other premium applicable to
the sublease or assignment, which amount shall be paid by Tenant to Landlord as
additional rent upon such terms as shall be reasonably specified by Landlord
and in no event later than ten (10) days after any receipt thereof by Tenant.
Acceptance by Landlord of any payments due under this Section shall not be
deemed to constitute approval by Landlord of any sublease or assignment, nor
shall such acceptance waive any rights of Landlord hereunder. Landlord shall
have the right to inspect and audit Tenant's books and records relating to any
sublease or assignment.
7.6 All restrictions and obligations imposed pursuant to
this Lease on Tenant shall be deemed to extend to any subtenant, assignee,
licensee, concessionaire or other occupant or transferee, and Tenant shall
cause such person to comply with such restrictions and obligations. Any
assignee shall be deemed to have assumed obligations as if such assignee had
originally executed this Lease and at Landlord's request shall execute promptly
a document confirming such assumption. Each sublease is subject to the
condition that if the Lease Term is terminated or Landlord succeeds to Tenant's
interest in the Premises by voluntary surrender or otherwise, at Landlord's
option the subtenant shall be bound to Landlord for the balance of the term of
such sublease and shall attorn to and recognize Landlord as its landlord under
the then executory terms of such sublease.
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1 Tenant, at Tenant's sole cost and expense, shall
promptly make all repairs, perform all maintenance, and make all replacements
in and to the Premises that are necessary or desirable to keep the Premises in
first class condition and repair, in a clean, safe and tenantable condition,
and otherwise in accordance with all Laws and the requirements of this Lease.
Tenant shall maintain all fixtures, furnishings and equipment located in, or
exclusively serving, the Premises in clean, safe and sanitary condition, shall
take good care thereof and make all required repairs and replacements thereto.
Tenant shall give Landlord written notice of any defects or damage to the
structure of, or equipment or fixtures in, the Building or any part thereof
promptly after Tenant becomes aware thereof. Tenant shall suffer no waste or
injury to any part of the Premises, and shall, at the expiration or earlier
termination of the Lease Term, surrender the Premises in an order and condition
equal to or better than their order and condition on the Lease Commencement
Date, except for ordinary wear and tear and as otherwise provided in Article
XVII. Except as otherwise provided in Article XVII, all injury, breakage and
damage to the Premises and to any other part of the Building or the Land caused
by any act or omission of any invitee, agent, employee, subtenant, assignee,
contractor, client, family member, licensee, customer or guest of Tenant
(collectively, "Invitees") or Tenant, shall be repaired by and at Tenant's
expense, except that Landlord shall have the right at Landlord's option to make
any such repair and to charge Tenant for all costs and expenses incurred in
connection therewith. Landlord shall provide and install replacement tubes for
Building standard fluorescent light fixtures (subject to reimbursement pursuant
to Article V); all other bulbs and tubes for the Premises shall be provided and
installed at Tenant's expense.
8.2 Except as otherwise provided in this Lease, Landlord
shall keep the exterior and demising walls, load bearing elements, foundations,
roof and common areas that form a part of the Building, and the building
standard mechanical, electrical, HVAC and plumbing systems, pipes and conduits
that are provided by Landlord in the operation of the Building (collectively,
the "Building Structure and Systems"), clean and in good operating condition
and, promptly after becoming aware of any item needing repair, will make
repairs thereto. Notwithstanding any of the foregoing to the contrary: (a)
maintenance and repair of special tenant areas, facilities, finishes and
equipment (including, but not limited to, HVAC systems serving the Premises,
any special fire protection equipment, telecommunications and computer
equipment, kitchen/galley equipment, air-conditioning equipment serving the
Premises only and all other furniture, furnishings and equipment of Tenant and
all Alterations) shall be the sole responsibility of Tenant and shall be deemed
not to be a part of the Building Structure and Systems; and (b) Landlord shall
have no obligation to make any repairs brought about by any act or neglect of
Tenant or any Invitee.
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ARTICLE IX
ALTERATIONS
9.1 The original improvement of the Premises shall be
accomplished by Tenant or its designated contractor(s) in accordance with
Exhibit B. Landlord is under no obligation to make any structural or other
alterations, decorations, additions, improvements or other changes
(collectively, "Alterations") in or to the Premises or the Building except as
otherwise expressly provided in this Lease.
9.2 Tenant shall not make or permit anyone to make any
Alterations in or to the Premises or the Building, without the prior written
consent of Landlord, which consent may be withheld or granted in Landlord's
sole and absolute discretion with respect to all structural Alterations and to
those non-structural Alterations which are visible from the exterior of the
Premises or for which a building permit is required, and which consent shall
not be unreasonably withheld with respect to all other non-structural
Alterations. Structural Alterations shall be deemed to include without
limitation any Alteration that will or may necessitate any changes,
replacements or additions to the walls, ceilings, partitions, columns or floor,
or to the water, electrical, mechanical, plumbing or HVAC systems, of the
Premises or the Building. Notwithstanding the foregoing, provided Tenant gives
Landlord prior written notice, Tenant may install in the Premises, without
obtaining Landlord's prior written consent, minor, nonstructural Alterations of
a decorative or cosmetic nature ("Cosmetic Alterations") whose aggregate value
(as reasonably determined by Landlord) is less than Five Thousand Dollars
($5,000) and which do not require a building permit, for example, the hanging
of artwork, the installation of carpeting or repainting; and further provided
that in connection with any repainting or recarpeting, if the paint and/or
carpet (as applicable) is of equal or better quality as the paint and/or carpet
then-existing in the Premises and is of a substantially similar color, then the
cost thereof shall not be included in calculating the Five Thousand Dollar
($5,000) threshold for Cosmetic Alterations. Any Alterations made by Tenant
shall be made: (a) in a good, workmanlike, first-class and prompt manner; (b)
using new materials only; (c) by a contractor, on days, at times and, except
for Cosmetic Alterations, under the supervision of an architect approved in
writing by Landlord; (d) in accordance with plans and specifications prepared
by an engineer or architect reasonably acceptable to Landlord, which plans and
specifications shall be approved in writing by Landlord at Landlord's standard
charge (except that the foregoing requirements of this clause (d) shall not
apply in the case of Cosmetic Alterations for which plans and specifications
are not generally prepared, as reasonably determined by Landlord); (e) in
accordance with all Laws and the requirements of any insurance company insuring
the Building or any portion thereof; (f) after having obtained any required
consent of the holder of any Mortgage; (g) after obtaining public liability and
worker's compensation insurance policies approved in writing by Landlord, which
policies shall cover every person who Bill perform any work with respect to
such Alteration; (h) after Tenant has obtained and delivered to Landlord
written, unconditional waivers of mechanics' and materialmen's liens against
the Premises and the Building from all proposed contractors, subcontractors,
laborers and material suppliers for all work, labor and services to be
performed and materials to be furnished in connection with Alterations; and (i)
upon request, after Tenant has delivered to Landlord documentation reasonably
satisfactory to Landlord evidencing Tenant's financial ability to complete the
Alteration in accordance with the provisions of this Lease. If any lien (or a
petition to establish such lien) is filed in connection with any Alteration,
such lien (or petition) shall be discharged by Tenant within ten (10) days
thereafter, at Tenant's sole cost and expense, by the payment thereof or by the
filing of a bond acceptable to Landlord. If Landlord gives its consent to the
making of any Alteration, such consent shall not be deemed to be an agreement
or consent by Landlord to subject its interest in the Premises or the Building
to any liens which may be filed in connection therewith. All Alterations
(including, without limitation, those involving structural, electrical,
mechanical or plumbing work, the heating, ventilation and air conditioning
system of the Premises or the Building, and the roof of the Building) shall, at
Landlord's election, be performed by Landlord's designated contractor or
subcontractor at Tenant's expense. If Landlord elects not to so perform such
work, then Landlord shall be paid a reasonable construction supervision fee
(not to exceed five percent (5%) of the cost of such work). Promptly after the
completion of an Alteration, Tenant at its expense shall deliver to Landlord
three (3) sets of accurate as-built drawings showing such Alteration in place.
9.3 If any Alterations are made without the prior written
consent of Landlord, Landlord shall have the right at Tenant's expense to
remove and correct such Alterations and restore the Premises and the Building
to their condition immediately prior thereto, or to require Tenant to do the
same. All Alterations to the Premises or the Building made by either party
shall immediately become the property of Landlord and shall remain upon and be
surrendered with the Premises as a part thereof at the expiration or earlier
termination of the Lease Term; provided, however, that (a) if Tenant is not in
default under this Lease, then Tenant shall have the right to remove, prior to
the expiration or earlier termination of the Lease Term, all movable furniture,
furnishings and equipment installed in the Premises solely at the expense of
Tenant, and (b) Tenant shall remove all Alterations and other items in the
Premises or the Building which Landlord designates in writing for removal.
Movable furniture, furnishings and trade
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fixtures shall be deemed to exclude without limitation any item the removal of
which might cause damage to the Premises or the Building or which would normally
be removed from the Premises with the assistance of any tool or machinery other
than a dolly. Landlord shall have the right at Tenant's expense to repair all
damage and injury to the Premises or the Building caused by such removal or to
require Tenant to do the same. If such furniture, furnishings and equipment are
not removed by Tenant prior to the expiration or earlier termination of the
Lease Term, the same shall at Landlord's option become the property of Landlord
and shall be surrendered with the Premises as a part thereof; provided,
however, that Landlord shall have the right at Tenant's expense to remove from
the Premises such furniture, furnishings and equipment and any Alteration which
Landlord designates in writing for removal or to require Tenant to do the same.
If Tenant fails to return the Premises to Landlord as required by this Section,
then Tenant shall pay to Landlord, as additional rent, all costs (including a
construction management fee) incurred by Landlord in effecting such return.
ARTICLE X
SIGNS
10.1 Landlord will list Tenant's name in the Building
directory, if any, and provide Building standard signage, subject to compliance
with all applicable Laws on the exterior entry door of the Premises. No other
sign, advertisement or notice referring to Tenant shall be inscribed, painted,
affixed or otherwise displayed on any part of the exterior or interior of the
Building (including windows and doors) without the prior written approval of
Landlord, which may be granted or withheld in Landlord's sole and absolute
discretion. If any such item that has not been approved by Landlord is so
displayed, then Landlord shall have the right to remove such item at Tenant's
expense or to require Tenant to do the same. Landlord reserves the right to
install and display signs, advertisements and notices on any part of the
exterior or interior of the Building; provided, however that Landlord shall
only affix, install, or display signs on the interior of the Premises which
pertain to the management or operation of the Building.
ARTICLE XI
SECURITY DEPOSIT
11.1 Simultaneously with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the Security Deposit Amount (as defined in
Section 1.9) as a security deposit which shall be security for the performance
by Tenant of all of Tenant's obligations, covenants, conditions and agreements
under this Lease. Landlord shall not be required to maintain such security
deposit in a separate account. Except as may be required by law, Tenant shall
not be entitled to interest on the security deposit. Within approximately
thirty (30) days after the later of the expiration or earlier termination of
the Lease Term or Tenant's vacating the Premises, Landlord shall return such
security deposit to Tenant, less such portion thereof as Landlord shall have
appropriated to satisfy any of Tenant's obligations, or any default by Tenant,
under this Lease. If there shall be any default under this Lease by Tenant,
then Landlord shall have the right, but shall not be obligated, to use, apply
or retain all or any portion of the security deposit for the payment of any (a)
Base Rent, additional rent or any other sum as to which Tenant is in default,
or (b) amount Landlord may spend or become obligated to spend, or for the
compensation of Landlord for any losses incurred, by reason of Tenant's default
(including, but not limited to, any damage or deficiency arising in connection
with the reletting of the Premises). If any portion of the security deposit is
so used or applied, then within three (3) business days after Landlord gives
written notice to Tenant of such use or application, Tenant shall deposit with
Landlord cash in an amount sufficient to restore the security deposit to the
original Security Deposit Amount, and Tenant's failure to do so shall
constitute an Event of Default under this Lease.
11.2 If Landlord transfers the security deposit to any
purchaser or other transferee of Landlord's interest in the Property, then
Tenant shall look only to such purchaser or transferee for the return of the
security deposit, and Landlord shall be released from all liability to Tenant
for the return of such security deposit. Tenant acknowledges that the holder of
any Mortgage shall not be liable for the return of any security deposit made by
Tenant hereunder unless such holder actually receives such security deposit.
Tenant shall not pledge, mortgage, assign or transfer the Security Deposit or
any interest therein.
ARTICLE XII
INSPECTION
12.1 Tenant shall permit Landlord, its agents and
representatives, and the holder of any Mortgage, to enter the Premises without
charge therefor and without diminution of the rent payable by Tenant in order
to examine, inspect or protect the Premises and the Building, to make such
alterations and/or repairs as in the sole and absolute judgment of Landlord may
be deemed necessary or desirable, or to exhibit the same to brokers,
prospective tenants, lenders, purchasers and others. Except in the event of
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an emergency, Landlord shall endeavor to minimize disruption to Tenant's normal
business operations in the Premises in connection with any such entry.
ARTICLE XIII
INSURANCE
13.1 Tenant shall not conduct or permit to be conducted
any activity, or place or permit to be placed any equipment or other item in or
about the Premises or the Building, which will in any way increase the rate of
fire insurance or other insurance on the Building. If any increase in the rate
of fire insurance or other insurance is due to any activity, equipment or other
item of Tenant, then (whether or not Landlord has consented to such activity,
equipment or other item) Tenant shall pay as additional rent due hereunder the
amount of such increase. The statement of any applicable insurance company or
insurance rating organization (or other organization exercising similar
functions in connection with the prevention of fire or the correction of
hazardous conditions) that an increase is to any such activity, equipment or
other item shall be conclusive evidence thereof.
13.2 (a) Throughout the Lease Term, Tenant shall obtain
and maintain (1) commercial general liability insurance (written on an
occurrence basis) including contractual liability coverage insuring the
obligations assumed by Tenant under this Lease (including those set forth in
Sections 6.3 and 15.2), premises and operations coverage, broad form property
damage coverage and independent contractors coverage, and containing an
endorsement for personal injury, (2) business interruption insurance, (3)
all-risk property insurance, (4) comprehensive automobile liability insurance
(covering automobiles owned by Tenant, if any), (5) worker's compensation
insurance, and (6) employer's liability insurance. Such commercial general
liability insurance shall be in minimum amounts typically carried by prudent
tenants engaged in similar operations, but in no event shall be in an amount
less than Two Million Dollars ($2,000,000) combined single limit per occurrence
with a Four Million Dollar ($4,000,000) annual aggregate. Such business
interruption insurance shall be in minimum amounts typically carried by prudent
tenants engaged in similar operations, but in no event shall be in an amount
less than the Base Rent then in effect during any Lease Year. Such property
insurance shall be in an amount not less than that required to replace all of
the original tenant improvements installed in the Premises pursuant to Exhibit
B (except for the Building Standard Allowances (as defined in Exhibit E)
provided by Landlord, to the extent the same were originally incorporated into
the Premises), all Alterations and all other contents of the Premises
(including, without limitation, Tenant's trade fixtures, decorations,
furnishings, equipment and personal property). Such automobile liability
insurance shall be in an amount not less than One Million Dollars ($1,000,000)
for each accident. Such worker's compensation insurance shall carry minimum
limits as defined by the law of the jurisdiction in which the Building is
located (as the same may be amended from time to time). Such employer's
liability insurance shall be in an amount not less than One Million Dollars
($1,000,000) for each accident, One Million Dollars ($1,000,000) disease-policy
limit, and One Million Dollars ($1,000,000) disease-each employee.
(b) All such insurance shall: (1) be issued by a
company that is licensed to do business in the jurisdiction in which the
Building is located, that has been approved in advance by Landlord and that has
a rating equal to or exceeding A:XI from Best's Insurance Guide; (2) name
Landlord, the managing agent of the Building and the holder of any Mortgage as
additional insureds and/or loss payees (as applicable); (3) contain an
endorsement that such policy shall remain in full force and effect
notwithstanding that the insured may have waived its right of action against any
party prior to the occurrence of a loss (Tenant hereby waiving its right of
action and recovery against and releasing Landlord and its employees and agents
from any and all liabilities, claims and losses for which they may otherwise be
liable to the extent Tenant is covered by insurance carried or required to be
carried under this Lease); (4) provide that the insurer thereunder waives all
right of recovery by way of subrogation against Landlord, its partners, agents,
employees, and representatives, in connection with any loss or damage covered by
such policy; (5) be acceptable in form and content to Landlord; (6) be primary
and non-contributory; and (7) contain an endorsement prohibiting cancellation,
failure to renew, reduction of amount of insurance or change in coverage without
the insurer first giving Landlord thirty (30) days' prior written notice (by
certified or registered mail, return receipt requested) of such proposed action.
No such policy shall contain any deductible provision except as otherwise
approved in writing by Landlord, which approval shall not be unreasonably
withheld. Landlord reserves the right from time to time to require Tenant to
obtain higher minimum amounts of insurance. Tenant shall deliver a certificate
of all such insurance and receipts evidencing payment therefor (and, upon
request, copies of all required insurance policies, including endorsements and
declarations) to Landlord on or before the Lease Commencement Date and at least
annually thereafter.
13.3 Landlord agrees to carry and maintain all-risk
property insurance (with replacement cost coverage) covering the Building and
Landlord's property therein in an amount required by its insurance company to
avoid the application of any coinsurance provision. Landlord hereby waives
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its right of recovery against Tenant and releases Tenant from any and all
liabilities, claims and losses for which Tenant may otherwise be liable to the
extent Landlord is covered by property insurance therefor. Landlord shall use
reasonable efforts to secure a waiver of subrogation endorsement from its
insurance carrier. Landlord also agrees to carry and maintain commercial general
liability insurance in limits it reasonably deems appropriate (but in no event
less than the limits required of Tenant pursuant to Section 13.2).
ARTICLE XIV
SERVICES AND UTILITIES
14.1 Subject to Tenant's obligations specified in this
Lease, Landlord will provide water, elevator service (with at least one (1)
elevator in operation at all times, except in the event of an emergency), and
exterior window-cleaning service. If Tenant requires air-conditioning or heat
beyond the Building Hours, then Landlord will furnish the water to operate
Tenant's HVAC system (up to 66 gallons of condenser water per minute). Tenant
shall pay for such extra water service in accordance with Section 14.3 below.
Notwithstanding anything above to the contrary, Tenant shall have access to the
Building twenty-four (24) hours per day each day of the year (except in the
event of an emergency).
14.2 Electricity furnished to the Premises shall be
measured by a separate meter installed by Tenant at Tenant's expense. Tenant
shall timely pay directly to the utility company all charges for all
electricity furnished to the Premises. If at any time during the Lease Term all
or any portion of the Premises or any equipment in or servicing the Premises
are not separately metered, then Landlord may install at Tenant's expense
submeters to ascertain Tenant's actual electricity consumption, and Tenant
shall thereafter pay for such consumption at the then-current price per
kilowatt hour charged Landlord by the utility. Tenant acknowledges that a 100
amp switch in the Premises is damaged and that Landlord shall not be obligated
to repair such switch unless the electric utility requires its use in
connection with providing electricity to the Premises.
14.3 Tenant shall reimburse Landlord for the cost of any
excess water, sewer and chiller usage in the Premises. Excess usage shall mean
the excess of the estimated usage in the Premises (per square foot of rentable
area) during any billing period over the average usage (per square foot of
rentable area) during the same period for the entire Building, as reasonably
calculated by Landlord.
ARTICLE XV
LIABILITY OF LANDLORD
15.1 Landlord, its employees and agents shall not
be liable to Tenant, any Invitee or any other person or entity for any damage
(including indirect and consequential damage), injury, loss or claim (including
claims for the interruption of or loss to business) based on or arising out of
any cause whatsoever (except as otherwise provided in this Section), including
without limitation the following: repair to any portion of the Premises or the
Building; interruption in the use of the Premises or any equipment therein; any
accident or damage resulting from any use or operation (by Landlord, Tenant or
any other person or entity) of elevators or heating, cooling, electrical,
sewerage or plumbing equipment or apparatus; termination of this Lease by
reason of damage to the Premises or the Building; any fire, robbery, theft,
vandalism, mysterious disappearance or any other casualty; actions of any other
tenant of the Building or of any other person or entity; failure or inability
to furnish any service specified in this Lease; and leakage in any part of the
Premises or the Building from water, rain, ice or snow that may leak into, or
flow from, any part of the Premises or the Building, or from drains, pipes or
plumbing fixtures in the Premises or the Building. If any condition exists
which may be the basis of a claim of constructive eviction, then Tenant shall
give Landlord written notice thereof and a reasonable opportunity to correct
such condition, and in the interim Tenant shall not claim that it has been
constructively evicted or is entitled to a rent abatement. Any property placed
by Tenant or any Invitee in or about the Premises or the Building shall be at
the sole risk of Tenant, and Landlord shall not in any manner be held
responsible therefor. Any person receiving an article delivered for Tenant
shall be acting as Tenant's agent for such purpose and not as Landlord's agent.
For purposes of this Article, the term "Building" shall be deemed to include
the Land. Notwithstanding the foregoing provisions of this Section, Landlord
shall not be released from liability to Tenant for any physical injury to any
natural person caused by Landlord's willful misconduct or gross negligence to
the extent such injury is not covered by insurance (a) carried by Tenant or
such person, or (b) required by this Lease to be carried by Tenant; provided,
however, that Landlord shall not under any circumstances be liable for any
consequential or indirect damages.
15.2 Tenant shall reimburse Landlord, its employees and
agents for (as additional rent), and shall indemnify, defend upon request and
hold them harmless from and against all costs, damages, claims, liabilities,
expenses including reasonable attorneys' fees), losses, penalties and court
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costs (collectively, "Damages") suffered by or claimed against them, directly
or indirectly, based on or arising out of, in whole or in part, (a) use and
occupancy of the Premises or the business conducted therein, (b) any act or
omission of Tenant or any Invitee, (c) any breach of Tenant's obligations under
this Lease, including failure to comply with Laws or surrender the Premises
upon the expiration or earlier termination of the Lease Term, or (d) any entry
by Tenant or any Invitee upon the Land prior to the Lease Commencement Date.
Notwithstanding the foregoing, Tenant shall not be liable pursuant to this
Section 15.2 to the extent Landlord receives insurance proceeds on account of
any such Damages.
15.3 No landlord hereunder shall be liable for any
obligation or liability based on or arising out of any event or condition
occurring during the period that such landlord was not the owner of the
Building or a landlord's interest therein. Within five (5) days after request,
Tenant shall attorn to such transferee and execute, acknowledge and deliver any
document submitted to Tenant confirming such attornment; provided, that, after
succeeding to Landlord's interest under this Lease, such transferee shall agree
to perform in accordance with the terms of this Lease all obligations of
Landlord arising after the date of transfer.
15.4 Tenant shall not have the right to set off or deduct
any amount allegedly owed to Tenant pursuant to any claim against Landlord from
any rent or other sum payable to Landlord. Tenant's sole remedy for recovering
upon such claim shall be to institute an independent action against Landlord,
which action shall not be consolidated with any action of Landlord.
15.5 If Tenant or any Invitee is awarded a money judgment
against Landlord, then recourse for satisfaction of such judgment shall be
limited to execution against Landlord's estate and interest in the Building. No
other asset of Landlord, any partner, director, member, officer or trustee of
Landlord (each, an "officer") or any other person or entity shall be available
to satisfy or be subject to such judgment, nor shall any officer or other person
or entity be held to have personal liability for satisfaction of any claim or
judgment against Landlord or any officer.
ARTICLE XVI
RULES
16.1 Tenant and Invitees shall at all times abide by and
observe the rules specified in Exhibit C. Tenant and Invitees shall also abide
by and observe any other rule that Landlord may promulgate from time to time
for the operation and maintenance of the Building, provided that notice thereof
is given and such rule is not inconsistent with the provisions of this Lease.
All rules shall be binding upon Tenant and enforceable by Landlord as if they
were contained herein. Nothing contained in this Lease shall be construed as
imposing upon Landlord any duty or obligation to enforce such rules, or the
terms, conditions or covenants contained in any other lease, as against any
other tenant, and Landlord shall not be liable to Tenant for the violation of
such rules by any other tenant or its employees, agents, assignees, subtenants,
invitees or licensees. Landlord shall use reasonable efforts not to enforce any
rule or regulation in a manner which unreasonably discriminates among similarly
situated tenants.
ARTICLE XVII
DAMAGE OR DESTRUCTION
17. 1 If the Premises or the Building are totally or
partially damaged or destroyed thereby rendering the Premises totally or
partially inaccessible or unusable, then Landlord shall diligently repair and
restore the Premises and the Building to substantially the same condition they
were in prior to such damage or destruction; provided, however, that if in
Landlord's judgment such repair and restoration cannot be completed within
ninety (90) days after the occurrence of such damage or destruction (taking
into account the time needed for effecting a satisfactory settlement with any
insurance company involved, removal of debris, preparation of plans and
issuance of all required governmental permits), then Landlord shall have the
right to terminate this Lease by giving written notice of termination within
sixty (60) days after the occurrence of such damage or destruction. If this
Lease is terminated pursuant to this Article, then rent shall be apportioned
(based on the portion of the Premises which is usable after such damage or
destruction) and paid to the date of termination. If this Lease is not
terminated as a result of such damage or destruction, then until such repair
and restoration of the Premises are substantially complete, Tenant shall be
required to pay rent only for the portion of the Premises that is usable while
such repair and restoration are being made; provided, however, that if such
damage or destruction was caused by the act or omission of Tenant or any
Invitee, then Tenant shall not be entitled to any such rent reduction. After
receipt of all insurance proceeds (including proceeds of insurance maintained
by Tenant), Landlord shall proceed with and bear the expenses of such repair
and restoration of the Premises and the Building; provided, however, that (a)
if such damage or destruction was caused by the act or omission of Tenant or
any Invitee, then Tenant shall pay Landlord's deductible and the amount by
which such expenses exceed
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the insurance proceeds, if any, actually received by Landlord on account of such
damage or destruction, (b) Tenant shall pay the amount by which the cost of
restoring any item which Landlord is required to restore and Tenant is required
to insure exceeds the insurance proceeds received with respect thereto, and (c)
Landlord shall not be required to repair or restore any of the original tenant
improvements installed pursuant to Exhibit B (except for the Building Standard
Allowance provided by Landlord, to the extent the same were originally
incorporated into the Premises), any Alterations or any other contents of the
Premises (including, without limitation, Tenant's trade fixtures, decorations,
furnishings, equipment or personal property). Notwithstanding anything herein to
the contrary, Landlord shall have the right to terminate this Lease if (1)
insurance proceeds are insufficient to pay the full cost of such repair and
restoration, (2) the holder of any Mortgage fails or refuses to make such
insurance proceeds available for such repair and restoration, (3) zoning or
other applicable Laws or regulations do not permit such repair and restoration,
or (4) the damage to the Building exceeds twenty-five percent (25%) of the
replacement value of the Building.
17.2 If Landlord proceeds to repair and restore the
Premises and the Building in accordance with this Lease, but does not complete
such repair and restoration of the Premises within one (1) year after the date
the damage or destruction occurred, then Tenant shall have the right to
terminate this Lease only by providing written notice to Landlord of the
exercise of such right only during the period commencing on the 366th day and
ending on the 370th day after the date of such damage or destruction. If Tenant
does not timely exercise its termination right during such period, then Tenant
shall be deemed to have waived its right to terminate this Lease in accordance
with this Section. Notwithstanding any of the foregoing to the contrary, Tenant
shall not have the right to terminate this Lease if any act or omission of
Tenant or any invitee of Tenant shall have caused or contributed to the damage
or destruction or the delay in repairing or restoring the same.
ARTICLE XVIII
CONDEMNATION
18.1 If one-third or more of the Premises, or the use or
occupancy thereof, shall be taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose or
sold under threat of such a taking or condemnation (collectively, "condemned"),
then this Lease shall terminate on the day prior to the date title thereto
vests in such authority and rent shall be apportioned as of such date. If less
than one-third of the Premises or occupancy thereof is condemned, then this
Lease shall continue in full force and effect as to the part of the Premises
not so condemned, except that as of the date title vests in such authority
Tenant shall not be required to pay rent with respect to the part of the
Premises so condemned. Notwithstanding anything herein to the contrary, if
twenty-five percent (25%) or more of the Land or the Building is condemned,
then whether or not any portion of the Premises is condemned, Landlord shall
have the right to terminate this Lease as of the date title vests in such
authority.
18.2 All awards, damages and other compensation paid on
account of such condemnation shall belong to Landlord, and Tenant assigns to
Landlord all rights to such awards, damages and compensation. Tenant shall not
make any claim against Landlord or such authority for any portion of such award
damages or compensation attributable to damage to the Premises, value of the
unexpired portion of the Lease Term, loss of profits or goodwill, leasehold
improvements or severance damages. Nothing contained herein, however, shall
prevent Tenant from pursuing a separate claim against the authority for
relocation expenses and for the value of furnishings, equipment and trade
fixtures installed in the Premises at Tenant's expense and which Tenant is
entitled pursuant to this Lease to remove at the expiration or earlier
termination of the Lease Term, provided that such claim shall in no way
diminish the award, damages or compensation payable to or recoverable by
Landlord in connection with such condemnation.
ARTICLE XIX
DEFAULT
19.1 Each of the following shall constitute an "Event of
Default": (a) Tenant's failure to make when due any payment of the Base Rent,
additional rent or other sum; provided, however, that with respect to the first
such failure in any twelve (12) month period only, no Event of Default shall be
deemed to have occurred unless such failure continues for a period of five (5)
days after Landlord delivers written notice thereof to Tenant; (b) Tenant's
failure to perform or observe any covenant or condition of this Lease not
otherwise specifically described in this Section 19.1; provided, however, that
with respect to the first such failure as to any particular Article of this
Lease in any twelve (12) month period only, no Event of Default shall be deemed
to have occurred unless such failure continues for ten (10) days after Landlord
delivers written notice thereof to Tenant; (c) Tenant's failure to perform or
observe the
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obligations set forth in Section 6.1(b) of this Lease; provided, however, that
with respect to the first two (2) such failures in any twelve (12) month period
only, no Event of Default shall be deemed to have occurred unless such failure
continues for a period of twenty-four (24) hours after Landlord delivers written
notice thereof to Tenant; (d) an Event of Bankruptcy as specified in Article XX;
(e) Tenant's dissolution or liquidation; or (f) any Environmental Default as
specified in Section 6.3.
19.2 If there shall be an Event of Default (even if prior
to the Lease Commencement Date), then the provisions of this Section shall
apply. Landlord shall have the right, at its sole option, to terminate this
Lease. In addition, with or without terminating this Lease, Landlord may
re-enter, terminate Tenant's right of possession and take possession of the
Premises. The provisions of this Article shall operate as a notice to quit, and
Tenant hereby waives any other notice to quit or notice of Landlord's intention
to re-enter the Premises or terminate this Lease. If necessary, Landlord may
proceed to recover possession of the Premises under applicable Laws, or by such
other proceedings, including re-entry and possession, as may be applicable. If
Landlord elects to terminate this Lease and/or elects to terminate Tenant's
right of possession, everything contained in this Lease on the part of Landlord
to be done and performed shall cease without prejudice, however, to Tenant's
liability for all Base Rent, additional rent and other sums specified herein.
Whether or not this Lease and/or Tenant's right of possession is terminated,
Landlord shall have the right, at its sole option, to terminate any renewal or
expansion right contained in this Lease and to grant or withhold any consent or
approval pursuant to this Lease in its sole and absolute discretion. Landlord
may relet the Premises or any part thereof, alone or together with other
premises, for such term(s) (which may extend beyond the date on which the Lease
Term would have expired but for Tenant's default) and on such terms and
conditions (which may include any concessions or allowances granted by Landlord)
as Landlord, in its sole and absolute discretion, may determine, but Landlord
shall not be liable for, nor shall Tenant's obligations hereunder be diminished
by reason of, any failure by Landlord to relet all or any portion of the
Premises or to collect any rent due upon such reletting. If Tenant is in default
under this Lease and has vacated the Premises, then Landlord shall thereafter
use reasonable efforts to relet the Premises; provided, however, that Tenant
understands and agrees that Landlord's main priority will be the leasing of
space in the metropolitan Washington, D.C. area controlled by Landlord or any
affiliate of Landlord (and not then leased by Landlord or such affiliate), and
the reletting of the Premises will be of lower priority. Whether or not this
Lease and/or Tenant's right of possession is terminated or any suit is
instituted, Tenant shall be liable for any Base Rent, additional rent, damages
or other sum which may be due or sustained prior to such default, and for all
costs, fees and expenses (including, but not limited to, attorneys' fees and
costs, brokerage fees, expenses incurred in enforcing any of Tenant's
obligations under the Lease or in placing the Premises in first-class rentable
condition, advertising expenses, and any concessions or allowances granted by
Landlord) incurred by Landlord in pursuit of its remedies hereunder and/or in
recovering possession of the Premises and renting the Premises to others from
time to time plus other damages suffered or incurred by Landlord on account of
and to the extent caused by Tenant's default (including, but not limited to late
fees or other charges incurred by Landlord under any Mortgage). Tenant also
shall be liable for additional damages which at Landlord's election shall be
either one or a combination of the following: (a) an amount equal to the Base
Rent and additional rent due or which would leave become due from the date of
Tenant's default through the remainder of the Lease Term, less the amount of
rental, if any, which Landlord receives during such period from others to whom
the Premises may be rented (other than any additional rent received by Landlord
as a result of any failure of such other person to perform any of its
obligations to Landlord), which amount shall be computed and payable in monthly
installments, in advance, on the first day of each calendar month following
Tenant's default and continuing until the date on which the Lease Term would
have expired but for Tenant's default, it being understood that separate suits
may be brought from time to time to collect any such damages for any month(s)
(and any such separate suit shall not in any manner prejudice the right of
Landlord to collect any damages for any subsequent month(s)), or Landlord may
defer initiating any such suit until after the expiration of the Lease Term (in
which event such deferral shall not be construed as a waiver of Landlord's
rights as set forth herein and Landlord's cause of action shall be deemed not to
have accrued until the expiration of the Lease Term), and it being further
understood that if Landlord elects to bring suits from time to time prior to
reletting the Premises, Landlord shall be entitled to its full damages through
the date of the award of damages without regard to any Base Rent, additional
rent or other sums that are or may be projected to be received by Landlord upon
reletting of the Premises; or (b) an amount equal to the sum of(i) all Base
Rent, additional rent and other sums due or which would be due and payable under
this Lease as of the date of Tenant's default through the end of the scheduled
Lease Term, plus (ii) the all expenses (including broker and attorneys' fees)
and value of all vacancy periods projected by Landlord to be incurred in
connection with the reletting of the Premises, minus (iii) any Base Rent,
additional rent and other sums which Tenant proves by a preponderance of the
evidence would be received by Landlord upon reletting of the Premises from the
end of the vacancy period projected by Landlord through the expiration of the
scheduled Lease Term. Such amount shall be discounted using a discount factor
equal to the yield of the Treasury Note or Bill, as appropriate, having a
maturity period approximately commensurate to the remainder of the Term, and
such resulting amount shall be payable to Landlord in a lump sum on demand, it
being understood
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that upon payment of such liquidated and agreed final damages, Tenant shall be
released from further liability under this Lease with respect to the period
after the date of such payment, and that Landlord may bring suit to collect any
such damages at any time after an Event of Default shall have occurred. In the
event Landlord relets the Premises together with other premises or for a term
extending beyond the scheduled expiration of the Lease Term, it is understood
that Tenant will not be entitled to apply any base rent, additional rent or
other sums generated or projected to be generated by either such other premises
or in the period extending beyond the scheduled expiration of the Lease Term
(collectively, the "Extra Rent") against Landlord's damages. Similarly in
proving the amount that would be received by Landlord upon a reletting of the
Premises as set forth in clause (iii) above, Tenant shall not take into account
the Extra Rent. The provisions contained in this Section shall be in addition
to, and shall not prevent the enforcement of, any claim Landlord may have
against Tenant for anticipatory breach of this Lease. Nothing herein shall be
construed to affect or prejudice Landlord's right to prove, and claim in full,
unpaid rent accrued prior to termination of this Lease. If Landlord is entitled,
or Tenant is required, pursuant to any provision hereof to take any action upon
the termination of the Lease Term, then Landlord shall be entitled, and Tenant
shall be required, to take much action also upon the termination of Tenant's
right of possession.
19.3 (a) Tenant hereby expressly waives, for itself and
all persons claiming by, through or under it, any right of redemption, re-entry
or restoration of the operation of this Lease under any present or future Law,
including without limitation any such right which Tenant would otherwise have
in case Tenant shall be dispossessed for any cause, or in case Landlord shall
obtain possession of the Premises as herein provided.
(b) All rights and remedies of Landlord set forth in
this Lease are cumulative and in addition to all other rights and remedies
available to Landlord at law or in equity, including those available as a
result of any anticipatory breach of this Lease. The exercise by Landlord of
any such right or remedy shall not prevent the concurrent or subsequent
exercise of any other right or remedy. No delay or failure by Landlord to
exercise or enforce any of Landlord's rights or remedies or Tenant's
obligations shall constitute a waiver of any such rights, remedies or
obligations. Landlord shall not be deemed to have waived any default by Tenant
unless such waiver expressly is set forth in a written instrument signed by
Landlord. If Landlord waives in writing any default by Tenant unless such
waiver shall not be construed as a waiver of any covenant, condition or
agreement set forth in this Lease except as to the specific circumstances
described in such written waiver.
19.4 If Landlord shall institute proceedings against
Tenant and a compromise or settlement thereof shall be made, then the same
shall not constitute a waiver of the same or of any other covenant, condition
or agreement set forth herein, nor of any of Landlord's rights hereunder.
Neither the payment by Tenant of a lesser amount than the monthly installment of
Base Rent, additional rent or of any sums due hereunder nor any endorsement or
statement on any check or letter accompanying a check for payment of rent or
other sums payable hereunder shall be deemed an accord and satisfaction.
Landlord may accept the same without prejudice to Landlord's right to recover
the balance of such rent or other sums or to pursue any other remedy.
Notwithstanding any request or designation by Tenant, Landlord may apply any
payment received from Tenant to any payment then due. No re-entry by Landlord,
and no acceptance by Landlord of keys from Tenant, shall be considered an
acceptance of a surrender of this Lease.
19.5 If Tenant fails to make any payment to any third
party or to do any act herein required to be made or done by Tenant, then
Landlord may, but shall not be required to, make such payment or do such act.
The taking of such action by Landlord shall not be considered a cure of such
default by Tenant or prevent Landlord from pursuing any remedy it is otherwise
entitled to in connection with such default. If Landlord elects to make such
payment or do such act, then all expenses incurred by Landlord, plus interest
thereon at a rate (the "Default Rate") equal to the rate per annum which is
five (5) whole percentage points higher than the prime rate published in the
Money Rates section of the Wall Street Journal, from the date incurred by
Landlord to the date of payment thereof by Tenant, shall constitute additional
rent due hereunder: provided, however, that nothing contained herein shall be
construed as permitting Landlord to charge or receive interest in excess of the
maximum rate then allowed by law.
19.6 If Tenant fails to make any payment of Base Rent,
additional rent or any other sum on or before the date such payment is due and
payable (without regard to any grace period specified in Section 19.1), then
Tenant shall pay to Landlord a late charge of five percent (5%) of the amount
of such payment. In addition, such payment and such late fee shall bear
interest at the Default Rate from the date such payment or late lee,
respectively, became due to the date of payment thereof by Tenant; provided,
however, that nothing contained herein shall be construed as permitting
Landlord to charge or receive interest in excess of the maximum rate then
allowed by law. Such late charge and interest shall
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constitute additional rent due hereunder without any notice or demand.
Notwithstanding the foregoing to the contrary, Landlord shall waive such late
fee (including the interest payable pursuant to the preceding sentence) the
first (1st) time in each calendar year that Tenant fails to make a payment when
due, provided such payment is made before the fifth (5th) day after the date
such payment was due (without regard to any applicable notice or cure period
specified in Section 19.1).
19.7 As security for the performance of Tenant's
obligations, Tenant grants to Landlord a lien upon and a security interest in
Tenant's existing or hereafter acquired personal property, inventory,
furniture, furnishings, fixtures, equipment, licenses, permits and all other
tangible and intangible property, assets and accounts, and all additions,
modifications, products and proceeds thereof, which has been used at the
Premises, purchased for use at the Premises, located at any time in the
Premises or used or to be used in connection with the business conducted or to
be conducted in the Premises, whether or not the same may thereafter be removed
from the Premises, and including, without limitation, all stock and partnership
interests now or hereafter owned by Tenant, legally or beneficially, in any
entity which manages, owns or operates the business to be conducted in or upon
the Premises; provided, however, that Landlord shall subordinate such lien and
security interest to any lien or security interest granted by Tenant in or to
any of its personal property or equipment as security for indebtedness incurred
for the purpose of financing the purchase or leasing of any such personal
property or equipment. Such lien shall be in addition to all rights of
distraint available under applicable law. Within five (5) days after request
from time to time, Tenant shall execute, acknowledge and deliver to Landlord a
financing statement and any other document evidencing or establishing such lien
and security interest which may be requested by Landlord. During the Lease
Term, Tenant shall not sell, transfer or remove from the Premises any of the
aforementioned tangible property without Landlord's prior written consent,
unless the same shall be promptly replaced with similar items of comparable
value. In order to further assure Tenant's performance of its obligations under
this Lease, Tenant covenants that during the Lease Term, it will not convey or
otherwise transfer its assets or permit its assets to be encumbered to the
extent that any such conveyance, transfer or encumbrance is not done in the
ordinary course of Tenant's business or would materially and adversely affect
the net worth of Tenant.
19.8 If more than one natural person or entity shall
constitute Tenant, then the liability of each such person or entity shall be
joint and several. If Tenant is a general partnership or other entity the
partners or members of which are subject to personal liability, then the
liability of each such partner or member shall be joint and several. No waiver,
release or modification of the obligations of any such person or entity shall
affect the obligations of any other such person or entity.
ARTICLE XX
BANKRUPTCY
20.1 An "Event of Bankruptcy" is the occurrence with
respect to any of Tenant, a Guarantor or any other person liable for Tenant's
obligations hereunder (including, without limitation, any general partner (or,
if Tenant is a limited liability company, any member of Tenant) of Tenant (a
"General Partner")) of any of the following: (a) such person becoming
insolvent, as that term is defined in Title 11 of the United States Code (the
"Bankruptcy Code") or under the insolvency laws of any state (the "Insolvency
Laws"); (b) appointment of a receiver or custodian for any property of such
person, or the institution of a foreclosure or attachment action upon any
property of such person; (c) filing by such person of a voluntary petition
under the provisions of the Bankruptcy Code or Insolvency Laws; (d) filing of
an involuntary petition against such person as the subject debtor under the
Bankruptcy Code or Insolvency Laws, which either (1) is not dismissed within
thirty (30) days after filing, or (2) results in the issuance of an order for
relief against the debtor; or (e) such person making or consenting to an
assignment for the benefit of creditors or a composition of creditors; (f) such
person submitting (either before or after execution hereof) to Landlord any
financial statement containing any material inaccuracy or omission; or (g) a
decrease by fifty percent (50%) or more of such person's net worth below the
net worth of such person as of the date hereof. At any time upon not less than
five (5) days' prior written notice, Tenant shall submit such information
concerning the financial condition of any such person as Landlord may request.
Tenant warrants that all such information heretofore and hereafter submitted is
and shall be correct and complete.
20.2 Upon occurrence of an Event of Bankruptcy, Landlord
shall have all rights and remedies available pursuant to Article XIX; provided,
however, that while a case (the "Case") in which Tenant is the subject debtor
under the Bankruptcy Code is pending, Landlord's right to terminate this Lease
shall be subject, to the extent required by the Bankruptcy Code, to any rights
of Tenant or its trustee in bankruptcy (collectively, "Trustee") to assume or
assume and assign this Lease pursuant to the Bankruptcy Code. After the
commencement of a Case: (i) Trustee shall perform all post-petition
obligations of Tenant under this Lease; and (ii) if Landlord is entitled to
damages (including, without limitation, unpaid rent) pursuant to the terms of
this Lease, then all such damages shall be entitled to
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administrative expense priority pursuant to the Bankruptcy Code. Any person or
entity to which this Lease is assigned pursuant to the Bankruptcy Code shall be
deemed without further act or deed to have assumed all of the obligations
arising under this Lease on and after the date of assignment, and any such
assignee shall upon request execute and deliver to Landlord an instrument
confirming such assumption. Trustee shall not have the right to assume or assume
and assign this Lease unless Trustee promptly (a) cures all defaults under this
Lease, (b) compensates Landlord for damages incurred as a result of such
defaults, (c) provides adequate assurance of future performance on the part of
Trustee as debtor in possession or Trustee's assignee, and (d) complies with all
other requirements of the Bankruptcy Code. If Trustee fails to assume or assume
and assign this Lease in accordance with the requirements of the Bankruptcy Code
within sixty (60) days after the initiation of the Case, then Trustee shall be
deemed to have rejected this Lease. If this Lease is rejected or deemed
rejected, then Landlord shall have all rights and remedies available to it
pursuant to Article XIX. Adequate assurance of future performance shall require,
among other things, that the following minimum criteria be met: (1) Tenant's
gross receipts in the ordinary course of business during the thirty (30) days
preceding the Case must be greater than ten (10) times the next monthly
installment of Base Rent and additional rent due; (2) Both the average and
median of Tenant's monthly gross receipts in the ordinary course of business
during the seven (7) months preceding the Case must be greater than the next
monthly installment of Base Rent and additional rent due; (3) Trustee must pay
its estimated pro-rata share of the cost of all services performed or provided
by Landlord (whether directly or through agents or contractors and whether or
not previously included as part of Base Rent) in advance of the performance or
provision of such services; (4) Trustee must agree that Tenant's business shall
be conducted in a first-class manner, and that no liquidating sale, auction or
other non-first-class business operation shall be conducted in the Premises; (5)
Trustee must agree that the use of the Premises as stated in this Lease shall
remain unchanged and that no prohibited use shall be permitted; (6) Trustee must
agree that the assumption or assumption and assignment of this Lease shall not
violate or affect the rights of other tenants of the Building; (7) Trustee must
pay at the time the next monthly installment of Base Rent is due, in addition to
such installment, an amount equal to the monthly installments of Base Rent, and
additional rent due for the next six (6) months thereafter, such amount to be
held as a security deposit; (8) Trustee must agree to pay, at any time Landlord
draws on such security deposit, the amount necessary to restore such security
deposit to its original amount; (9) Trustee must comply with all duties and
obligations of Tenant under this Lease; and (10) All assurances of future
performance specified in the Bankruptcy Code must be provided.
ARTICLE XXI
SUBORDINATION
21.1 This Lease is subject and subordinate to the lien,
provisions, operation and effect of all mortgages, deeds of trust, ground
leases or other security instruments which may now or hereafter encumber the
Building or the Land (collectively, "Mortgages"), to all funds and indebtedness
intended to be secured thereby, and to all renewals, extensions, modifications,
recastings or refinancings thereof. The holder of any Mortgage to which this
Lease is subordinate shall have the right (subject to any required approval of
the holders of any superior Mortgage) at any time to declare this Lease to be
superior to the lien, provisions, operation and effect of such Mortgage and
Tenant shall execute, acknowledge and deliver all documents required by such
holder in confirmation thereof.
21.2 Tenant shall at Landlord's request promptly execute
any requisite or appropriate document confirming such subordination. Tenant
appoints Landlord as Tenant's attorney-in-fact to execute any such document for
Tenant. Tenant waives the provisions of any statute or rule of law now or
hereafter in effect which may give or purport to give Tenant any right to
terminate or otherwise adversely affect this Lease and Tenant's obligations
hereunder in the event any foreclosure proceeding is prosecuted or completed or
in the event the Building, the Land or Landlord's interest therein is
transferred by foreclosure, by deed in lieu of foreclosure or otherwise. If
this Lease is not extinguished upon any such transfer or by the transferee
following such transfer, then, at the request of such transferee, Tenant shall
attorn to such transferee and shall recognize such transferee as the landlord
under this Lease. Tenant agrees that upon any such attornment, such transferee
shall not be (a) bound by any payment of the Base Rent or additional rent more
than one (1) month in advance, except prepayments in the nature of security for
the performance by Tenant of its obligations under this Lease, but only to the
extent such prepayments have been delivered to such transferee; provided,
however, that Tenant shall have no obligation to replace any portion of the
Security Deposit that is not delivered to such transferee (except to the extent
all or any portion thereof was applied in accordance with this Lease), (b)
bound by any amendment of this Lease made without the consent of the holder of
each Mortgage existing as of the date of such amendment, (c) liable for damages
for any breach, act or omission of any prior landlord, or (d) subject to any
offsets or defenses which Tenant might have against any prior landlord;
provided, however, that after succeeding to Landlord's interest under this
Lease, such transferee shall agree to perform in accordance with the terms of
this Lease all obligations of Landlord arising after the date of transfer.
Within five (5) days after the
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request of such transferee, Tenant shall execute, acknowledge and deliver any
requisite or appropriate document submitted to Tenant confirming such
attornment.
21.3 If any prospective or current holder of a Mortgage
requires that modifications to this Lease be obtained, and provided that such
modifications (a) are reasonable, (b) do not adversely affect in a material
manner Tenant's use of the Premises as herein permitted, and (c) do not increase
the rent and other sums to be paid by Tenant, then Landlord may submit to Tenant
an amendment to this Lease incorporating such required modifications, and Tenant
shall execute, acknowledge and deliver such amendment to Landlord within five
(5) days after Tenant's receipt thereof.
21.4 If (a) the Building or the Land, or both, are at any
time subject to a Mortgage, (ii) this Lease and rent payable hereunder is
assigned to the holder of the Mortgage, and (iii) the Tenant is given notice of
such assignment, including the name and address of the assignee, then, in that
event, Tenant shall not terminate this Lease or make any abatement in the rent
payable hereunder for any default on the part of the Landlord without first
giving notice, in the manner provided elsewhere in this Lease for the giving of
notices, to the holder of such Mortgage, specifying the default in reasonable
detail, and affording such holder a reasonable opportunity to make performance,
at its election, for and on behalf of the Landlord, except that (x) such holder
shall have at least 30 days to cure the default; (y) if such default cannot be
cured with reasonable diligence and continuity within 30 days, such holder
shall have any additional time as may be reasonably necessary to cure the
default with reasonable diligence and continuity; and (z) if the default cannot
reasonably be cured without such holder having obtained possession of the
Building, such holder shall have such additional time as may be reasonably
necessary under the circumstances to obtain possession of the Building and
thereafter to cure the default with reasonable diligence and continuity. If
more than one such holder makes a written request to Landlord to cure the
default, the holder making (lie request whose lien is the most senior shall
have such right.
ARTICLE XXII
HOLDING OVER
22.1 Tenant acknowledges that it is extremely important
that Landlord have substantial advance notice of the date on which Tenant will
vacate the Premises, because Landlord will require an extensive period to
locate a replacement tenant and because Landlord plans its entire leasing and
renovation program for the Building in reliance on its lease expiration dates.
Tenant also acknowledges that if Tenant fails to surrender the Premises or any
portion thereof at the expiration or earlier termination of the Lease Term,
then it will be conclusively presumed that the value to Tenant of remaining in
possession, and the loss that will be suffered by Landlord as a result thereof,
far exceed the Base Rent and additional rent that would have been payable had
the Lease Term continued during such holdover period. Therefore, if Tenant (or
anyone claiming through Tenant) does not immediately surrender the Premises or
any portion thereof upon the expiration or earlier termination of the Lease
Term, then Tenant shall automatically forfeit all rights to the security
deposit then being held by Landlord pursuant to this Lease and the rent payable
by Tenant hereunder shall be increased to equal the greater of (1) fair market
rent for the entire Premises, or (2) double the Base Rent, additional rent and
other sums that would have been payable pursuant to the provisions of this
Lease if the Lease Term had continued during such holdover period. Such rent
shall be computed by Landlord and paid by Tenant on a monthly basis and shall
be payable on the first day of such holdover period and the first day of each
calendar month thereafter during such holdover period until the Premises have
been vacated. Notwithstanding any other provision of this Lease, Landlord's
acceptance of such rent shall not in any manner adversely affect Landlord's
other rights and remedies, including Landlord's right to evict Tenant and to
recover all damages. Any such holdover shall be deemed to be a
tenancy-at-sufferance and not a tenancy-at-will or tenancy from month-to-month.
In no event shall any holdover be deemed a permitted extension or renewal of
the Lease Term, and nothing contained herein shall be construed to constitute
Landlord's consent to any holdover or to give Tenant any right with respect
thereto.
ARTICLE XXIII
COVENANTS OF LANDLORD
23.1 Landlord covenants that it has the right to enter
into this Lease, and that if Tenant shall perform timely all of its obligations
hereunder, then, subject to the provisions of this Lease, Tenant shall during
the Lease Term peaceably and quietly occupy and enjoy the full possession of
the Premises without hindrance by Landlord or any party claiming through or
under Landlord.
23.2 Landlord reserves the following rights:
(a) to change the street address and name of the Building; (b) to change the
arrangement and location of entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets or other public parts of the Building; (c) to erect,
use and maintain pipes,
-21-
<PAGE> 22
wires, structural supports, ducts and conduits in and through the Premises; (d)
to grant to anyone the exclusive right to conduct any particular business in the
Building not inconsistent with Tenant's permitted use of the Premises; (e) to
exclusively use and/or lease the roof areas, the sidewalks and other exterior
areas; (f) to resubdivide the Land or to combine the Land with other lands; (g)
to relocate any parking areas designated for Tenant's use; (h) if Tenant vacates
the Premises prior to the expiration of the Lease Term, to make Alterations to
or otherwise prepare the Premises for reoccupancy without relieving Tenant of
its obligation to pay all Base Rent, additional rent and other sums due under
this Lease through such expiration; (i) to construct improvements (including
kiosks) on the Land and in the public and common areas of the Building; (j) to
prohibit smoking in the entire Building or portions thereof (including the
Premises), so long as such prohibitions are in accordance with applicable law;
and (k) if any excavation or other substructure work shall be made or authorized
to be made upon land adjacent to the Building or the Land, to enter the Premises
for the purpose of doing such work as is required to preserve the walls of the
Building and to preserve the land from injury or damage and to support such
walls and land by proper foundations. Landlord may exercise any or all of the
foregoing rights without being deemed to be guilty of an eviction, actual or
constructive, or a disturbance of Tenant's business or use or occupancy of the
Premises.
ARTICLE XXIV
PARKING
24.1 During the Lease Term, upon the request of Tenant,
Landlord agrees to make available to Tenant and its employees monthly parking
permits for the unreserved parking of standard-sized passenger automobiles in
the garage on the lower levels of the Building (the "Garage") in an amount
equal to one permit for each one thousand five hundred (1,500) square feet of
rentable area of the Premises. The charge for such permits shall be the
prevailing rate charged from time to time by Landlord or the operator of the
Garage. Notwithstanding the foregoing, Landlord does not guarantee the
availability of such monthly parking permits to Tenant during the second (2nd)
or any subsequent month of the Lease Term if and to the extent that Tenant does
not purchase such monthly parking permits during the first (1st) month and each
subsequent month of the Lease Term. Tenant shall notify Landlord at least 60
days before the anticipated Lease Commencement Date of the initial number of
monthly parking permits Tenant will require. Tenant shall notify Landlord at
least 30 days in advance of any change in the number of monthly parking
permits. Tenant shall not assign, sublet or transfer any parking permits.
Landlord reserves the right to institute either a valet parking system or a
self-parking system. Tenant and its employees shall observe reasonable safety
precautions in the use of the Garage and shall at all times abide by all rules
and regulations governing the use of the Garage promulgated by Landlord or the
Garage operator. The Garage will remain open on Monday through Friday
(excluding legal holidays) during the Building Hours on such days. Landlord
reserves the right to close the Garage during periods of unusually inclement
weather or for repairs. At all times when the Garage is closed, monthly permit
holders shall be afforded access to the Garage by means of a magnetic card or
other procedure provided by Landlord or the Garage operator. Landlord does not
assume any responsibility, and shall not be held liable, for any damage or loss
to any automobile or personal property in or about the Garage, or for any
injury sustained by any person in or about the Garage.
ARTICLE XXV
GENERAL PROVISIONS
25.1 Tenant acknowledges that neither Landlord nor any
broker, agent or employee of Landlord has made any representation or promise
with respect to the Premises or the Building except as herein expressly set
forth, and no right, privilege, easement or license is being acquired by Tenant
except as herein expressly set forth.
25.2 Nothing contained in this Lease shall be construed as
creating any relationship between Landlord and Tenant other than that of
landlord and tenant. Tenant shall not use the name of the Building for any
purpose other than as the address of the business to be conducted by Tenant in
the Premises, use the name of the Building as Tenant's business address after
Tenant vacates the Premises, or do or permit to be done anything in connection
with Tenant's business or advertising which in the reasonable judgment of
Landlord may reflect unfavorably on Landlord or the Building or confuse or
mislead the public as to any apparent connection or relationship between
Landlord, the Building and Tenant.
25.3 Landlord and Tenant each warrants to the other that
in connection with this Lease it has not employed or dealt with any broker,
agent or finder, other than the Broker(s). Landlord acknowledges that Landlord
shall pay any commission or fee due to the Broker(s) pursuant to a separate
agreement. Tenant shall indemnify and hold Landlord harmless from and against
any claim for brokerage
-22-
<PAGE> 23
or other commissions asserted by any broker, agent or finder employed by Tenant
or with whom Tenant has dealt, other than the Broker(s).
25.4 At any time and from time to time, upon not less than
five (5) days' prior written notice, Tenant and each subtenant, assignee,
licensee or concessionaire or occupant of Tenant shall execute, acknowledge and
deliver to Landlord and/or any other person or entity designated by Landlord, a
written statement certifying: (a) that this Lease is unmodified and in full
force and effect (or if there have been modifications, that this Lease is in
full force and effect as modified and stating the modifications); (b) the dates
to which the rent and any other charges have been paid; (c) whether or not
Landlord is in default in the performance of any obligation, and if so,
specifying the nature of such default; (d) the address to which notices to
Tenant are to be sent; (e) that this Lease is subject and subordinate to all
Mortgages encumbering the Building or the Land; (f) that Tenant has accepted
the Premises and that all work thereto has been completed (or if such work has
not been completed, specifying the incomplete work); and (g) such other matters
as Landlord may reasonably request. Any such statement may be relied upon by
any owner of the Building or the Land, any prospective purchaser of the
Building or the Land, any holder or prospective holder of a Mortgage or any
other person or entity. Tenant acknowledges that time is of the essence to the
delivery of such statements and that Tenant's failure to deliver timely such
statements may cause substantial damages resulting from, for example, delays in
obtaining financing secured by the Building. Tenant shall be liable for all
such damages. If any such statement is not delivered timely by Tenant, then all
matters contained in such statement shall be deemed true and accurate.
25.5 LANDLORD, TENANT, ALL GUARANTORS AND ALL GENERAL
PARTNERS EACH WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR
DAMAGE. TENANT CONSENTS TO SERVICE OF PROCESS AND ANY PLEADING RELATING TO ANY
SUCH ACTION AT TENANT'S NOTICE ADDRESS (SO LONG AS SUCH NOTICE ADDRESS IS IN
THE DISTRICT OF COLUMBIA, AND IF NOT, AT THE PREMISES); PROVIDED, HOWEVER, THAT
NOTHING HEREIN SHALL BE CONSTRUED AS REQUIRING SUCH SERVICE AT THE PREMISES.
LANDLORD, TENANT, ALL GUARANTORS AND ALL GENERAL PARTNERS EACH WAIVES ANY
OBJECTION TO THE VENUE OF ANY ACTION FILED IN ANY COURT SITUATED IN TILE
JURISDICTION IN WHICH THE BUILDING IS LOCATED, AND WAIVES ANY RIGHT, CLAIM OR
POWER, UNDER THE DOCTRINE OF FORUM NON CONVENIENS OR OTHERWISE, TO TRANSFER ANY
SUCH ACTION TO ANY OTHER COURT.
25.6 All notices or other communications required under
this Lease shall be in writing and shall be deemed duly given and received when
delivered in person (with receipt therefor), on the next business day after
deposit with a recognized overnight delivery service, or on the second business
day after being sent by certified or registered mail, return receipt requested,
postage prepaid, to the following addresses: (a) if to Landlord, at each of
the Landlord Notice Addresses specified in Article I, with a copy to Shaw,
Pittman, Potts & Trowbridge, 2300 N Street, N.W., Washington, D.C. 20037,
Attention: John Engel, Esq.; (b) if to Tenant, at the Tenant Notice Address
specified in Article I. Either party may change its address for the giving of
notices by notice given in accordance with this Section. If Landlord or the
holder of any Mortgage notifies Tenant that a copy of any notice to Landlord
shall be sent to such holder at a specified address, then Tenant shall send (in
the manner specified in this Section and at the same time such notice is sent to
Landlord) a copy of each such notice to such holder, and no such notice shall be
considered duly sent unless such copy is so sent to such holder. Any such holder
shall have thirty (30) days after receipt of such notice to cure any Landlord
default before Tenant may exercise any remedy. Any cure of Landlord's default by
such holder shall be treated as performance by Landlord.
25.7 Each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law. If any provision of this
Lease or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, then such provision shall be deemed to be
replaced by the valid and enforceable provision most substantively similar to
such invalid or unenforceable provision, and the remainder of this Lease and
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be affected thereby.
Nothing contained in this Lease shall be construed as permitting Landlord to
charge or receive interest in excess of the maximum rate allowed by law.
25.8 Feminine, masculine or neuter pronouns shall be
substituted for those of another form, and the plural or singular shall be
substituted for the other number, in any place in which the context may require
such substitution.
-23-
<PAGE> 24
25.9 The provisions of this Lease shall be binding upon
and inure to the benefit of the parties and each of their respective
representatives, successors and assigns, subject to the provisions herein
restricting assignment or subletting.
25.10 This Lease contains and embodies the entire agreement
of the parties hereto and supersedes all prior agreements, negotiations,
letters of intent, proposals, representations, warranties, understandings,
suggestions and discussions, whether written or oral, between the parties
hereto. Any representation, inducement, warranty, understanding or agreement
that is not expressly set forth in this Lease shall be of no force or effect.
This Lease may be modified or changed in any manner only by an instrument
signed by both parties. This Lease includes and incorporates all Exhibits
attached hereto.
25.11 This Lease shall be governed by the Laws of the
jurisdiction in which the Building is located. There shall be no presumption
that this Lease be construed more strictly against the party who itself or
though its agent prepared it, it being agreed that all parties hereto have
participated in the preparation of this Lease and that each party had the
opportunity to consult legal counsel before the execution of this Lease.
25. 12 Headings are used for convenience and shall not be
considered when construing this Lease.
25.13 The submission of an unsigned copy of this document
to Tenant shall not constitute an offer or option to lease the Premises. This
Lease shall become effective and binding only upon execution and delivery by
both Landlord and Tenant.
25.14 Time is of the essence with respect to each of
Tenant's and Landlord's obligations hereunder.
25.15 This Lease may be executed in multiple counterparts,
each of which shall be deemed an original and all of which together constitute
one and the same document. Faxed signatures shall have the same binding effect
as original signatures.
25.16 Neither this Lease nor a memorandum thereof shall be
recorded.
25.17 Landlord reserves the right to make reasonable
changes and modifications to the plans and specifications for the Building
without Tenant's consent, provided such changes or modifications do not
materially and adversely change the character of the Building or the Premises
or access to the Premises.
25.18 The rentable area in the Building and in the Premises
shall be determined by Landlord's architect in accordance with the Washington,
D.C. Association of Realtors, Inc. Standard Method of Measurement dated January
1, 1989.
25. 19 Except as otherwise provided in this Lease, any
additional rent or other sum owed by Tenant to Landlord, and any cost, expense,
damage or liability incurred by Landlord for which Tenant is liable, shall be
considered additional rent payable pursuant to this Lease to be paid by Tenant
no later than ten (10) days after the date Landlord notifies Tenant of the
amount thereof.
25.20 Tenant's liabilities and obligations with respect to
the period prior to the expiration or earlier termination of the Lease Term
shall survive such expiration or earlier termination.
25.21 If Landlord or Tenant is in any way delayed or
prevented from performing any obligation (except with respect to Tenant, the
obligations to pay rent and other sums due under this Lease) due to fire, act
of God, governmental act or failure to act, strike, labor dispute, inability to
procure materials, or any cause beyond Landlord's or Tenant's, as the case may
be, reasonable control (whether similar or dissimilar to the foregoing events),
then the time for performance of such obligation shall be excused for the
period of such delay or prevention and extended for a period equal to the
period of such delay, interruption or prevention.
25.22 Landlord's review, approval and consent powers
(including the right to review plans and specifications) are for its benefit
only. Such review, approval or consent (or conditions imposed in connection
therewith) shall be deemed not to constitute a representation concerning
legality, safety or any other matter.
-24-
<PAGE> 25
25.23 The deletion of any printed, typed or other portion
of this Lease shall not evidence the parties' intention to contradict such
deleted portion. Such deleted portion shall be deemed not to have been inserted
in this Lease.
25.24 At the expiration or earlier termination of the Lease
Term, Tenant shall deliver to Landlord all keys and security cards to the
Building and the Premises, whether such keys were furnished by Landlord or
otherwise procured by Tenant, and shall inform Landlord of the combination of
each lock, safe and vault, if any, in the Premises.
25.25 Tenant and Landlord and the persons executing and
delivering this Lease on Tenant's and Landlord's behalf each represents and
warrants that such person is duly authorized to so act; that Tenant or
Landlord, as applicable, is duly organized, is qualified to do business in the
jurisdiction in which the Building is located, is in good standing under the
Laws of the state of its organization and the Laws of the jurisdiction in which
the Building is located, and has the power and authority to enter into this
Lease; and that all action required to authorize Tenant or Landlord, as
applicable, and such person to enter into this Lease has been duly taken.
25.26 Any elimination or shutting off of light, air, or
view by any structure which may be erected on lands adjacent to the Building
shall in no way effect this Lease or impose any liability on Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
under seal as of the day and year first above written.
WITNESS/ATTEST: LANDLORD:
1133 FIFTEENTH STREET LIMITED
PARTNERSHIP
By: Clark Enterprises, Inc., General Partner
/s/ MARCIA L. WEINER /s/ LAWRENCE C. NUSSDORF
- -------------------------------- ---------------------------
By: Lawrence C. Nussdorf
Executive Vice President
WITNESS/ATTEST: TENANT:
STRAYER COLLEGE, INC.
/s/ A. KAREY
- -------------------------------- By: /s/ HARRY T. WILKINS [SEAL]
------------------------------------
Name: Harry T. Wilkins
------------------------------------
Title: Director of Finance
------------------------------------
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (No.
333-________) of our reports dated January 31, 1997, on our audits of the
financial statements and financial statement schedule of Strayer Education, Inc.
We also consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Washington, D.C.
March 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM STRAYER EDUCATION,
INC. AS OF AND FOR THE YEAR ENDED DEC-31-1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM S-1, FILED MARCH 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,777
<SECURITIES> 5,057
<RECEIVABLES> 9,087
<ALLOWANCES> (164)
<INVENTORY> 923
<CURRENT-ASSETS> 27,796
<PP&E> 10,068
<DEPRECIATION> (3,005)
<TOTAL-ASSETS> 47,822
<CURRENT-LIABILITIES> 12,222
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 35,316
<TOTAL-LIABILITY-AND-EQUITY> 47,822
<SALES> 0
<TOTAL-REVENUES> 45,005
<CGS> 0
<TOTAL-COSTS> 29,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,052
<INCOME-TAX> 2,740
<INCOME-CONTINUING> 14,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,312
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
