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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BRIDGEPOINT EDUCATION, INC. AND SUBSIDIARIES
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As filed with the Securities and Exchange Commission on August 26, 2009
Registration No. 333-                                    

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM S-1
 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

BRIDGEPOINT EDUCATION, INC.
 (Exact name of registrant as specified in its charter)

Delaware	 	8221	 	59-3551629	
(State or other jurisdiction of
incorporation or organization)	 	(Primary Standard Industrial
Classification Code Number)	 	(I.R.S. Employer
Identification Number)	
13500 Evening Creek Drive North, Suite 600
San Diego, CA 92128
(858) 668-2586 
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Andrew S. Clark
CEO and President
Bridgepoint Education, Inc.
13500 Evening Creek Drive North, Suite 600
San Diego, CA 92128
(858) 668-2586 
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

Jeffrey D. Saper, Esq.
Martin J. Waters, Esq.
Wilson Sonsini Goodrich & Rosati, PC
12235 El Camino Real
Suite 200
San Diego, CA 92130-3002
Telephone: (858) 350-2300
Facsimile: (858) 350-2399	 	Kris F. Heinzelman, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-1000
Telephone: (212) 474-1000
Facsimile: (212) 474-3700	

                   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:  o
                  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.  o
                  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.  o
                  If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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.  o
                  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated filer o	 	Accelerated filer o	 	Non-accelerated filer ý
(Do not check if a smaller reporting company)	 	Smaller reporting company o	
CALCULATION OF REGISTRATION FEE

 	
Title of Each Class of Securities
to be Registered	 	Amount to be
Registered	 	Proposed Maximum
Offering Price
Per Unit(1)	 	Proposed Maximum
Aggregate Offering
Price(1)	 	Amount of
Registration Fee	
 	
Common Stock, par value $0.01	 	12,650,000	 	$21.30	 	$269,445,000	 	$15,035.04	
 	
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act of 1933 based on the average of the high and low prices reported on the New York Stock Exchange on August 21, 2009.
                   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 the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission of which this prospectus forms a part is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated August 26, 2009
11,000,000 Shares

Bridgepoint Education, Inc.
Common Stock

              The selling stockholders are selling 11,000,000 shares of our common stock under this prospectus. We will not receive any proceeds from the sale of shares by the selling stockholders.
              Our common stock is quoted on the New York Stock Exchange under the symbol "BPI." The last reported sale price of our common stock as reported on the New York Stock Exchange on August 25, 2009 was $20.79 per share.

 	 	Per Share 	 	Total 	 	
Public offering price	 	$	 	 	$	 	 	
Underwriting discounts and commissions	 	
$		 	
$		 	
Proceeds to selling stockholders, before expenses	 	
$		 	
$		 	
              The selling stockholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 1,650,000 additional shares of common stock at the public offering price, less the underwriting discounts and commissions, to cover overallotments, if any.
              We expect that delivery of the shares of common stock will be made on or about                        , 2009.
               See "Risk Factors" beginning on page 12 to read about risks that you should consider before buying shares of our common stock.
               Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Joint Book-Running Managers

BofA Merrill Lynch	 	J.P.Morgan	
The date of this prospectus is                , 2009.

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 TABLE OF CONTENTS

 	 	Page	
PROSPECTUS SUMMARY	 	1	
RISK FACTORS	 	12	
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	 	36	
USE OF PROCEEDS	 	38	
PRICE RANGE OF COMMON STOCK	 	38	
DIVIDEND POLICY	 	38	
CAPITALIZATION	 	39	
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	 	40	
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	 	43	
BUSINESS	 	63	
REGULATION	 	84	
MANAGEMENT	 	100	
COMPENSATION DISCUSSION AND ANALYSIS	 	108	
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	 	134	
PRINCIPAL AND SELLING STOCKHOLDERS	 	136	
DESCRIPTION OF CAPITAL STOCK	 	139	
SHARES ELIGIBLE FOR FUTURE SALE	 	145	
MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK	 	147	
UNDERWRITING	 	150	
LEGAL MATTERS	 	154	
EXPERTS	 	154	
WHERE YOU CAN FIND MORE INFORMATION	 	155	
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	 	F-1	

               You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

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 PROSPECTUS SUMMARY
               This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus, including the consolidated financial statements. You should carefully consider, among other things, the matters discussed in "Risk Factors." Except where the context otherwise requires or where otherwise indicated, (i) the terms "we," "us," "our" and "Bridgepoint" refer to Bridgepoint Education, Inc. and its consolidated subsidiaries, including Ashford University and the University of the Rockies and (ii) the term "Warburg Pincus" refers to Warburg Pincus Private Equity VIII, L.P.
Overview
              We are a regionally accredited provider of postsecondary education services. We offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences.
              We deliver our programs online as well as at our traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado. As of June 30, 2009, we offered approximately 1,000 courses and 50 degree programs and 110 specializations and concentrations. We had 45,504 students enrolled in our institutions as of June 30, 2009, 99% of whom were attending classes exclusively online.
              We have designed our offerings to have four key characteristics that we believe are important to students:
•
Affordability —our tuition and fees fall within Title IV loan limits; 

•
Transferability —our universities accept a high level of prior credits; 

•
Accessibility —our online delivery model makes our offerings accessible to a broad segment of the population; and 

•
Heritage —our institutions' histories as traditional universities provide a sense of familiarity, a connection to a student community and a campus-based experience for both online and ground students.
We believe these characteristics create an attractive and differentiated value proposition for our students. In addition, we believe this value proposition expands our overall addressable market by enabling potential students to overcome the challenges associated with cost, transferability of credits and accessibility—factors that frequently discourage individuals from pursuing a postsecondary degree.
              We are committed to providing a high-quality educational experience to our students. We have a comprehensive curriculum development process, and we employ qualified faculty members with significant academic and practitioner credentials. We conduct ongoing faculty and student assessment processes and provide a broad array of student services. Our ability to offer a quality experience at an affordable price is supported by our efficient operating model, which enables us to deliver our programs, as well as market, recruit and retain students, in a cost-effective manner.
              We have experienced significant growth in enrollment, revenue and operating income since our acquisition of Ashford University in March 2005. We intend to pursue growth in a manner that continues to emphasize a quality educational experience and that satisfies regulatory requirements. At June 30, 2009, our enrollment was 45,504, an increase of 101.3%, over our enrollment as of June 30, 2008. At June 30, 2009, our ground enrollment was 498, as compared to 312 in March 2005, reflecting our commitment to invest in further developing our traditional campus heritage. For the year ended December 31, 2008 and the six months ended June 30, 2009, our revenue was $218.3 million and $195.2 million, representing increases of 154.7% and 119.6% over the same periods in the prior year, respectively. For the year ended December 31, 2008, our operating income was $33.4 million, as
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compared to $4.0 million for the prior year. For the six months ended June 30, 2009, our operating income was $9.0 million, as compared to $14.6 million for the six months ended June 30, 2008. Our operating income for the six months ended June 30, 2009 includes the impact of an expense of $11.1 million (of which $10.6 million was a non-cash expense) related to the settlement of a stockholder dispute in the first quarter of 2009 and a non-cash expense of $30.4 million related to the acceleration of exit options in the second quarter of 2009. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Acceleration of Exit Options" and "Management's Discussion and Analysis of Financial Condition and Results of Operation—Factors Affecting Comparability—Settlement of Stockholder Dispute."
Our History
              In January 2004, our principal investor, Warburg Pincus, and our CEO and President, Andrew Clark, as well as several other members of our current executive management team, launched Bridgepoint Education, Inc. Together, they developed a business plan to provide individuals previously discouraged from pursuing an education due to cost, the inability to transfer credits or difficulty in completing an education while meeting personal and professional commitments, the opportunity to pursue a quality education from a trusted institution. The business plan incorporated our management team's experience with other online and campus-based postsecondary providers and sought to employ processes and technologies that would enhance both the quality of the offering and the efficiency with which it could be delivered.
              In March 2005, we acquired the assets of The Franciscan University of the Prairies, located in Clinton, Iowa, and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs. In September 2007, we also acquired the assets of the Colorado School of Professional Psychology, a non-profit institution founded in 1998 and located in Colorado Springs, Colorado, and renamed it the University of the Rockies. The University of the Rockies offers master's and doctoral programs primarily in psychology.
              The majority of our current executive management team was in place at the time we acquired Ashford University. As a result, we were able to begin implementing processes and technologies to prepare for the launch of an online educational offering designed to serve a large student population immediately after the acquisition. Since March 2005, we have launched 30 programs and numerous specializations and concentrations, as well as initiated our formal military and corporate channel development efforts. We have also made investments in enhancing and expanding our campus-based operations as part of our commitment to continuing to invest in developing our traditional campus heritage.
Our Market Opportunity
              The postsecondary education market in the United States represents a large, growing opportunity. Based on a March 2009 report by the U.S. Department of Education's National Center for Education Statistics, or NCES, revenue of postsecondary degree-granting educational institutions exceeded $410 billion in the 2005-2006 academic year. In the same report, the number of students enrolled in postsecondary institutions was 18.2 million in 2007 and is projected to grow to 20.1 million by 2017.
              Online postsecondary enrollment is growing at a rate well in excess of the growth rate of overall postsecondary enrollment. According to Eduventures, LLC, or Eduventures, an education consulting and research firm, online postsecondary enrollment increased from 0.4 million to 1.7 million
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between 2002 and 2007, representing a compound annual growth rate of 32.0%. We believe the rapid growth in online postsecondary enrollment has been driven by a number of factors, including:
•
the greater convenience and flexibility that online programs offer as compared to ground programs; 

•
the increased acceptance of online programs as an effective educational medium by students, academics and employers; and 

•
the broader potential student base, including working adults, that can be reached through the use of online delivery.
              We expect continued growth in postsecondary education based on a number of factors. According to a December 2007 report from the U.S. Bureau of Labor Statistics, or BLS, occupations requiring a bachelor's or master's degree are expected to grow 17% and 19%, respectively, between 2006 and 2016, or nearly double the growth rate BLS has projected for occupations that do not require a postsecondary degree. Further, according to data published by the NCES, the 2007 median incomes for individuals 25 years or older with a bachelor's, master's and doctoral degree were 67%, 100% and 167% higher, respectively, than for a high school graduate (or equivalent) of the same age with no college education.
              Although obtaining a postsecondary education has significant benefits, many prospective students are discouraged from pursuing, and ultimately completing, an undergraduate or graduate degree program. According to a March 2009 NCES report, 67% of all individuals 25 years or older in the United States who have obtained a high school degree, or over 112 million individuals, have not completed a bachelor's degree or higher. We believe this is due to a number of factors, including:
•
High tuition costs.   According to a March 2009 NCES report, tuition prices have increased at a compound annual growth rate of 7.4% and 7.2% for public and private institutions, respectively, over the past three decades, well in excess of the rate of inflation during this period. Many students are unable to afford such tuition prices and, as a result, elect not to pursue a postsecondary education. 

•
Restrictions on credit transferability.   According to a March 2009 NCES report, over 33 million individuals 25 years or older in the United States have completed some postsecondary education coursework but have not obtained a degree. These individuals typically seek to transfer credits for previously completed coursework when they re-enroll in a postsecondary degree program. However, institutions often do not allow new students to obtain full credit for prior coursework, forcing them to incur incremental expense and to commit additional time to complete a program. 

•
Personal and professional commitments.   Many postsecondary students, particularly working adults, must balance other personal and professional commitments while pursuing an education. As a result, these students often require significant scheduling flexibility, as well as an online delivery platform, to obtain the flexibility they require to complete a program. 

•
Inadequate community support network.   Students often seek, and in many cases require, a sense of student community and the associated support network to successfully complete their coursework. For some institutions, particularly those with limited direct interaction between students, these factors can be difficult to establish.
              We believe postsecondary institutions that effectively address these challenges not only access a broader segment of the overall postsecondary market, but also have the potential to expand the market opportunity and to include individuals who previously were discouraged from pursuing a postsecondary education.
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Our Competitive Strengths
              We believe that we have the following competitive strengths:
              Attractive, differentiated value proposition for students.     We have designed our educational model to provide our students with a superior value proposition relative to other educational alternatives in the market. We believe our model allows us to attract more students, as well as to target a broader segment of the overall population. Our value proposition is based on the following:
•
Affordable tuition.   We structure the tuition and fees for our programs to be below Title IV loan limits, permitting students who do not otherwise have the financial means to pursue an education the ability to gain access to our programs. 

•
High transferability of credits.   Based on our research, we believe we are one of six postsecondary education institutions in the United States, and the only for-profit provider, that accepts up to 99 transfer credits for a bachelor's degree program. Based on a recent review of our enrolled students, over 76% transferred in credits and 54% of those who transferred in credits transferred in 50 credits or more. 

•
Accessible educational model.   Our online delivery model, weekly start dates and commitment to affordability and the transferability of credits make our programs highly accessible. 

•
Heritage as a traditional university with a campus-based student community.   We believe that a strong sense of community and the familiarity associated with a traditional campus environment are important to recruiting and retaining students and differentiate us from many other online providers.
              Commitment to academic quality.     We are committed to providing our students with a rigorous and rewarding academic experience, which gives them the knowledge and experience necessary to be contributors, educators and leaders in their chosen professions. We seek to maintain a high level of quality in our curriculum, faculty and student support services. In the past five student satisfaction surveys we have conducted, 97% indicated they would recommend Ashford University to others seeking a degree.
              Cost-efficient, scalable operating model.     We have designed our operating model to be cost-efficient, allowing us to offer a quality educational experience at an affordable tuition rate while still generating attractive operating margins. Additionally, we have developed our operating model to be scalable and to support a much larger student population than is currently enrolled.
              Experienced management team and strong corporate culture.     Our management team possesses extensive experience in postsecondary education, in many cases with other large online postsecondary providers. Andrew Clark, our CEO and President, served in senior management positions at such institutions for 12 years prior to joining us and has significant experience with online education businesses. Additionally, our executive management team has been critical to establishing and maintaining our corporate culture, which is based on four core values: integrity, ethics, service and accountability.
Our Growth Strategies
              We intend to pursue the following growth strategies:
              Focus on high-demand disciplines and degree programs.     We seek to offer programs in disciplines in which there is strong demand for education and significant opportunity for employment. Based on a March 2009 NCES report, programs in our disciplines represent 69% of total bachelor's degrees conferred by all postsecondary institutions in 2006-2007.
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              Increase enrollment in our existing programs through investment in marketing, recruiting and retention.     We have invested significant resources in developing processes and implementing technologies that allow us to effectively identify, recruit and retain qualified students. We intend to continue to invest in marketing, recruiting and retention and to expand our enrollment advisor workforce to increase enrollment in our existing programs.
              Expand our portfolio of programs, specializations and concentrations.     We intend to continue to expand our academic offerings to attract a broader portion of the overall market. In addition to adding new programs in high-demand disciplines, we intend to enhance our programs through the addition of specializations and concentrations.
              Further develop strategic relationships in the military and corporate channels.     We intend to broaden our relationships with military and corporate employers, as well as seek additional relationships in these channels. Through our dedicated channel development teams, we are able to cost-effectively target specific segments of the market as well as better understand the needs of students in these segments.
              Deliver measurable academic outcomes and a positive student experience.     We are committed to offering an educational solution that supports measurable academic outcomes, thereby allowing our students to increase their probability of success in their chosen profession, while ensuring a positive student experience. We believe our combination of measurable outcomes and a positive experience is important to helping students persist through graduation.
Risk Factors
              Our business is subject to numerous risks. See "Risk Factors" beginning on page 12. In particular, our business would be adversely affected if:
•
we fail to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements and accrediting agency requirements, which regulatory framework is subject to significant revisions from time to time; 

•
we are unable to continue to develop awareness among, to recruit or to retain students; 

•
competition in the postsecondary education market negatively impacts our market share, recruiting cost or tuition rates; 

•
we experience damage to our reputation, or other adverse effects, in connection with any compliance audit, regulatory action, negative publicity or service disruption; 

•
we are unable to attract or retain the personnel needed to sustain and grow our business; 

•
we are unable to develop new programs or expand our existing programs in a timely and cost-effective manner; 

•
adverse economic or other developments negatively impact demand in our core disciplines or the availability or cost of Title IV or other funding; or 

•
we are impacted by the other risks described in "Risk Factors."
Corporate Information
              We were incorporated in Delaware in May 1999 under the name TeleUniversity, Inc. Our principal executive offices are located at 13500 Evening Creek Drive North, Suite 600, San Diego, CA 92128, and our telephone number is (858) 668-2586. Our website is located at www.bridgepointeducation.com. The information on, or accessible through, our website does not constitute part of, and is not incorporated into, this prospectus.
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Accreditation
              Ashford University and the University of the Rockies are accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, 30 N. LaSalle, Suite 2400, Chicago, Illinois 60602-2504, whose telephone number is (312) 263-0456. The Higher Learning Commission's website is located at www.ncahlc.org. The information on, or accessible through, the website of the Higher Learning Commission and the North Central Association of Colleges and Schools does not constitute part of, and is not incorporated into, this prospectus.
Industry Data
              We use market data and industry forecasts and projections throughout this prospectus, which we have obtained from market research, publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and on the preparers' experience in the industry as of the time they were prepared, and there is no assurance that any of the projected numbers will be reached. Similarly, we believe that the surveys and market research others have completed are reliable, but we have not independently verified their findings.
Recent Regulatory Developments
              In June 2009, the U.S. Department of Education held three public hearings focused on developing new Title IV regulations, including those related to:
•
satisfactory academic progress; 

•
incentive compensation paid by institutions to persons or entities engaged in student recruiting or admission activities; 

•
gainful employment in a recognized occupation; 

•
state authorization as a component of institutional eligibility; 

•
the definition of a credit hour for purposes of determining program eligibility status; 

•
verification of information included on student aid applications; and 

•
the definition of a high school diploma as a condition of receiving federal student aid.
              The U.S. Department of Education has stated that it plans to convene negotiated rulemaking sessions in the fall of 2009 with the objective of developing regulations to address these and other issues raised at the public hearings. Additionally, the U.S. Department of Education is in the process of issuing new regulations to implement the amendments made to the Higher Education Act by the Higher Education Opportunity Act enacted in August 2008. The new regulations will emerge from five negotiated rulemaking sessions, which were conducted and concluded earlier this year, and will cover a broad range of topics including the "90/10 rule," "cohort default rates" and other matters. For more information about the 90/10 rule and cohort default rates, see "Regulation—Regulation of Federal Student Financial Aid Programs." The first four sets of new regulations were published in proposed form, the last of which was published on August 21, 2009. We expect the one remaining set of new regulations to be published in proposed form in the near future. The proposed regulations are subject to notice and comments from the public and are expected to be issued in final form no later than November 1, 2009. We are closely monitoring any policy or regulatory changes resulting from these rulemaking sessions which could impact our institutions and our business.
              In July 2009, the House Committee on Education and Labor passed the Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221. This legislation, which was designed to address the goals
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outlined by the budget of the Obama Administration, would amend the Higher Education Act to prohibit new federally guaranteed loans from being made under the Federal Family Education Loan Program (the "FFEL Program"), beginning on July 1, 2010, at which time all new federal education loans would be originated through the Federal Direct Loan Program. The legislation would also, among other matters, provide for automatic increases in the maximum amount of the Federal Pell Grant for which a student would be eligible (subject to appropriations), create a new Federal Direct Perkins Loan program (to replace the current Perkins loan program) and provide relief to for-profit institutions by amending the 90/10 rule to (i) extend to July 2012 the ability of for-profit institutions to exclude from their Title IV revenues the additional $2,000 per student in certain annual federal student loan amounts that became available in June 2008, (ii) exclude from the 90/10 rule calculation for the period July 1, 2010 through July 1, 2012 the revenue received from loans disbursed under the Federal Direct Perkins Loan program, (iii) extend from two consecutive years to three consecutive years the period for which for-profit institutions must derive no more than 90% of their revenues from the Title IV programs before losing eligibility under the 90/10 rule and (iv) give for-profit institutions two years (as opposed to one) of non-compliance with the 90/10 rule before they would be moved into provisional eligibility status. The Student Aid and Fiscal Responsibility Act of 2009 has not been passed by Congress and is subject to further review and amendment. If the legislation passes, our institutions would be required to certify loans through the Federal Direct Loan Program, for which we are eligible to participate, rather than through the FFEL Program. We expect to be able to fully transition from the FFEL Program to the Federal Direct Loan Program by the proposed July 1, 2010 phase-out date, if necessary.
              In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
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 The Offering

Common stock to be offered by selling stockholders	 	11,000,000 shares	
Common stock outstanding immediately after this offering	 	                    shares	
Use of proceeds	 	We will not receive any proceeds from the sale of shares by the selling stockholders.	
Overallotment option	 	The selling stockholders have granted the underwriters a 30-day option to purchase from the selling stockholders from time to time up to an additional 1,650,000 of our shares of common stock to cover overallotments.	
Risk Factors	 	For a discussion of the factors you should consider in evaluating a purchase of our stock, see "Risk Factors" beginning on page 12.	
NYSE symbol	 	BPI	
              The number of shares of our common stock shown above to be outstanding after this offering is based on 53,333,361 shares outstanding as of August 15, 2009 and includes                      shares of common stock to be issued upon the exercise by selling stockholders of options and warrants at the closing of this offering. This number of shares of common stock after this offering excludes:
•
shares of common stock issuable upon the exercise of outstanding stock options, with a weighted average exercise price of $                        per share; 

•
shares of common stock issuable upon the exercise of outstanding warrants, with a weighted average exercise price of $                        per share; 

•
3,384,988 shares of common stock available for future issuance under our 2009 Stock Incentive Plan as of August 15, 2009; and 

•
994,276 shares of common stock available for future issuance under our employee stock purchase plan as of August 15, 2009.
              Except as otherwise indicated in this prospectus, information in this prospectus assumes the underwriters' overallotment option will not be exercised to purchase additional shares in the offering.
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 Summary Consolidated Financial and Other Data
              The following tables present our summary consolidated financial and other data. You should read this information together with our consolidated financial statements, which are included elsewhere in this prospectus, and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations." The summary consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008, and the summary consolidated balance sheet data as of December 31, 2007 and 2008, have been derived from our audited annual consolidated financial statements, which are included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2006, has been derived from our audited annual consolidated financial statements, which are not included in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2008 and 2009 and the summary consolidated balance sheet data as of June 30, 2009 have been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for such period. Results for the six months ended June 30, 2009 are not necessarily indicative of results expected for the full year. Historical results are not necessarily indicative of the results to be expected for future periods.

 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	(In thousands, except per share data)	 	
Consolidated Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	28,619	 	$	85,709	 	$	218,290	 	$	88,890	 	$	195,183	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	12,510	 	 	29,837	 	 	62,822	 	 	25,682	 	 	50,491	 	
 	Marketing and promotional	 	 	12,214	 	 	35,997	 	 	81,036	 	 	33,432	 	 	68,760	 	
 	General and administrative(1)	 	 	8,704	 	 	15,892	 	 	41,012	 	 	15,135	 	 	66,976	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	33,428	 	 	81,726	 	 	184,870	 	 	74,249	 	 	186,227	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(4,809	)	 	3,983	 	 	33,420	 	 	14,641	 	 	8,956	 	
Interest income	 	 	(10	)	 	(12	)	 	(322	)	 	(91	)	 	(270	)	
Interest expense	 	 	351	 	 	544	 	 	240	 	 	183	 	 	154	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(5,150	)	 	3,451	 	 	33,502	 	 	14,549	 	 	9,072	 	
Income tax expense	 	 	—	 	 	164	 	 	7,071	 	 	2,522	 	 	3,925	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(5,150	)	 	3,287	 	 	26,431	 	 	12,027	 	 	5,147	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Accretion of preferred dividends(2)	 	 	1,718	 	 	1,856	 	 	2,006	 	 	1,002	 	 	645	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(6,868	)	$	1,431	 	$	24,425	 	$	11,025	 	$	4,502	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(2.15	)	$	0.01	 	$	0.38	 	$	0.17	 	$	0.08	 	
 	Diluted	 	$	(2.15	)	$	0.01	 	$	0.16	 	$	0.08	 	$	0.07	 	
Shares used in computing earnings (loss) per common share(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	3,197	 	 	3,311	 	 	3,335	 	 	3,335	 	 	24,938	 	
 	Diluted	 	 	3,197	 	 	4,446	 	 	7,757	 	 	7,403	 	 	30,280	 	
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 	 	As of December 31,	 	 	 	
 			 	As of
June 30,
2009	 	
 	 	2006	 	2007	 	2008			 	
 	 	(In thousands)	 	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	54	 	$	7,351	 	$	56,483	 	$	111,864	 	
Total assets	 	 	17,091	 	 	39,057	 	 	129,246	 	 	230,707	 	
Total indebtedness (including short-term indebtedness)	 	 	4,193	 	 	5,673	 	 	684	 	 	584	 	
Redeemable convertible preferred stock	 	 	23,200	 	 	25,056	 	 	27,062	 	 	—	 	
Total stockholders' equity (deficit)	 	 	(21,692	)	 	(20,143	)	 	6,109	 	 	83,412	 	

																		
 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	(In thousands, except enrollment data)	 	
Consolidated Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	$	1,381	 	$	3,571	 	$	15,884	 	$	1,849	 	$	12,015	 	
Depreciation and amortization	 	 	735	 	 	1,236	 	 	2,452	 	 	975	 	 	2,467	 	
EBITDA (unaudited)(4)	 	 	(4,074	)	 	5,219	 	 	35,872	 	 	15,616	 	 	11,423	 	
Cash flows provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Operating activities	 	 	(1,082	)	 	10,367	 	 	70,748	 	 	23,221	 	 	76,511	 	
 	Investing activities	 	 	(1,373	)	 	(2,936	)	 	(16,550	)	 	(2,515	)	 	(23,540	)	
 	Financing activities	 	 	346	 	 	(134	)	 	(5,066	)	 	(2,959	)	 	2,410	 	
Period end enrollment (unaudited)(5):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	4,111	 	 	12,104	 	 	30,921	 	 	22,201	 	 	45,006	 	
 	Ground	 	 	360	 	 	519	 	 	637	 	 	406	 	 	498	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	4,471	 	 	12,623	 	 	31,558	 	 	22,607	 	 	45,504	 	

(1)
In the fourth quarter of 2008, we recorded stock-based compensation expense of $1.6 million related to the modification of a stock award held by a director. See Note 15, "Related Party Transactions—Director Agreement," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(2)
The holders of Series A Convertible Preferred Stock earn preferred dividends, accreting at the rate of 8% per year, compounding annually. See Note 10 "Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)," to our annual consolidated financial statements and Note 2, "Summary of Significant Accounting Policies," to our interim condensed consolidated financial statements, which are both included elsewhere in this prospectus.

(3)
All basic and diluted earnings (loss) per share and average shares outstanding information for all periods presented have been adjusted to reflect the 1-for-4.5 reverse stock split. See Note 19, "Subsequent Events—Reverse Stock Split," to our annual consolidated financial statements, which are included elsewhere in this prospectus. For more information regarding earnings per share calculations, see Note 9, "Earnings Per Share," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(4)
EBITDA is defined as net income (loss) plus interest expense, less interest income, plus income tax expense and plus depreciation and amortization. However, EBITDA is not a recognized measurement under accounting principles generally accepted in the United States of America, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, net income, operating income or any other performance measure presented in accordance with GAAP. Because not all companies
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use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies.
We believe EBITDA is useful to investors in evaluating our operating performance because it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization. Depreciation and amortization can vary depending on accounting methods and the book value of assets. We believe EBITDA presents a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets have been acquired.
Our management uses EBITDA:
•
as a measurement of operating performance, because it assists us in comparing our performance on a consistent basis, as it removes depreciation, amortization, interest and taxes; and 

•
in presentations to our board of directors to enable our board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with results of other companies in our industry.
              The following table provides a reconciliation of net income (loss) to EBITDA (unaudited):

 	 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	 	(In thousands)	 	
 	Net income (loss)	 	$	(5,150	)	$	3,287	 	$	26,431	 	$	12,027	 	$	5,147	 	
 	Plus: interest expense	 	 	351	 	 	544	 	 	240	 	 	183	 	 	154	 	
 	Less: interest income	 	 	(10	)	 	(12	)	 	(322	)	 	(91	)	 	(270	)	
 	Plus: income tax expense	 	 	—	 	 	164	 	 	7,071	 	 	2,522	 	 	3,925	 	
 	Plus: depreciation and amortization	 	 	735	 	 	1,236	 	 	2,452	 	 	975	 	 	2,467	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	EBITDA	 	$	(4,074	)	$	5,219	 	$	35,872	 	$	15,616	 	$	11,423	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA for the six months ended June 30, 2009 includes expenses related to (i) the settlement of the stockholder dispute in the first quarter of 2009, an expense of $11.1 million (of which $10.6 million was a non-cash expense) and (ii) the acceleration of exit options in the second quarter of 2009, a non-cash expense of $30.4 million.
(5)
We define enrollments as the number of active students on the last day of the financial reporting period. A student is considered an active student if he or she has attended a class within the prior 30 days unless the student has graduated or has provided us with a notice of withdrawal.
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 RISK FACTORS
               Investing in our common stock involves risk. Before making an investment in our common stock, you should carefully consider the following risks, as well as the other information contained in this prospectus, including our consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The risks described below are those which we believe are the material risks we face. Any of the risks described below could significantly and adversely affect our business, prospects, financial condition and results of operations. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks and uncertainties not presently known to us or not believed by us to be material could also impact us.
Risks Related to the Extensive Regulation of Our Business
If our institutions fail to comply with extensive regulatory requirements, we could face monetary liabilities or penalties, restrictions on our operations or growth or loss of access to federal loans and grants for our students on which we are substantially dependent.
              In the years ended December 31, 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from federal student financial aid programs, referred to in this prospectus as Title IV programs, administered by the U.S. Department of Education. To participate in Title IV programs, a school must be legally authorized to operate in the state in which it is physically located, accredited by an accrediting agency recognized by the Secretary of the U.S. Department of Education as a reliable indicator of educational quality and certified as an eligible institution by the U.S. Department of Education. See "Regulation." As a result, we are subject to extensive regulation by state education agencies, our accrediting agency and the U.S. Department of Education. These regulatory requirements cover many aspects of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations and financial condition. These regulatory requirements can also affect our ability to acquire or open additional schools, to add new or expand existing educational programs, to change our corporate structure or ownership and to make other substantive changes. The state education agencies, our accrediting agency and the U.S. Department of Education periodically revise their requirements and modify their interpretations of existing requirements.
              If one of our institutions fails to comply with any of these regulatory requirements, the U.S. Department of Education can impose sanctions on such institution including:
•
transferring the institution to the heightened cash monitoring level two method of payment or to the reimbursement method of payment, which would adversely affect the timing of the institution's receipt of Title IV funds; 

•
requiring the institution to post a letter of credit in favor of the U.S. Department of Education as a condition for continued Title IV certification; 

•
imposing monetary liability against the institution in an amount equal to any funds determined to have been improperly disbursed; 

•
initiating proceedings to impose a fine or to limit, suspend or terminate the institution's participation in Title IV programs; 

•
taking emergency action to suspend the institution's participation in Title IV programs without prior notice or a prior opportunity for a hearing; 

•
failing to grant the institution's application for renewal of its certification to participate in Title IV programs; or
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•
referring a matter for possible civil or criminal investigation.
              In addition, the agencies that guarantee Title IV private lender loans for our students could initiate proceedings to limit, suspend or terminate our ability to obtain guarantees of our students' loans through that agency. If sanctions were imposed resulting in a substantial curtailment or termination of our participation in Title IV programs, our enrollments, revenues and results of operations would be materially adversely affected. Additionally, if administrative proceedings were initiated alleging regulatory violations, or seeking to impose any such sanctions, or if a third party were to initiate judicial proceedings alleging such violations, the mere existence of such proceedings could damage our reputation. We cannot predict with certainty how all of these regulatory requirements will be applied or whether we will be able to comply with all of the requirements. We have described some of the most significant regulatory risks that apply to us in the following paragraphs.
              Because we operate in a highly regulated industry, we are also subject to compliance reviews and claims of non-compliance and lawsuits by government agencies, regulatory agencies and third parties, including claims brought by third parties on behalf of the federal government under the federal False Claims Act. If the results of these reviews or proceedings are unfavorable to us or if we are unable to defend successfully against such lawsuits or claims, we may be required to pay money damages or be subject to fines, limitations, loss of Title IV funding, injunctions or other penalties. Even if we adequately address issues raised by an agency review or successfully defend a lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or to defend against those lawsuits or claims. Claims and lawsuits brought against us may damage our reputation or adversely affect our stock price, even if such claims and lawsuits are eventually determined to be without merit.
We must periodically seek recertification to participate in Title IV programs and may, in certain circumstances, be subject to review by the U.S. Department of Education prior to seeking recertification.
              An institution that is certified to participate in Title IV programs must periodically seek recertification from the U.S. Department of Education to continue participating in such programs, including when it undergoes a change of control as defined by the U.S. Department of Education. Our current provisional certification for Ashford University is scheduled to expire on June 30, 2011. Our current provisional certification for the University of the Rockies is scheduled to expire on September 30, 2010. The U.S. Department of Education may also review our schools' continued certification to participate in Title IV programs if we undergo a change of control. In addition, the U.S. Department of Education may take emergency action to suspend an institution's certification without advance notice if it determines the institution is violating Title IV requirements and determines that immediate action is necessary to prevent misuse of Title IV funds. If the U.S. Department of Education did not renew or if it withdrew our schools' certifications to participate in Title IV programs, our students would no longer be able to receive Title IV funds, which would have a material adverse effect on our enrollment, revenues and results of operations.
Congress may change the eligibility standards or reduce funding for Title IV programs.
              The Higher Education Act, which is the federal law that governs Title IV programs, must be periodically reauthorized by Congress, typically every five to six years. The Higher Education Act was most recently reauthorized in August 2008, continuing Title IV programs through at least September 30, 2014. In addition, Congress must determine funding levels for Title IV programs on an annual basis and can change the laws governing Title IV programs at any time. Political and budgetary concerns significantly affect Title IV programs. Because a significant percentage of our revenue is derived from Title IV programs, any action by Congress that significantly reduces Title IV program funding, or reduces our ability or the ability of our students to participate in Title IV programs, would have a material adverse effect on our enrollment, revenues and results of operations. Congressional
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action could also require us to modify our practices in ways that could increase our administrative and regulatory costs.
Our failure to maintain institutional accreditation would result in a loss of eligibility to participate in Title IV programs.
              An institution must be accredited by an accrediting agency recognized by the U.S. Department of Education in order to participate in Title IV programs. Each of our schools is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, which is recognized by the U.S. Department of Education as a reliable authority regarding the quality of education and training provided by the institutions it accredits. Ashford University was reaccredited by the Higher Learning Commission in 2006 for a term of ten years, and the University of the Rockies was reaccredited by the Higher Learning Commission in 2008 for a term of seven years. The Higher Learning Commission has scheduled a visit for Ashford University for the 2009-2010 academic year to focus on (a) institutional finances, (b) effectiveness and outcomes of current experiential learning formats and transfer credit and (c) the impact on the Clinton campus of campus-based programs offered online. The Higher Learning Commission has scheduled Ashford University for a comprehensive evaluation during the 2016-2017 academic year in connection with the next regularly scheduled accreditation renewal process. The Higher Learning Commission has scheduled the University of the Rockies for a comprehensive evaluation during the 2015-2016 academic year in connection with the next regularly scheduled accreditation renewal process.
              In addition, in connection with (i) the Higher Learning Commission's determination that our initial public offering constituted a change of control under its standards and (ii) the approval of the change requests submitted by Ashford University and the University of the Rockies to proceed with the initial public offering, the Higher Learning Commission has scheduled an on-site focused visit to each of Ashford University and the University of the Rockies, to occur in November 2009, to verify that the respective institutions continue to meet the Higher Learning Commission's requirements. The Higher Learning Commission has postponed consideration of a request by the University of the Rockies for approval of three new graduate programs until completion of the on-site visit and formal acceptance of the visiting team's recommendations by the Higher Learning Commission.
              To remain accredited, our institutions must continuously meet accreditation standards relating to, among other things, performance, governance, institutional integrity, educational quality, faculty, administrative capability, resources and financial stability. If either of our institutions fails to satisfy any of the Higher Learning Commission's standards, it could lose its accreditation. Loss of accreditation would denigrate the value of our institutions' educational programs and would cause them to lose their eligibility to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations.
If one of our schools does not maintain necessary state authorization, it may not operate or participate in Title IV programs.
              To participate in Title IV programs, a school must be authorized by the relevant education agency of the state in which it is physically located.
•
Ashford University is located in the State of Iowa and is exempt from having to register as a postsecondary school in the State of Iowa. Such exemption may be lost or withdrawn if Ashford University fails to comply with requirements under Iowa law for continued exemption. 

•
The University of the Rockies is located in the State of Colorado and is authorized by the Colorado Commission on Higher Education. Such authorization may be lost or withdrawn if the University of the Rockies fails to submit renewal applications and other required
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submissions to the state in a timely manner or if the University of the Rockies fails to comply with requirements under Colorado statutes and rules for continued authorization.
              Loss of state authorization by one of our schools in the state in which it is physically located would terminate our ability to provide educational services through such school, as well as make such school ineligible to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations.
The U.S. Department of Education's Office of Inspector General has commenced a compliance audit of Ashford University which is ongoing, and which could result in repayment of Title IV funds, interest, fines, penalties, remedial action, damage to our reputation in the industry or a limitation on, or a termination of, our participation in Title IV programs.
              The U.S. Department of Education's Office of Inspector General, or the OIG, is responsible for promoting the effectiveness and integrity of the U.S. Department of Education's programs and operations. With respect to educational institutions that participate in Title IV programs, the OIG conducts its work primarily through an audit services division and an investigations division. The audit services division typically conducts general audits of schools to assess their administration of federal funds in accordance with applicable rules and regulations. The investigation services division typically conducts focused investigations of particular allegations of fraud, abuse or other wrongdoing against schools by third parties, such as a lawsuit filed under seal pursuant to the federal False Claims Act.
              The OIG audit services division is conducting a compliance audit of Ashford University which commenced in May 2008. The period under audit is March 10, 2005 through June 30, 2009. The scope of the audit covers Ashford University's administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, award and disbursement of Title IV program funds, verification of awards, returns of unearned funds and compensation of financial aid and recruiting personnel. The OIG is expected to issue a draft audit report to which we will have an opportunity to respond. We expect that the OIG will not issue a final audit report until several months after our response. The final audit report would include any findings and any recommendations to the U.S. Department of Education's Federal Student Aid office based on those findings. If the OIG identifies findings of noncompliance in its final report, the OIG could recommend remedial actions to the office of Federal Student Aid, which would determine what action to take, if any. Such action could include requiring Ashford University to refund federal student aid funds or modify its Title IV administration procedures, imposing fines, limiting, suspending or terminating its Title IV participation or taking other remedial action. Because of the ongoing nature of the OIG audit, we cannot predict with certainty the ultimate extent of the draft or final audit findings or recommendations or the potential liability or remedial actions that might result. See "Risk Factors—Risks Related to the Extensive Regulation of Our Business—If our institutions fail to comply with extensive regulatory requirements, we could face monetary liabilities or penalties, restrictions on our operations or growth or loss of access to federal loans and grants for our students on which we are substantially dependent."
The failure of our schools to demonstrate financial responsibility may result in a loss of eligibility to participate in Title IV programs or require the posting of a letter of credit in order to maintain eligibility to participate in Title IV programs.
              To participate in Title IV programs, an eligible institution must, among other things, satisfy specific measures of financial responsibility prescribed by the U.S. Department of Education or post a letter of credit in favor of the U.S. Department of Education and possibly accept other conditions to the institution's participation in Title IV programs. The measures of financial responsibility include a minimum composite score of 1.5. The composite score is derived from the institution's or its parent's audited, fiscal-year-end financial statements and is calculated annually by the U.S. Department of Education for each participating institution. If such composite score does not meet or exceed 1.5, the
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U.S. Department of Education may require the institution to post a letter of credit in favor of the U.S. Department of Education and possibly accept other conditions on its participation in Title IV programs.
              For the year ended December 31, 2007, Ashford University did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 10% of total Title IV funds received in 2007, to accept provisional certification to participate in Title IV programs and to conform to the requirements of the heightened cash monitoring level one method of payment. Under the heightened cash monitoring level one method of payment, Ashford University may not draw down Title IV funds until such funds are disbursed to students. Ashford University has posted the required letter of credit in the amount of $12.1 million, which will remain in effect through September 30, 2009. If Ashford University were unable to secure the required letter of credit, it could lose its eligibility to participate in Title IV programs, which would have a material adverse effect on our business.
              For the fiscal year ended July 31, 2007, the University of the Rockies did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 30% of total Title IV funds received in the fiscal year ending July 31, 2007, to accept provisional certification to participate in Title IV programs and to conform to the regulations of heightened cash monitoring level one method of payment. The University of the Rockies has posted the required letter of credit in the amount of $0.7 million, which was scheduled to remain in effect through October 1, 2009.
              In July 2009, the U.S. Department of Education notified the Company that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
The failure of our schools to demonstrate administrative capability may result in a loss of eligibility to participate in Title IV programs.
              U.S. 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 must, among other things:
•
comply with all applicable Title IV program requirements; 

•
have an adequate number of qualified personnel to administer Title IV programs; 

•
have acceptable standards for measuring the satisfactory academic progress of its students; 

•
have various procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required records; 

•
administer Title IV programs with adequate checks and balances in its system of internal control over financial reporting; 

•
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; 

•
provide financial aid counseling to its students; 

•
refer to the OIG any credible information indicating that any student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs;
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•
submit all required reports and financial statements in a timely manner; and 

•
not otherwise appear to lack administrative capability.
              If an institution fails to satisfy any of these criteria or comply with any other U.S. Department of Education regulations, the U.S. Department of Education may impose sanctions including:
•
transferring the institution to the heightened cash monitoring level two method of payment or to the reimbursement method of payment, which would adversely affect the timing of the institution's receipt of Title IV funds; 

•
requiring the institution to post a letter of credit in favor of the U.S. Department of Education as a condition for continued Title IV certification; 

•
imposing a monetary liability against the institution in an amount equal to any funds determined to have been improperly disbursed; 

•
initiating proceedings to impose a fine or to limit, suspend or terminate the institution's participation in Title IV programs; 

•
taking emergency action to suspend the institution's participation in Title IV programs without prior notice or a prior opportunity for a hearing; 

•
failing to approve the institution's application for renewal of its certification to participate in Title IV programs; or 

•
referring a matter for possible civil or criminal investigation.
              If we are found not to have satisfied the U.S. Department of Education's administrative capability requirements, we could be limited in our access to, or lose, Title IV program funding, which would have a material adverse effect on our enrollments, revenues and results of operations.
We are subject to sanctions if we fail to correctly calculate and return Title IV program funds in a timely manner for students who withdraw before completing their educational program.
              An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under U.S. Department of Education regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in an institution's having to post a letter of credit in an amount equal to 25% of its prior year returns of Title IV program funds. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
              For the year ended December 31, 2007, Ashford University exceeded the 5% threshold for late refunds sampled due to human error. As a result, the institution is subject to the requirement to post a letter of credit in favor of the U.S. Department of Education equal to 25% of the total refunds in 2007. Ashford University notified the U.S. Department of Education of its intention to post this letter of credit, but was advised by the U.S. Department of Education that such posting was unnecessary because we had already posted a letter of credit due to our failure to meet the composite score standard, which letter of credit was in excess of the amount required for late refunds. Although we have taken steps to reduce late refunds, we cannot ensure that such steps will be sufficient to address this issue.
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Our schools may be sanctioned if they pay impermissible commissions, bonuses or other incentive payments to individuals involved in certain recruiting, admissions or financial aid awarding activities.
              An institution that participates in Title IV programs may not provide 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, admissions or financial aid awarding activity. Although the U.S. Department of Education's regulations set forth 12 "safe harbors" which describe compensation arrangements that do not violate the incentive compensation rule, including the payment and adjustment of salaries and bonuses under certain conditions, the law and regulations do not establish clear criteria for compliance in all circumstances, and the U.S. Department of Education no longer reviews and approves compensation plans prior to their implementation. If one of our institutions were to violate the incentive compensation rule, it would be subject to monetary liabilities or to administrative action to impose a fine or to limit, suspend or terminate its eligibility to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations.
We may lose our eligibility to participate in Title IV programs if the percentage of our revenue derived from those programs is too high.
              Pursuant to a provision of the Higher Education Act, as reauthorized in August 2008, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds for two consecutive fiscal years, commencing with the institution's first fiscal year that ends after the new law's effective date of August 14, 2008. This rule is commonly referred to as the "90/10 rule." Any institution that violates the 90/10 rule becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single year will be placed on provisional certification and may be subject to other enforcement measures. We are currently assessing what impact, if any, the U.S. Department of Education's revised formula and other changes in federal law will have on our 90/10 calculation.
              In the years ended December 31, 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds. In connection with the change by the University of the Rockies to a December 31 fiscal year end date, the U.S. Department of Education required the University of the Rockies to calculate its compliance with the 90/10 rule for the fiscal year ending July 31, 2008 and for the five-month period ending December 31, 2008, and those percentages were 74.3% and 80.8%, respectively. Ineligibility to participate in Title IV programs would have a material adverse effect on our enrollments, revenues and results of operations. Recent changes in federal law which increased Title IV grant and loan limits, and any additional increases in the future, may result in an increase in the revenues we receive from Title IV programs, which could make it more difficult for us to satisfy the 90/10 rule. A provision in the rule allows institutions to exclude (for three years) from their Title IV revenues the additional $2,000 per student in certain annual federal student loan amounts that became available starting in July 2008. Following this period, it is unclear if this revenue will be excluded, and it could therefore impact our ability to satisfy the 90/10 rule.
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We may lose our eligibility to participate in Title IV programs if our student loan default rates are too high.
              For each federal fiscal year, the U.S. Department of Education calculates a rate of student defaults for each educational institution which is known as a "cohort default rate." An institution may lose its eligibility to participate in some or all Title IV programs if, for each of the three most recent federal fiscal years, 25% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its cohort default rate exceeds 40% in the most recent federal fiscal year for which default rates have been calculated by the U.S. Department of Education. Ashford University's cohort default rates for the 2004, 2005 and 2006 federal fiscal years, the three most recent years for which information is available, were 2.4%, 4.1% and 4.1%, respectively. The cohort default rates for the University of the Rockies for the 2004, 2005 and 2006 federal fiscal years, the three most recent years for which information is available, were 5.5%, 0% and 0%, respectively. The draft cohort default rate for Ashford University for the 2007 federal fiscal year is 13.2%. The draft cohort default rate for University of the Rockies for the 2007 federal fiscal year is 0%. These rates are subject to change prior to the issuance of the U.S. Department of Education's final report.
              Because Ashford University's draft cohort default rate for the 2007 federal fiscal year exceeds 10%, it would no longer be exempt from the 30-day disbursement delay rule for first-year, first-time undergraduate student borrowers once the official rate is published by the U.S. Department of Education (if the official rate is equal to or greater than 10%), which is expected to take place in September 2009. The loss of this exemption would result in a delay in Ashford University receiving Title IV funds for such students and, accordingly, would negatively affect our cash flows, to the extent we would have otherwise been able to receive such funds sooner.
              The August 2008 reauthorization of the Higher Education Act includes significant revisions to the requirements concerning cohort default rates. Under the revised law, the period for which students' defaults on their loans are included in the calculation of an institution's cohort default rate has been extended by one additional year, which is expected to increase the cohort default rates for most institutions. That change will be effective with the calculation of institutions' cohort default rates for the federal fiscal year ending September 30, 2009, which rates are expected to be calculated and issued by the U.S. Department of Education in 2012. The U.S. Department of Education will not impose sanctions based on rates calculated under this new methodology until three consecutive years of rates have been calculated, which is expected to occur in 2014. Until that time, the U.S. Department of Education will continue to calculate rates under the old calculation method and impose sanctions based on those rates. The revised law also increases the threshold for ending an institution's participation in the relevant Title IV programs from 25% to 30%, effective in the federal fiscal year 2012. Ineligibility to participate in Title IV programs would have a material adverse effect on our enrollments, revenues and results of operations.
Our failure to comply with regulations of various states could preclude us from recruiting or enrolling students in those states.
              Various states impose regulatory requirements on educational institutions operating within their boundaries. Several states have sought to assert jurisdiction over online educational institutions that have no physical location or other presence in the state but that offer educational services to students who reside in the state or that advertise to or recruit prospective students in the state. State regulatory requirements for online education are inconsistent between states and are not well developed in many jurisdictions. As such, these requirements are subject to change and in some instances are unclear or are left to the discretion of state employees or agents. Our changing business and the constantly changing regulatory environment require us to regularly evaluate our state regulatory compliance activities. If we are found not to be in compliance and a state seeks to restrict one or more of our
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business activities within that state, we may not be able to recruit students from that state and may have to cease recruiting or enrolling students in that state.
              Although the only state authorizations required for Ashford University and the University of the Rockies to participate in Title IV programs are the exemption for Ashford University in the State of Iowa and the University of the Rockies' authorization from the Colorado Commission of Higher Education, the loss of licensure or authorization in other states, or the assertion by other states that licensure is required within their states, could prohibit us from recruiting or enrolling students in those states.
If a substantial number of our students cannot secure Title IV loans as a result of decreased lender participation in Title IV programs or if lenders increase the costs or reduce the benefits associated with the Title IV loans they provide, we could be materially adversely affected.
              The cumulative impact of recent regulatory and market developments has caused some lenders, including some lenders that have previously provided Title IV loans to our students, to cease providing Title IV loans to students. Other lenders have reduced the benefits and increased the fees associated with the Title IV loans they do provide. In addition, the new regulatory refinements may result in higher administrative costs for schools, including us. If the costs of Title IV loans increase or if availability decreases, some students may decide not to enroll in a postsecondary institution, which could have a material adverse effect on our enrollments, revenues and results of operations. In May 2008, new federal legislation was enacted to attempt to ensure that all eligible students will be able to obtain Title IV loans in the future and that a sufficient number of lenders will continue to provide Title IV loans. Among other things, the new legislation:
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authorizes the U.S. Department of Education to purchase Title IV loans from lenders, thereby providing capital to the lenders to enable them to continue making Title IV loans to students; and 

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permits the U.S. Department of Education to designate institutions eligible to participate in a "lender of last resort" program, under which federally recognized student loan guaranty agencies will be required to make Title IV loans to all otherwise eligible students at those institutions.
We cannot predict whether this legislation will be effective in ensuring students' access to Title IV funding through private lenders.
              In July 2009, the House Committee on Education and Labor passed the Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221. This legislation, which was designed to address the goals outlined by the budget of the Obama Administration, would amend the Higher Education Act to prohibit new federally guaranteed loans from being made under the Federal Family Education Loan Program (the "FFEL Program"), beginning on July 1, 2010, at which time all new federal education loans would be originated through the Federal Direct Loan Program. The legislation has not been passed by Congress and is subject to further review and amendment. If the proposal passes, our institutions would be required to certify loans through the Federal Direct Loan Program (for which we are eligible to participate) rather than through the FFEL Program. The elimination of the FFEL Program would also end the student loan subsidies and guarantees available to private lenders under the FFEL Program and would discourage such lenders from making student loans in the future. A reduction in the number of private lenders willing to provide loans to our students could have a material adverse effect on our enrollments, revenues and results of operations.
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If regulators do not approve or if they delay their approval of transactions involving a change of control of our company, our ability to participate in Title IV programs may be impaired.
              If we or either of our institutions undergoes a change of control under the standards of applicable state education agencies, the Higher Learning Commission or the U.S. Department of Education, we must seek the approval of each such regulatory agency. A failure by us or one of our institutions to reestablish its state authorization, Higher Learning Commission accreditation or U.S. Department of Education certification, as applicable, following a change of control could result in a suspension or loss of operating authority or the ability to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations.
              The U.S. Department of Education and most state and accrediting agencies require institutions of higher education to report or obtain approval of certain changes of control and changes in other aspects of institutional organization or operations. Transactions or events that constitute a change of control may include significant acquisitions or dispositions of an institution's common stock and significant changes in the composition of an institution's board. The types of thresholds for such reporting and approval vary among the states and among accrediting agencies. The Higher Learning Commission issued amended policies in June 2009 which, among other provisions, provide that a disposition of stock by a holder that reduces the holder's ownership below 25% of the outstanding stock of a publicly traded company is a change of control requiring the prior approval of the Higher Learning Commission. The amended policies also provide that a sale of more than 10% and less than 25% of the outstanding common stock of a publicly traded company must be reported to the staff of the Higher Learning Commission, which may determine in some cases that such sale requires prior approval, or additional monitoring, by the Higher Learning Commission. The U.S. Department of Education regulations provide that a change of control occurs for a publicly traded corporation if either (i) a person acquires such ownership and control of the corporation so that the corporation is required to file a current report on Form 8-K with the SEC disclosing a change of control, or (ii) the corporation's largest stockholder who owns at least 25% of the total outstanding voting stock of the corporation, ceases to own at least 25% of such stock or ceases to be the largest stockholder. A significant purchase or disposition of our voting stock, including a disposition of voting stock by Warburg Pincus, could be determined by the U.S. Department of Education to be a change of control under this standard. In such event, the regulatory procedures applicable to a change in ownership and control would have to be followed in connection with the transaction. Similarly if such a disposition were deemed a change of control by the Higher Learning Commission or applicable state educational licensing agency, any required regulatory notifications and approvals would have to be made or obtained.
              After giving effect to this offering, we expect Warburg Pincus' beneficial ownership of our common stock to decrease from 64.9% to            %, or            % in the event the underwriters exercise their overallotment option in full. The U.S. Department of Education confirmed that our initial public offering did not constitute a change of control under its regulations. This offering also will not constitute a change of control under U.S. Department of Education regulations. The Higher Learning Commission determined that our initial public offering constituted a change of control under its standards. The Higher Learning Commission approved Ashford University's and the University of the Rockies' applications seeking permission to proceed with the initial public offering and informed us that the Higher Learning Commission would conduct separate on-site focused visits to both institutions within six months following our initial public offering to verify their compliance with the Higher Learning Commission's requirements. These site visits are scheduled to occur in November 2009. In light of the Higher Learning Commission's treatment of our initial public offering, and pursuant to its June 2009 amended policies, we believe that pre-approval of this offering by the Higher Learning Commission will not be required. We have provided the staff of the Higher Learning Commission with the requisite notification of this offering and its impact on Warburg Pincus' beneficial ownership of our common stock, and requested confirmation that pre-approval of this offering is not required. We are
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also seeking confirmation from certain state agencies that this offering does not constitute a change of control requiring approval from those agencies. If the Higher Learning Commission or any of these agencies deem this offering to be a change of control requiring pre-approval, we would have to apply for and obtain approval from the applicable agency prior to the closing of this offering.
We cannot offer new programs, expand our physical operations into certain states or acquire additional schools if such actions are not approved in a timely fashion by the applicable regulatory agencies, and we may have to repay Title IV funds disbursed to students enrolled in any such programs, states or acquired schools if we do not obtain prior approval.
              Our expansion efforts include offering new educational programs, some of which may require regulatory approval. In addition, we may increase our physical operations in additional states and seek to acquire additional schools. If we are unable to obtain the necessary approvals for such new programs, operations or acquisitions from the U.S. Department of Education, the Higher Learning Commission or any applicable state education agency or other accrediting agency, or if we are unable to obtain such approvals in a timely manner, our ability to consummate the planned actions and provide Title IV funds to any affected students would be impaired, which could have a material adverse effect on our expansion plans. If we were to determine erroneously that any such action did not need approval or had all required approvals, we could be liable for repayment of the Title IV program funds provided to students in that program or at that location.
Our regulatory environment and our reputation may be negatively influenced by the actions of other postsecondary institutions.
              In recent years, regulatory investigations and civil litigation have been commenced against several postsecondary educational institutions. These investigations and lawsuits have alleged, among other things, deceptive trade practices and non-compliance with U.S. Department of Education regulations. These allegations have attracted adverse media coverage and have been the subject of federal and state legislative hearings. Although the media, regulatory and legislative focus has been primarily on the allegations made against these specific companies, broader allegations against the overall postsecondary sector may negatively impact public perceptions of postsecondary educational institutions, including Ashford University and the University of the Rockies. Such allegations could result in increased scrutiny and regulation by the U.S. Department of Education, Congress, accrediting bodies, state legislatures or other governmental authorities on all postsecondary institutions, including us.
Risks Related to Our Business
Our financial performance depends on our ability to continue to develop awareness among, to recruit and to retain students.
              Building awareness among potential students of Ashford University and the University of the Rockies and the programs we offer is critical to our ability to attract prospective students. It is also critical to our success that we convert these prospective students to enrolled students in a cost-effective manner and that these enrolled students remain active in our programs. Some of the factors that could prevent us from successfully recruiting and retaining students in our programs include:
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the emergence of more and better competitors; 

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factors related to our marketing efforts, including the costs of Internet advertising and broad-based branding campaigns; 

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performance problems with our online systems; 

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failure to maintain accreditation and eligibility for Title IV programs;
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student dissatisfaction with our services and programs; 

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a decrease in the perceived or actual economic benefits that students derive from our programs; 

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adverse publicity regarding us or online or postsecondary education generally; 

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price reductions by competitors that we are unwilling or unable to match; and 

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a decline in the acceptance of online education.
Strong competition in the postsecondary education market, especially in the online education market, could decrease our market share, increase our cost of recruiting students and put downward pressure on our tuition rates.
              Postsecondary education is highly competitive. We compete with traditional public and private two- and four-year colleges as well as with other postsecondary schools. Traditional colleges and universities may offer programs similar to ours at lower tuition levels as a result of government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to for-profit postsecondary institutions. In addition, some of our competitors, including both traditional colleges and universities, have substantially greater brand recognition and financial and other resources than we have, which may enable them to compete more effectively for potential students. We also expect to face increased competition as a result of new entrants to the online education market, including traditional colleges and universities that had not previously offered online education programs.
              We may not be able to compete successfully against current or future competitors and may face competitive pressures that could adversely affect our business. We may be required to reduce our tuition or increase spending in order to retain or to attract students or to pursue new market opportunities. We may also face increased competition in maintaining and developing new marketing relationships with corporations, particularly as corporations become more selective as to which online universities they will encourage their employees to attend and from which they will hire prospective employees.
System disruptions and vulnerability from security risks to our technology infrastructure could impact our ability to generate revenue and could damage the reputation of our institutions.
              The performance and reliability of our technology infrastructure is critical to our reputation and to our ability to attract and retain students. We license the software and related hosting and maintenance services for our online platform from Blackboard, Inc. and the software and related maintenance services for our student information system from Campus Management Corp., both of whom are third-party software and service providers. Additionally, we develop and utilize proprietary software, primarily for our customer relationship management, or CRM, system. Any system error or failure, or a sudden and significant increase in bandwidth usage, could result in the unavailability of systems to us or our students.
              Our computer networks may also be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against this threat. Although we continually monitor the security of our technology infrastructure, we cannot assure you that these efforts will protect our computer networks against the threat of security breaches.
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We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.
              Our success depends largely on the skills, efforts and motivations of our executive officers, who generally have significant experience with our company and within the education industry. Due to the nature of our business, we face significant competition in attracting and retaining personnel who possess the skill sets we seek. In addition, key personnel may leave us and may subsequently compete against us. We do not carry life insurance on our key personnel for our benefit. The loss of the services of any of our key personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could impair our ability to sustain and grow our business. In addition, because we operate in a highly competitive industry, our hiring of qualified executives or other personnel may cause us or such persons to be subject to lawsuits alleging misappropriation of trade secrets, improper solicitation of employees or other claims.
If we are unable to hire and to continue to develop new and existing employees responsible for student recruitment, the effectiveness of our student recruiting efforts would be adversely affected.
              To support our planned enrollment and revenue growth, we intend to (i) hire, develop and train a significant number of additional employees responsible for student recruitment and (ii) retain and continue to develop and train our current student recruitment personnel. Our ability to develop and maintain a strong student recruiting function may be affected by a number of factors, including our ability to integrate and motivate our enrollment advisors, our ability to effectively train our enrollment advisors, the length of time it takes new enrollment advisors to become productive, regulatory restrictions on the method of compensating enrollment advisors and the competition in hiring and retaining enrollment advisors.
We have identified material weaknesses in our internal control over financial reporting which, if not remediated, could cause us to fail to timely and accurately report our financial results or prevent fraud, result in restatements of our consolidated financial statements and could subject our stock to delisting. As a consequence, stockholders could lose confidence in our financial reporting and our stock price could suffer.
              In connection with the preparation of our consolidated financial statements included elsewhere in this prospectus, as well as certain previously issued financial statements, we concluded that there were material weaknesses in our internal control over financial reporting. A material weakness is a control deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of our financial statements would not be prevented or detected on a timely basis by our employees in the normal course of performing their assigned functions. In particular, we concluded that we did not have:
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a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of GAAP, performance of supervisory review and analysis and application of sufficient analysis on significant contracts, judgments and estimates; or 

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effective controls over the selection, application and monitoring of accounting policies related to redeemable convertible preferred stock, earnings per share, leasing transactions, stock based compensation, revenue recognition and purchase accounting to ensure that such transactions were accounted for in conformity with GAAP.
              We restated our consolidated financial statements for the years ended December 31, 2005, 2006 and 2007 in large part due to these inadequate internal controls. In addition, in the preparation of our interim condensed consolidated financial statements for first quarter of 2009, we discovered an overstatement of potentially dilutive shares and therefore an understatement of our diluted earnings
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per common share for the year ended December 31, 2008. These matters were determined to be immaterial and have been corrected in the financial information contained in this prospectus.
              As a public company, we are required to file annual and quarterly reports containing our consolidated financial statements and are subject to the requirements and standards set by the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB) and the New York Stock Exchange (NYSE). If we fail to remediate our material weaknesses or to otherwise develop and maintain adequate internal control over financial reporting, we could fail to timely and accurately report our financial results or prevent fraud, have to restate our financial statements or have our stock delisted. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting that will be required when the SEC's rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our annual report on Form 10-K for the year ending December 31, 2010. As a result, stockholders could lose confidence in our financial reporting and our stock price could suffer.
              Although we have taken certain steps to begin to remediate these material weaknesses, as described under "Management's Discussion and Analysis—Internal Control over Financial Reporting—Material Weakness," we cannot assure you that such steps will remediate the material weaknesses we have identified or be effective in preventing significant deficiencies or material weaknesses in our internal control over financial reporting in the future.
A decline in the overall growth of enrollment in postsecondary institutions, or in the number of students seeking degrees online or in our core disciplines, could cause us to experience lower enrollment at our schools.
              We have experienced significant growth since we acquired Ashford University in 2005. However, while we have continued to achieve growth in revenues and enrollment year-over-year, these growth rates have declined in recent periods and are expected to continue to decline in the future. According to a March 2009 report from the National Center for Education Statistics, enrollment in degree-granting, postsecondary institutions is projected to grow 10.0% over the ten-year period ending in the fall of 2017 to 20.1 million. This growth is slower than the 25.8% increase reported in the prior ten-year period ended in the fall of 2007, when enrollment increased from 14.5 million in 1997 to 18.2 million in 2007. Similarly, a 2008 study by Eduventures, LLC, projects a compound annual growth rate of 12.5% in online postsecondary enrollment over the five-year period ending fall 2013 representing an aggregate increase in online enrollment of 1.5 million. This rate of growth is slower than the 25.3% compound annual growth rate for the prior five-year period ended in fall 2008, when online enrollment increased by an aggregate of 1.3 million. In addition, according to a March 2008 report from the Western Interstate Commission for Higher Education, the number of high school graduates that are eligible to enroll in degree-granting, postsecondary institutions is expected to peak at 3.3 million for the class of 2008 and decline by 150,000 for the class of 2014. In order to maintain current growth rates, we will need to attract a larger percentage of students in existing markets and expand our markets by creating new academic programs. In addition, if job growth in the fields related to our core disciplines is weaker than expected, fewer students may seek the types of degrees that we offer.
Our success depends in part on our ability to update and expand the content of existing programs and to develop new programs, concentrations and specializations on a timely basis and in a cost-effective manner.
              The updates and expansions of our existing programs and the development of new programs, concentrations and specializations may not be accepted by existing or prospective students or employers. If we do not adequately respond to changes in market requirements, our business will be adversely affected. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as students require or as quickly as our competitors introduce
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competing programs. To offer a new academic program, we may be required to obtain appropriate federal, state and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans. In addition, to be eligible for federal student financial aid programs, a new academic program may need to be approved by the U.S. Department of Education.
              Establishing new academic programs or modifying existing programs requires us to make investments in management and capital expenditures, incur marketing expenses and reallocate other resources. We may have limited experience with the programs in new disciplines and may need to modify our systems and strategy or enter into arrangements with other educational institutions to provide new programs effectively and profitably. If we are unable to increase enrollment in new programs, offer new programs in a cost-effective manner or are otherwise unable to manage effectively the operations of newly established academic programs, our revenues and results of operations could be adversely affected.
Our failure to keep pace with changing market needs could harm our ability to attract students.
              Our success depends to a large extent on the willingness of employers to hire, promote or increase the pay of our graduates. Increasingly, employers demand that their new employees possess appropriate technical and analytical skills and also appropriate interpersonal skills, such as communication and teamwork. These skills can evolve rapidly in a changing economic and technological environment. Accordingly, it is important that our educational programs evolve in response to those economic and technological changes.
              The expansion of existing academic programs and the development of new programs may not be accepted by current or prospective students or by the employers of our graduates. Even if we develop acceptable new programs, we may not be able to begin offering those new programs in a timely fashion or as quickly as our competitors offer similar programs. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, unusually rapid technological changes or other factors, the rates at which our graduates obtain jobs in their fields of study could suffer, our ability to attract and retain students could be impaired and our business could be adversely affected.
We are subject to laws and regulations as a result of our collection and use of personal information, and any violations of such laws or regulations, or any breach, theft or loss of such information, could adversely affect us.
              Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. We collect, use and retain large amounts of personal information regarding our applicants, students, faculty, staff and their families, including social security numbers, tax return information, personal and family financial data and credit card numbers. We also collect and maintain personal information about our employees in the ordinary course of our business. Our services can be accessed globally through the Internet. Therefore, we may be subject to the application of national privacy laws in countries outside the United States from which applicants and students access our services. Such privacy laws could impose conditions that limit the way we market and provide our services. Our computer networks and the networks of certain of our vendors that hold and manage confidential information on our behalf may be vulnerable to unauthorized access, employee theft or misuse, computer hackers, computer viruses and other security threats. Confidential information may also inadvertently become available to third parties when we integrate systems or migrate data to our servers following an acquisition of a school or in connection with periodic hardware or software upgrades. Due to the sensitive nature of the personal information stored on our servers, our networks may be targeted by hackers seeking to access this data. A user who circumvents security measures could misappropriate sensitive information or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access and use of personal information, a third
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party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of privacy for current or prospective students or employees. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and could restrict our use of personal information, and a violation of any laws or regulations relating to the collection or use of personal information could result in the imposition of fines against us. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches. A major breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors, or a violation of laws or regulations relating to the same, could have a material adverse effect on our reputation and could result in further regulation and oversight by federal and state authorities and increased costs of compliance.
An increase in interest rates could adversely affect our ability to attract and retain students.
              For the years ended December 31, 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, of its revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV programs. For the years ended December 31, 2007 and 2008, the University of the Rockies derived 61.9% and 80.8%, respectively, of its revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV programs. Additionally, some of our students finance their education through private loans that are not part of Title IV programs. Interest rates have reached relatively low levels in recent years, creating a favorable borrowing environment for students. However, if Congress increases interest rates on Title IV loans, or if private loan interest rates rise, our students would have to pay higher interest rates on their loans. Any future increase in interest rates will result in a corresponding increase in educational costs to our existing and prospective students. Higher interest rates could also contribute to higher default rates with respect to our students' repayment of their education loans. Higher default rates may in turn adversely impact our eligibility to participate in some or all Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations.
We operate in a highly competitive market with rapid technological change, and we may not have the resources needed to compete successfully.
              Online education is a highly competitive market that is characterized by rapid changes in students' technological requirements and expectations and evolving market standards. Our competitors vary in size and organization, and we compete for students with traditional public and private two- and four-year colleges and universities and other postsecondary schools, including those that offer online educational programs. Each of these competitors may develop platforms or other technologies that allow for greater levels of interactivity between faculty and students or that are otherwise superior to the platform and technology we use, and these differences may affect our ability to recruit and retain students. We may not have the resources necessary to acquire or compete with technologies being developed by our competitors, which may render our online delivery format less competitive or obsolete.
Our growth may place a strain on our resources.
              We have experienced significant growth since we acquired Ashford University in 2005. The growth that we have experienced in the past, as well as any further growth that we experience, may place a significant strain on our resources and increase demands on our management information and reporting systems and financial management controls. If we are unable to manage our growth effectively while maintaining appropriate internal controls, we may experience operating inefficiencies that could increase our costs.
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We rely on exclusive proprietary rights and intellectual property that may not be adequately protected under current laws, and we may encounter disputes from time to time relating to our use of intellectual property of third parties.
              Our success depends in part on our ability to protect our proprietary rights. We rely on a combination of copyrights, trademarks, service marks, trade secrets, domain names and agreements to protect our proprietary rights. We rely on service mark and trademark protection in the United States and select foreign jurisdictions to protect our rights to the marks "Ashford," "Ashford University," "Bridgepoint," "Classline" and "Smart Track" as well as distinctive logos and other marks associated with our services. We rely on agreements under which we obtain rights to use course content developed by faculty members and other third-party content experts. We cannot assure you that these measures will be adequate, that we have secured, or will be able to secure, appropriate protections for all of our proprietary rights in the United States or select foreign jurisdictions or that third parties will not infringe upon or violate our proprietary rights. Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our curricula, online resource material and other content. Our management's attention may be diverted by these attempts, and we may need to use funds in litigation to protect our proprietary rights against any infringement or violation.
              We may encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. In certain instances, we may not have obtained sufficient rights in the content of a course. Third parties may raise a claim against us alleging an infringement or violation of the intellectual property of that third party. Some third party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid those intellectual property rights. Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether such claim has merit. Our insurance may not cover potential claims of this type adequately or at all, and we may be required to alter the content of our classes or pay monetary damages, which may be significant.
We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions.
              In some instances our faculty members or our students may post various articles or other third-party content on class discussion boards. We may incur liability for the unauthorized duplication or distribution of this material posted online for class discussions. Third parties may raise claims against us for the unauthorized duplication of this material. Any such claims could subject us to costly litigation and could impose a significant strain on our financial resources and management personnel regardless of whether the claims have merit. Our general liability insurance may not cover potential claims of this type adequately or at all, and we may be required to alter the content of our courses or pay monetary damages.
Our student enrollment and revenues could decrease if the government tuition assistance offered to military personnel is reduced or eliminated, if scholarships which we offer to military personnel are reduced or eliminated or if our relationships with military bases deteriorate.
              As of June 30, 2009, 17.2% of our students were affiliated with the military, some of whom are eligible to receive tuition assistance from the government, which they may use to pursue postsecondary degrees. If governmental tuition assistance programs to active duty members of the military are reduced or eliminated or if our relationships with any military base deteriorates, our enrollment could suffer. Additionally, we provide scholarships to students who were affiliated with the military. If we reduce or eliminate our scholarships, our enrollment by military personnel may suffer. In addition, if we increase our scholarships, our per student revenue from military affiliated personnel will decline.
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Our expenses may cause us to incur operating losses if we are unsuccessful in achieving growth.
              Our spending is based, in significant part, on our estimates of future revenue and is largely fixed in the short term. As a result, we may be unable to adjust our spending in a timely manner if our revenue falls short of our expectations. Accordingly, any significant shortfall in revenues in relation to our expectations would have an immediate and material adverse effect on our profitability. In addition, as our business grows, we anticipate increasing our operating expenses to expand our program offerings, marketing initiatives and administrative organization. Any such expansion could cause material losses to the extent we do not generate additional revenues sufficient to cover those expenses.
Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock.
              Although not apparent in our results of operations due to our rapid rate of growth, our operations are generally subject to seasonal trends. As our growth rate declines we expect to experience seasonal fluctuations in results of operations as a result of changes in the level of student enrollment. While we enroll students throughout the year, first and fourth quarter new enrollments and revenue generally are lower than other quarters due to the holiday break in December and January. We generally experience a seasonal increase in new enrollments in August and September of each year when most other colleges and universities begin their fall semesters. These fluctuations may cause volatility in or have an adverse effect on the market price of our stock.
We have a limited operating history. Accordingly, our historical and recent financial and business results may not necessarily be representative of what such results will be in the future.
              We have a limited operating history on which you can evaluate our business strategy, our financial results and trends in our business. As a result, our historical results and trends, including enrollments, cohort default rates and bad debt expense, may not be indicative of our future results. Also, until recently we have been operating in a favorable economic environment and have not experienced how our business might be affected by economic downturns, such as the recent deterioration in the U.S. economy. We are subject to risks and uncertainties that are not typically encountered by companies that have longer operating histories or that are in more mature businesses. Therefore, our recent operating history may not be representative of our business going forward, and we may not be able to sustain our recent profitability.
Government regulations relating to the Internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business.
              The increasing popularity and use of the Internet and other online services has led and may lead to the adoption of new laws and regulatory practices in the United States or in foreign countries and to new interpretations of existing laws and regulations. These new laws and interpretations may relate to issues such as online privacy, copyrights, trademarks and service marks, sales taxes, fair business practices and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations or interpretations related to doing business over the Internet could increase our costs and materially and adversely affect our enrollments.
We use third-party software for our online platform, and if the provider of that software was to cease to do business or was acquired by a competitor, we may have difficulty maintaining the software required for our online platform or updating it for future technological changes.
              We use the Blackboard Academic Suite, provided by Blackboard, Inc., a third-party software and service provider, for our online platform. This suite provides an online learning management system and provides for the storage, management and delivery of course content. The suite also
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includes collaborative spaces for student communication and participation with other students and faculty as well as grade and attendance management for faculty and assessment capabilities to assist us in maintaining quality. We rely on Blackboard for administrative support and hosting of the system. If Blackboard ceased to operate or was unable or unwilling to continue to provide us with services or upgrades on a timely basis, we may have difficulty maintaining the software required for our online platform or updating it for future technological changes.
We may incur significant costs complying with the Americans with Disabilities Act and with similar laws.
              Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. For example, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990, to be accessible to the handicapped. We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements. Noncompliance with the ADA or FHAA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature. We cannot predict the ultimate amount of the cost of compliance with the ADA, FHAA or other legislation.
Our failure to comply with environmental laws and regulations governing our activities could result in financial penalties and other costs.
              We use hazardous materials at our ground campuses and generate small quantities of waste, such as used oil, antifreeze, paint, car batteries and laboratory materials. As a result, we are subject to a variety of environmental laws and regulations governing, among other things, the use, storage and disposal of solid and hazardous substances and waste and the clean-up of contamination at our facilities or off-site locations to which we send or have sent waste for disposal. If we do not maintain compliance with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significant costs for clean-up, damages and fines or penalties.
Our failure to obtain additional capital in the future could adversely affect our ability to grow.
              We believe that cash flow from operations will be adequate to fund our current operating and growth plans for the foreseeable future. However, we may need additional financing in order to finance our continued growth, particularly if we pursue any acquisitions. The amount, timing and terms of such additional financing will vary principally depending on the timing and size of new program offerings, the timing and size of acquisitions we may seek to consummate and the amount of cash flows from our operations. To the extent that we require additional financing in the future, such financing may not be available on terms acceptable to us or at all and, consequently, we may not be able to fully implement our growth strategy.
If we are not able to integrate acquired institutions, our business could be harmed.
              From time to time, we may pursue acquisitions of other institutions. Integrating acquired operations into our business involves significant risks and uncertainties, including:
•
inability to maintain uniform standards, controls, policies and procedures; 

•
distraction of management's attention from normal business operations during the integration process; 

•
inability to obtain, or delay in obtaining, approval of the acquisition from the necessary regulatory agencies, or the imposition of operating restrictions or a letter of credit requirement on us or on the acquired school by any of those regulatory agencies;
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•
expenses associated with the integration efforts; and 

•
unidentified issues not discovered in our due diligence process, including legal contingencies.
A protracted economic slowdown and rising unemployment could harm our business.
              We believe that many students pursue postsecondary education to be more competitive in the job market. However, a protracted economic slowdown could increase unemployment and diminish job prospects generally. Diminished job prospects and heightened financial worries could affect the willingness of students to incur loans to pay for postsecondary education and to pursue postsecondary education in general. As a result, our enrollment could suffer.
              In addition, many of our students borrow Title IV loans to pay for tuition, fees and other expenses. A protracted economic slowdown could negatively impact our students' ability to repay those loans which would negatively impact our cohort default rate. See "Risk Factors—Risks Related to the Extensive Regulation of Our Business—We may lose eligibility to participate in Title IV programs if our student loan default rates are too high."
              Our students also are frequently able to borrow Title IV loans in excess of their tuition and fees. The excess is received by the students as a stipend. However, if a student withdraws, we must return any unearned Title IV funds including stipends. A protracted economic slowdown could negatively impact our students' ability to repay those stipends. As a result, the amount of Title IV funds we would have to return without reimbursement from students (and our bad debt expense) could increase, and our results could suffer.
If we become involved in litigation or other legal proceedings, we could incur significant defense costs and losses in the event of adverse outcomes.
              From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not at this time a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
Our corporate headquarters are located in a high brush fire danger area and near major earthquake fault lines.
              Our corporate headquarters are located in San Diego, California in a high brush fire danger area and near major earthquake fault lines. We could be materially and adversely affected in the event of a brush fire or major earthquake, either of which could significantly disrupt our business.
Risk Related to Our Common Stock
The price of our common stock has fluctuated significantly and you could lose all or part of your investment.
              Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock has fluctuated in the past, and there is no assurance it will not continue to fluctuate significantly for various reasons, which include:
•
our quarterly or annual earnings or those of other companies in our industry; 

•
the public's reaction to our press releases, our other public announcements and our filings with the SEC; 

•
changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry;
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seasonal variations in our student enrollment; 

•
new laws or regulations or new interpretations of laws or regulations applicable to our business; 

•
changes in our enrollment or in the growth rate of our enrollment; 

•
changes in accounting standards, policies, guidance, interpretations or principles; 

•
litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; 

•
sales of common stock by our directors, executive officers and significant stockholders; and 

•
changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events.
              In addition, in recent months, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. Changes may occur without regard to the operating performance of these companies. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company.
If securities or industry analysts change their recommendations regarding our stock adversely or if our operating results do not meet their expectations, our stock price could decline.
              The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.
As a public company, we are subject to additional financial and other reporting and corporate governance requirements that can be difficult for us to satisfy and may divert management attention from our business.
              As a public company, we are required to file with the SEC annual and quarterly information and other reports pursuant to the Exchange Act. We are required to ensure that we have the ability to prepare financial statements that comply with SEC reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements, including the listing standards of the NYSE and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which impose significant compliance obligations upon us. Specifically, we are required to:
•
prepare and distribute periodic reports and other stockholder communications in compliance with our obligations under the federal securities laws and NYSE rules; 

•
create or expand the roles and duties of our board of directors and committees of the board; 

•
institute compliance and internal audit functions that are more comprehensive; 

•
evaluate and maintain our system of internal control over financial reporting, and report on management's assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the PCAOB; 

•
involve and retain outside legal counsel and accountants in connection with the activities listed above;
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•
enhance our investor relations function; and 

•
maintain internal policies, including those relating to disclosure controls and procedures.
              As a public company we are required to commit significant resources and management oversight to the above-listed requirements which causes us to incur significant costs and which places a strain on our systems and resources. As a result, our management's attention might be diverted from other business concerns. In addition, we might not be successful in implementing these requirements.
              In particular, our internal control over financial reporting does not currently meet the standards set forth in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. The adequacy of our internal control over financial reporting must be assessed by management for each year commencing with the year ending December 31, 2010. We do not currently have comprehensive documentation of our internal control over financial reporting, nor do we document or test our compliance with these controls on a periodic basis in accordance with Section 404 of the Sarbanes-Oxley Act.
              We have not tested our internal control over financial reporting in accordance with Section 404 and, due to our lack of documentation, such a test would not be possible to perform at this time. If we are unable to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to report on the adequacy of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis and may suffer adverse regulatory consequences or violations of NYSE listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
Sales of outstanding shares of our stock into the market in the future could cause the market price of our stock to drop significantly, even if our business is doing well.
              Immediately following this offering, we estimate that                        shares of our common stock will be outstanding based on 53,333,361 shares outstanding as of August 15, 2009 and assuming the issuance of a total of                    shares upon the exercise by selling stockholders of options and warrants at the closing of this offering. Of these shares,                        will be freely tradable, without restriction, in the public market immediately after the closing of this offering.
              In connection with our initial public offering, our directors, executive officers and certain security holders entered into "lock-up" agreements with the underwriters of that offering, in which they agreed to refrain from selling their shares for a period of 180 days after April 14, 2009, subject to certain extensions. Approximately                        shares will remain subject to lock-up agreements related to our initial public offering immediately after the closing of this offering. The selling stockholders in this offering and our officers and directors have entered into separate lock-up agreements with the underwriters of this offering, in which they have agreed to refrain from selling their shares for a period of 90 days after the date of this prospectus, subject to certain extensions. After the lock-up period expires with respect to our initial public offering,                     outstanding shares will be eligible for sale in the public market without restriction. After the lock-up period expires with respect to this offering, (i) an additional                        outstanding shares will be eligible for sale in the public market without restriction and (ii) an additional                        outstanding shares will be eligible for sale in the public market subject to volume and other limitations under Rule 144 under the Securities Act of 1933,                        of which are currently held by directors, executive officers and other affiliates.
              If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the applicable lock-up period expires, the trading price of our common stock could decline. The managing underwriters in our initial public offering and this offering
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may, in their sole discretion, permit our directors, officers, employees and security holders who are subject to the contractual lock-up to sell shares prior to the expiration of the lock-up agreements.
              In addition, immediately after the closing of this offering, there will be                        shares underlying options and                        shares underlying warrants that were issued and outstanding, and we will have an aggregate of                        shares of common stock reserved for future issuance under our equity incentive plans as of such date. These shares will become eligible for sale in the public market to the extent permitted by the provisions of various option and warrant agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our stock could decline.
              On May 13, 2009, we filed a registration statement on Form S-8 (File No. 333-159220) under the Securities Act covering an aggregate of 15,277,668 shares of common stock reserved for issuance under our equity incentive plans. Accordingly, the shares of common stock issuable upon the exercise of options or otherwise under our equity incentive plans are available for sale in the public market, subject to Rule 144 volume limitations applicable to affiliates and subject to the lock-up agreements described above.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
              Our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, shares that may be issued to satisfy our obligations under our incentive plans or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, likely would result in your interest in us being subject to the prior rights of holders of that preferred stock.
Our principal stockholder has significant influence over matters requiring stockholder approval and access to our management.
              As of August 15, 2009, Warburg Pincus beneficially owned 64.9% of our outstanding common stock on an as if converted basis. Immediately after the closing of this offering, Warburg Pincus will beneficially own            % of our outstanding common stock, or            % if the overallotment option is exercised in full. Accordingly, following the offering Warburg Pincus will be able to exercise significant influence over the election of our directors, amendments to our certificate of incorporation and bylaws and other actions requiring the vote or consent of our stockholders, including mergers, going private transactions and other extraordinary transactions. The ownership position of Warburg Pincus may have the effect of delaying, deterring or preventing a change of control or a change in the composition of our board of directors.
              In connection with this offering Warburg Pincus has entered into a lock-up agreement with the underwriters of this offering, in which Warburg Pincus agreed to refrain from selling its shares for a period of 90 days after this offering, subject to certain extensions. However, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. may, in their sole discretion, permit Warburg Pincus to sell shares prior to the expiration of the lock-up agreement.
              Additionally, in February 2009, we entered into a nominating agreement with Warburg Pincus. Under the nominating agreement, as long as Warburg Pincus beneficially owns at least 15% of the outstanding shares of common stock, we will, subject to our fiduciary obligations, nominate and recommend to our stockholders that two individuals designated by Warburg Pincus be elected to the board. Additionally, if Warburg Pincus beneficially owns less than 15% but more than 5% of the outstanding shares of common stock, we will, subject to our fiduciary obligations, nominate and
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recommend to our stockholders that one individual designated by Warburg Pincus be elected to the board. Two directors affiliated with Warburg Pincus, Patrick T. Hackett and Adarsh Sarma, currently serve on our board of directors.
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
              We do not expect to pay dividends on shares of our common stock in the foreseeable future and we intend to use cash to grow our business. Consequently, your only opportunity to achieve a positive return on your investment in us will be if the market price of our common stock appreciates.
Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.
              Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:
•
authorize the issuance of "blank check" preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt; 

•
provide for a classified board of directors (three classes); 

•
provide that stockholders may only remove directors for cause; 

•
provide that any vacancy on our board of directors, including a vacancy resulting from an increase in the size of the board, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum; 

•
provide that a special meeting of stockholders may only be called by our board of directors or by our chief executive officer; 

•
provide that action by written consent of the stockholders may be taken only if the board of directors first approves such action, except that if Warburg Pincus holds at least 50% of our outstanding capital stock on a fully diluted basis, whenever the vote of stockholders is required at a meeting for any corporate action, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders; provided that, notwithstanding the foregoing, we will hold an annual meeting of stockholders in accordance with NYSE rules, for so long as our shares are listed on the NYSE, and as otherwise required by the bylaws; 

•
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and 

•
establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
              Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder.
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 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
              This prospectus contains "forward-looking statements," which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of financial resources. These forward-looking statements include, without limitation, statements regarding:
•
proposed new programs; 

•
expectations that regulatory developments or other matters will not have a material adverse effect on our enrollments, financial position, results of operations and our liquidity; 

•
projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; 

•
our ability to utilize commercial financing, lines of credit and term debt for the purpose of expansion of our online business infrastructure and to expand and improve our ground campuses; 

•
our ability to continue to transfer credits from other institutions; 

•
our ability to maintain and improve the quality of our education; 

•
management of future growth and scalability; 

•
development of military and corporate channels; 

•
management's goals and objectives; and 

•
other similar matters that are not historical facts.
              Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in the future tense, identify forward-looking statements.
              Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
•
our ability to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, Internet regulations, state laws and regulatory requirements and accrediting agency requirements, which regulatory framework is subject to significant revisions from time to time; 

•
our ability to continue to develop awareness among, to recruit and to retain students; 

•
competition in the postsecondary education market and its potential impact on our market share, recruiting cost and tuition rates; 

•
reputational and other risks related to potential compliance audits, regulatory actions, negative publicity or service disruptions; 

•
our ability to attract and retain the personnel needed to sustain and grow our business without straining existing resources;
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•
our ability to develop new programs or expand our existing programs, or integrate acquired businesses, in a timely and cost-effective manner; 

•
our ability to protect of our intellectual property and risks related to the intellectual property rights of others; 

•
economic or other developments potentially impacting demand in our core disciplines or the availability or cost of Title IV or other funding; and 

•
the other factors discussed under "Risk Factors."
              Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
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 USE OF PROCEEDS
              We will not receive any proceeds from the sale of our common shares by the selling stockholders.

 PRICE RANGE OF COMMON STOCK
              Our common stock has been listed on the New York Stock Exchange under the symbol "BPI" since it began trading on April 15, 2009. Shares sold in our initial public offering on April 15, 2009 were priced at $10.50 per share. The following table sets forth, for the time periods indicated, the high and low sale prices of our common stock as reported on the New York Stock Exchange.

2009 	 	High	 	Low	 	
Second Quarter (beginning April 15, 2009)	 	$	17.15	 	$	9.56	 	
Third Quarter (through August 25, 2009)	 	$	21.90	 	$	14.90	 	
              On August 25, 2009, the last reported sale price of our common stock on the New York Stock Exchange was $20.79 per share.
              As of August 15, 2009, there were 53,333,361 shares of our common stock outstanding held by approximately 31 stockholders of record, including the Depository Trust Company, which holds shares on behalf of an indeterminate number of beneficial owners.

 DIVIDEND POLICY
              We currently intend to retain any future earnings and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, any contractual restrictions and such other factors as our board of directors may deem appropriate.
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 CAPITALIZATION
              The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2009.
              You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and our consolidated financial statements, which are included elsewhere in this prospectus.

 	 	As of June 30, 2009	 	
 	 	(In thousands, except
shares and par value)	 	
Cash and cash equivalents	 	$	111,864	 	
 	 	 	 	
Total indebtedness (including short-term and long-term leases and notes payable)	 	$	584	 	
 	 	 	 	
Stockholders' equity:	 	 	 	 	
 	Undesignated preferred stock: $0.01 par value; 20,000,000 shares authorized, no shares issued and outstanding	 	 	 	 	
 	Common stock: $0.01 par value; 300,000,000 shares authorized, 53,140,874 shares issued and outstanding	 	 	531	 	
 	Additional paid-in capital	 	 	74,006	 	
 	Retained earnings	 	 	8,875	 	
 	 	 	 	
 	Total stockholders' equity	 	 	83,412	 	
 	 	 	 	
 	 	Total capitalization	 	$	83,996	 	
 	 	 	 	
              Our cash and cash equivalents and our capitalization will be increased as a result of this offering to the extent that selling stockholders need to exercise options and warrants to obtain the shares of common stock they are selling in this offering. The aggregate cash proceeds to us as a result of such exercise are estimated to be $            and the number of shares of common stock outstanding is estimated to increase by            shares.
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 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
              You should read the following selected consolidated financial and other data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008, and the selected consolidated balance sheet data as of December 31, 2007 and 2008, have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statement of operations data for the year ended December 31, 2005 and the selected consolidated balance sheet data as of December 31, 2006 have been derived from our audited consolidated financial statements, which are not included in this prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2008 and 2009 and the selected consolidated balance sheet data as of June 30, 2009 have been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statements of operations data for the year ended December 31, 2004, and the selected consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from our unaudited consolidated financial statements, which are not included in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for such period. Results for the six months ended June 30, 2009 are not necessarily indicative of results expected for the full year. Historical results are not necessarily indicative of the results to be expected for future periods.
              Because we did not acquire Ashford University and the University of the Rockies until 2005 and 2007, respectively, the financial and other data for 2004 primarily reflect the programs we provided to community college students in cooperation with a postsecondary college in the Connecticut state college system.

 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	2004	 	2005	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	(In thousands, except per share data)	 	
Consolidated Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	1,240	 	$	7,951	 	$	28,619	 	$	85,709	 	$	218,290	 	$	88,890	 	$	195,183	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	1,387	 	 	5,498	 	 	12,510	 	 	29,837	 	 	62,822	 	 	25,682	 	 	50,491	 	
 	Marketing and promotional	 	 	2,254	 	 	4,078	 	 	12,214	 	 	35,997	 	 	81,036	 	 	33,432	 	 	68,760	 	
 	General and administrative(1)	 	 	2,550	 	 	6,190	 	 	8,704	 	 	15,892	 	 	41,012	 	 	15,135	 	 	66,976	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	6,191	 	 	15,766	 	 	33,428	 	 	81,726	 	 	184,870	 	 	74,249	 	 	186,227	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(4,951	)	 	(7,815	)	 	(4,809	)	 	3,983	 	 	33,420	 	 	14,641	 	 	8,956	 	
Interest income	 	 	—	 	 	(38	)	 	(10	)	 	(12	)	 	(322	)	 	(91	)	 	(270	)	
Interest expense	 	 	—	 	 	228	 	 	351	 	 	544	 	 	240	 	 	183	 	 	154	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(4,951	)	 	(8,005	)	 	(5,150	)	 	3,451	 	 	33,502	 	 	14,549	 	 	9,072	 	
Income tax expense	 	 	—	 	 	—	 	 	—	 	 	164	 	 	7,071	 	 	2,522	 	 	3,925	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(4,951	)	 	(8,005	)	 	(5,150	)	 	3,287	 	 	26,431	 	 	12,027	 	 	5,147	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accretion of preferred dividends(2)	 	 	343	 	 	1,344	 	 	1,718	 	 	1,856	 	 	2,006	 	 	1,002	 	 	645	 	
Deemed dividend on redeemable convertible preferred stock(3)	 	 	1,948	 	 	11,162	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(7,242	)	$	(20,511	)	$	(6,868	)	$	1,431	 	$	24,425	 	$	11,025	 	$	4,502	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	2004	 	2005	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	(In thousands, except per share data)	 	
Earnings (loss) per common share(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(2.31	)	$	(6.53	)	$	(2.15	)	$	0.01	 	$	0.38	 	$	0.17	 	$	0.08	 	
 	Diluted	 	$	(2.31	)	$	(6.53	)	$	(2.15	)	$	0.01	 	$	0.16	 	$	0.08	 	$	0.07	 	
Shares used in computing earnings (loss) per common share(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	3,139	 	 	3,140	 	 	3,197	 	 	3,311	 	 	3,335	 	 	3,335	 	 	24,938	 	
 	Diluted	 	 	3,139	 	 	3,140	 	 	3,197	 	 	4,446	 	 	7,757	 	 	7,403	 	 	30,280	 	

																				
 	 	As of December 31,	 	 	 	
 			 	As of
June 30,
2009	 	
 	 	2004	 	2005	 	2006	 	2007	 	2008			 	
 	 	(In thousands)	 	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	3,570	 	$	2,163	 	$	54	 	$	7,351	 	$	56,483	 	$	111,864	 	
Total assets	 	 	4,506	 	 	14,749	 	 	17,091	 	 	39,057	 	 	129,246	 	 	230,707	 	
Total indebtedness (including short-term indebtedness)	 	 	125	 	 	3,779	 	 	4,193	 	 	5,673	 	 	684	 	 	584	 	
Redeemable convertible preferred stock	 	 	9,526	 	 	21,482	 	 	23,200	 	 	25,056	 	 	27,062	 	 	—	 	
Total stockholders' equity (deficit)	 	 	(5,855	)	 	(15,197	)	 	(21,692	)	 	(20,143	)	 	6,109	 	 	83,412	 	

																								
 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	2004	 	2005	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	(In thousands, except enrollment data)	 	
Consolidated Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	$	261	 	$	323	 	$	1,381	 	$	3,571	 	$	15,884	 	$	1,849	 	$	12,015	 	
Depreciation and amortization	 	 	47	 	 	494	 	 	735	 	 	1,236	 	 	2,452	 	 	975	 	 	2,467	 	
EBITDA (unaudited)(5)	 	 	(4,904	)	 	(7,321	)	 	(4,074	)	 	5,219	 	 	35,872	 	 	15,616	 	 	11,423	 	
Cash flows provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Operating activities	 	 	(5,214	)	 	(7,244	)	 	(1,082	)	 	10,367	 	 	70,748	 	 	23,221	 	 	76,511	 	
 	Investing activities	 	 	(261	)	 	(8,020	)	 	(1,373	)	 	(2,936	)	 	(16,550	)	 	(2,515	)	 	(23,540	)	
 	Financing activities	 	 	7,467	 	 	13,857	 	 	346	 	 	(134	)	 	(5,066	)	 	(2,959	)	 	2,410	 	
Period end enrollment (unaudited)(6):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	202	 	 	729	 	 	4,111	 	 	12,104	 	 	30,921	 	 	22,201	 	 	45,006	 	
 	Ground	 	 	126	 	 	334	 	 	360	 	 	519	 	 	637	 	 	406	 	 	498	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	328	 	 	1,063	 	 	4,471	 	 	12,623	 	 	31,558	 	 	22,607	 	 	45,504	 	

(1)
In the fourth quarter of 2008, we recorded stock-based compensation expense of $1.6 million related to the modification of a stock award held by a director. See Note 15, "Related Party Transactions—Director Agreement," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(2)
The holders of Series A Convertible Preferred Stock earn preferred dividends, accreting at the rate of 8% per year, compounding annually. See Note 10 and Note 7, "Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)," to our annual and interim condensed consolidated financial statements, respectively, which are included elsewhere in this prospectus.

(3)
We recorded a deemed dividend of $1.9 million and $11.2 million in the years ended December 31, 2004 and 2005, respectively, for the beneficial conversion feature in our Series A Convertible Preferred Stock. See Note 10 and Note 7, "Redeemable Convertible Preferred Stock (Series A Convertible Preferred
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Stock)," to our annual and interim condensed consolidated financial statements, respectively, which are included elsewhere in this prospectus.
(4)
All basic and diluted earnings (loss) per share and average shares outstanding information for all periods presented have been adjusted to reflect the 1-for-4.5 reverse stock split. See Note 19, "Subsequent Events—Reverse Stock Split," to our annual consolidated financial statements, which are included elsewhere in this prospectus. For more information regarding earnings per share calculations, see Note 9, "Earnings Per Share," to our consolidated annual financial statements, which are included elsewhere in this prospectus.

(5)
EBITDA is defined as net income (loss) plus interest expense, less interest income, plus income tax expense and plus depreciation and amortization. However, EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, net income, operating income or any other performance measure presented in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies.
We believe EBITDA is useful to investors in evaluating our operating performance because it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization. Depreciation and amortization can vary depending on accounting methods and the book value of assets. We believe EBITDA presents a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets have been acquired.
Our management uses EBITDA:
•
as a measurement of operating performance, because it assists us in comparing our performance on a consistent basis, as it removes depreciation, amortization, interest and taxes; and 

•
in presentations to our board of directors to enable our board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with results of other companies in our industry.
                The following table provides a reconciliation of net income (loss) to EBITDA (unaudited):

 	 	 	Year Ended December 31,	 	Six Months Ended
June 30,	 	
 	 	 	2004	 	2005	 	2006	 	2007	 	2008	 	2008	 	2009	 	
 	 	 	(In thousands)	 	
 	Net income (loss)	 	$	(4,951	)	$	(8,005	)	$	(5,150	)	$	3,287	 	$	26,431	 	$	12,027	 	$	5,147	 	
 	Plus: interest expense	 	 	—	 	 	228	 	 	351	 	 	544	 	 	240	 	 	183	 	 	154	 	
 	Less: interest income	 	 	—	 	 	(38	)	 	(10	)	 	(12	)	 	(322	)	 	(91	)	 	(270	)	
 	Plus: income tax expense	 	 	—	 	 	—	 	 	—	 	 	164	 	 	7,071	 	 	2,522	 	 	3,925	 	
 	Plus: depreciation and amortization	 	 	47	 	 	494	 	 	735	 	 	1,236	 	 	2,452	 	 	975	 	 	2,467	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	EBITDA	 	$	(4,904	)	$	(7,321	)	$	(4,074	)	$	5,219	 	$	35,872	 	$	15,616	 	$	11,423	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA for the six months ended June 30, 2009 includes expenses related to (i) the settlement of the stockholder dispute in the first quarter of 2009, an expense of $11.1 million (of which $10.6 million was a non-cash expense) and (ii) the acceleration of exit options in the second quarter of 2009, a non-cash expense of $30.4 million.
(6)
We define enrollments as the number of active students on the last day of the financial reporting period. A student is considered an active student if he or she has attended a class within the prior 30 days unless the student has graduated or has provided us with notice of withdrawal.
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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
               The following discussion should be read in conjunction with our consolidated financial statements, which are included elsewhere in this prospectus. In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions which could cause actual results to differ materially from management's expectations. See "Risk Factors" and "Special Note Regarding Forward-Looking Information."
Overview
Background
              We are a regionally accredited provider of postsecondary education services. We offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences.
              We deliver programs online as well as at our traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado. As of June 30, 2009, we offered approximately 1,000 courses, 50 degree programs and 110 specializations and concentrations. We had 45,504 students enrolled in our institutions as of June 30, 2009, 99% of whom were attending classes exclusively online.
              In March 2005, we acquired the assets of The Franciscan University of the Prairies, located in Clinton, Iowa, and renamed it Ashford University. In September 2007, we acquired the assets of the Colorado School of Professional Psychology, located in Colorado Springs, Colorado, and renamed it the University of the Rockies. See "Business—Our History" for more information about these acquisitions.
Key Financial Metrics
Revenue
              Revenue consists principally of tuition, technology fees and other miscellaneous fees and is shown net of any refunds and scholarships. Factors affecting our revenue include: (i) the number of students who enroll and who remain enrolled in our courses; (ii) our degree and program mix; (iii) changes in our tuition rates; and (iv) the amount of the scholarships that we offer. Tuition is reduced by the amount of scholarships we award to our students.
Enrollments
              We define enrollments as the number of active students on the last day of the financial reporting period. A student is considered an active student if he or she has attended a class within the prior 30 days unless the student has graduated or has provided us with a notice of withdrawal. Enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period, which are offset by students who either graduated or withdrew during the period. Our online courses are typically five or six weeks in length and have weekly start dates through the year, with the exception of a two week break during the holiday period in late December and early January. Our campus-based courses have one start per semester with two semesters per year.
Costs and expenses
              Instructional costs and services.     Instructional costs and services consist primarily of costs related to the administration and delivery of our educational programs. This expense category includes compensation for faculty and administrative personnel, costs associated with online faculty, curriculum and new program development costs, bad debt expense, financial aid processing costs, technology
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license costs and costs associated with other support groups that provide service directly to the students. Instructional costs and services also include an allocation of facility and depreciation costs.
              Marketing and promotional.     Marketing and promotional expenses include compensation of personnel engaged in marketing and recruitment, as well as costs associated with purchasing leads and producing marketing materials. Our marketing and promotional expenses are generally affected by the cost of advertising media and leads, the efficiency of our marketing and recruiting efforts, salaries and benefits for our enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Advertising costs are expensed as incurred. We also incur immediate expenses in connection with new enrollment advisors while these individuals undergo training. Enrollment advisors typically do not achieve anticipated full productivity until four to six months after their dates of hire. Marketing and promotional costs also include an allocation of facility and depreciation costs.
              General and administrative.     General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, information technology, compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of facility and depreciation costs.
              Interest income.     Interest income consists of interest on investments.
              Interest expense.     Interest expense consists primarily of interest charges on our capital lease obligations and on the outstanding balances of our notes payable and line of credit and related fees.
Factors Affecting Comparability
              We believe the following factors have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:
Public company expenses
              As a public company, we are obligated to file with the SEC annual and quarterly information and other reports that are specified in Section 13 of the Securities and Exchange Act of 1934, as amended. We are required to ensure that we have the ability to prepare financial statements that comply with SEC reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements, including the listing standards of the NYSE and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which impose significant compliance obligations upon us. Specifically, we are required to:
•
prepare and distribute periodic reports and other stockholder communications in compliance with our obligations under the federal securities laws and NYSE rules; 

•
create or expand the roles and duties of our board of directors and committees of the board; 

•
institute compliance and internal audit functions that are more comprehensive; 

•
evaluate and maintain our system of internal control over financial reporting, and report on management's assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the PCAOB; 

•
involve and retain outside legal counsel and accountants in connection with the activities listed above; 

•
enhance our investor relations function; and 

•
establish new internal policies, including those relating to disclosure controls and procedures.
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              We estimate that our incremental annual costs associated with being a publicly traded company will be between $2.5 million and $4.0 million. In addition, we estimate that we will incur approximately $1.0 million in expenses related to this offering.
Stock-based compensation
              We expect to incur increased non-cash, stock-based compensation expense in connection with existing and future issuances under our equity incentive plans.
Acceleration of exit options
              On March 28, 2009, our board of directors amended the exit options for certain members of our management team (10 individuals) to add an additional vesting condition so that the number of shares underlying the options that would not have vested upon the closing of our initial public offering, under the original terms of the options, would vest in full upon the closing of such offering. This additional vesting condition constituted a modification under SFAS 123R. Accordingly, to the extent the exit option vested under the original vesting conditions, the original grant date fair value was recorded on the vesting date; and to the extent each exit option vested under the additional vesting condition, the modification date fair value would be recorded on the vesting date.
              The compensation expense that was recorded for the exit options during the second quarter of 2009 was $30.4 million in the aggregate ($0.1 million related to the portion of the exit options vesting under the original vesting conditions and $30.3 million related to the portion of the exit options vesting under the additional vesting condition), which was based upon the sale by Warburg Pincus of 20.8% of its ownership of our common stock (as-converted) in our initial public offering. The incremental compensation cost resulting from the modification was a non-cash expense of $30.0 million. Such compensation expense was allocated to the expense category in which the optionee's regular compensation is recorded.
Settlement of stockholder dispute
              In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against us, our directors and officers and Warburg Pincus regarding amendments to our certificate of incorporation made in connection with financings in 2005 and certain stock options we granted to our employees. The claimants represented 90% of the holders of common stock and 59% of the shares of common stock subject to warrants outstanding, in each case as of July 27, 2005. In March 2009, we reached a settlement with the claimants regarding these claims and recorded a total expense of $11.1 million related to the settlement during the three months ended March 31, 2009, of which $10.6 million was a non-cash expense. After settling with the claimants, we notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, we reached settlement with all of the remaining holders of the common stock and of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time we ceased to be a potential obligor related to the claims asserted by these security holders. No additional expense was recorded in connection with this further settlement.
Seasonality
              Although not apparent in our results of operations due to our rapid rate of growth, our operations are generally subject to seasonal trends. As our growth rate declines we expect to experience seasonal fluctuations in results of operations as a result of changes in the level of student enrollment. While we enroll students throughout the year, first and fourth quarter new enrollments and revenue are generally lower than that in other quarters due to the holiday break in December and January. We
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generally experience a seasonal increase in new enrollments in August and September of each year when most other colleges and universities begin their fall semesters.
Internal Control Over Financial Reporting
Overview
              Effective internal control over financial reporting is necessary for us to provide reliable annual and quarterly financial reports and to prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results and financial condition could be materially misstated and our reputation could be significantly harmed.
              As a public company, we are required to file annual and quarterly reports containing our consolidated financial statements and are subject to the requirements and standards set by the SEC, PCAOB and the NYSE. Commencing with the year ending December 31, 2010, we must perform system and process evaluations and testing of our internal control over financial reporting to allow us to report on the effectiveness of our internal control over financial reporting, as required under Section 404 of the Sarbanes-Oxley Act.
Material weaknesses
              In connection with the preparation of our consolidated financial statements included elsewhere in this prospectus, we concluded that there were matters that constituted material weaknesses in our internal control over financial reporting. A material weakness is a control deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis by our employees in the normal course of performing their assigned functions. In particular, we have concluded that we did not have:
•
a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of GAAP, performance of supervisory review and analysis and application of sufficient analysis on significant contracts, judgments and estimates; or 

•
effective controls over the selection, application and monitoring of accounting policies related to redeemable convertible preferred stock, earnings per share, leasing transactions and stock based compensation to ensure that such transactions were accounted for in conformity with GAAP.
              We restated our consolidated financial statements for the years ended December 31, 2005, 2006 and 2007 in large part due to these inadequate internal controls. In addition, in the preparation of our interim condensed consolidated financial statements for first quarter of 2009, we discovered an overstatement of potentially dilutive shares and therefore an understatement of our diluted earnings per common share for the year ended December 31, 2008. We concluded that these matters were immaterial and have been corrected in the financial information contained in this prospectus.
              We are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to our internal control over financial reporting. Our Chief Financial Officer is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses. We have implemented a number of significant changes and improvements in our internal control over financial reporting during the third and fourth quarters of 2008 and first half of 2009, specifically:
•
hiring key personnel, including a corporate controller, a director of internal audit, a director of financial reporting, a director of financial planning, a manager of financial reporting, a
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financial reporting accountant, a manager of internal audit, and an assistant controller, as well as certain consultants in each case with experience managing and working in the corporate accounting department of a publicly traded company;
•
making process changes in the financial reporting area, including additional oversight and review; and 

•
conducting training of our accounting staff for purposes of enabling them to recognize and properly account for transactions of the type described above.
              Management plans to implement further process changes and conduct further training during the second half of 2009. We cannot assure you that the measures we have taken to date and plan to take will remediate the material weaknesses we have identified.
Critical Accounting Policies and Use of Estimates
              The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue, bad debts, long-lived assets, income taxes and stock-based compensation. These estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
              Critical accounting policies are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. The footnotes to the consolidated financial statements also include disclosure of significant accounting policies. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting policies and estimates include those involved in the recognition of revenue, allowance for doubtful accounts, impairment of goodwill and intangible assets, provision for income taxes and accounting for stock based compensation. Those critical accounting policies and estimates that require the most significant judgment are discussed further below.
Revenue recognition
              We recognize revenue when earned in accordance with Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition , and Emerging Issues Task Force, or EITF, 00-21, Accounting for Revenue Arrangements with Multiple Deliverables .
              The majority of our revenue comes from tuition revenue and is shown net of scholarships and expected refunds. Tuition revenue is recognized on a straight-line basis over the applicable period of instruction. Our online students generally enroll in a program that encompasses a series of five- to six-week courses that are taken consecutively over the length of a program. Students are billed on a course-by-course basis when first attending a class. Our traditional ground campus students enroll in a program that encompasses a series of 16-week courses. These students are billed at the beginning of each semester.
              Deferred revenue represents tuition, fees and other student payments and unpaid amounts due less amounts recognized as revenue. We recognize an account receivable and corresponding deferred
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revenue for the full amount of course tuition when a student first attends class. Payments that are received either directly from the student or from the student's source of funding that are in excess of amounts billed are recognized as student deposits.
              If a student withdraws from a program prior to certain dates, they are entitled to a refund of certain portions of their tuition, depending on the date they last attended a class. If an online student drops a class and the student's last date of attendance was in the first week of class, the student receives a full refund of the tuition for that class. If an online student drops a class and the last date of attendance was in the second week of the class, the student receives a refund of 50% of the tuition for that class. If an online student drops a class and the student's last date of attendance was after the second week of the class, the student is not entitled to a refund. We monitor student attendance in online courses through activity in the online program associated with that course. After two weeks have passed without attendance in a class by the student, the student is presumed to have dropped the course as of the last date of attendance, and the student's tuition is automatically refunded to the extent the student is entitled to a refund based on the schedule above. We estimate expected refunds based on historical refund rates by analogy to Statement of Financial Standards, or SFAS, No. 48, Revenue Recognition When Right of Return Exists , as permitted by SAB Topic 13, Revenue Recognition , and record a provision to reduce revenue to the amount that is not expected to be refunded. Refunds issued by us for services that have been provided in a prior period have not historically been material. Future changes in the rate of student withdrawals may result in a change to expected refunds and would be accounted for prospectively as a change in estimate.
              We also recognize revenue from technology fees that are one-time start up fees charged to each new undergraduate online student. Technology fee revenue is recognized ratably over the average expected term of a student. The average expected term of the student is estimated each quarter based upon historical student duration of attendance and qualitative factors as deemed necessary. A significant change in the composition of our student body could result in a change in the time period over which these technology fees are amortized.
Allowance for doubtful accounts
              We maintain an allowance for doubtful accounts for estimated losses resulting from students' inability to pay us for services performed, or for inability of students to repay excess funds received for stipends. Bad debt expense is recorded as a component of instructional costs and services. We calculate the allowance for doubtful accounts based on our historical collection experience and changes in the economic environment. We also consider other factors such as the age of the receivable, the type of receivable and the students' active or inactive enrollment status. Certain variables require management judgment and include inherent uncertainties such as the likelihood of future student attendance and students' ability to qualify for Title IV eligibility. Variations in these factors from our historical experience may impact future estimates of the collectibility of accounts receivable and may cause actual losses due to write-offs of uncollectible accounts to differ from past estimates.
Impairments of long-lived assets
              We account for long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . We assess potential impairment to our long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could cause us to assess potential impairment include significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required
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impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.
              We use various assumptions in determining undiscounted cash flows expected to result from the use and eventual disposition of the asset, including assumptions regarding revenue growth rates, operating costs, certain capital additions, assumed discount rates, disposition or terminal value and other economic factors. These variables require management judgment and include inherent uncertainties such as continuing acceptance of our value proposition by prospective students, our ability to manage operating costs and the impact of changes in the economy on our business. A variation in the assumptions used could lead to a different conclusion regarding the realizability of an asset and, thus, could have a significant effect on our conclusions regarding whether an asset is impaired and the amount of impairment loss recorded in the consolidated financial statements.
Income taxes
              We utilize the liability method of accounting for income taxes as set forth in SFAS No. 109, Accounting for Income Taxes . Significant judgments are required in determining the consolidated provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more likely than not those positions may not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters differs from our expectations, such differences will impact income tax expense in the period in which such determination is made.
              We adopted Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes , or FIN 48, on January 1, 2008, which prescribes a recognition threshold and measurement process for recording in our consolidated financial statements uncertain tax positions taken, or expected to be taken, in a tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The standard requires us to accrue for the estimated amount of taxes for uncertain tax positions if it is more likely than not that we would be required to pay such additional taxes. An uncertain tax position will not be recognized if it has a less than 50% likelihood of being sustained.
              We are required to file income tax returns in the United States and in various state income tax jurisdictions. The preparation of these income tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. The income tax returns, however, are subject to audits by the various federal and state taxing authorities. As part of these reviews, the taxing authorities may disagree with respect to our tax positions. The ultimate resolution of these tax positions is often uncertain until the audit is complete and any disagreements are resolved. As required under FIN 48, we therefore record an amount for our estimate of the additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. We review and update the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, completion of tax audits and expiration of statutes of limitations.
              The adoption of FIN 48 had no material effect on our consolidated financial statements and did not result in the recording of uncertain tax position liabilities. However, we subsequently increased our accrual for uncertain tax benefits in 2008 and 2009.
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              In addition to estimates inherent in the recognition of current taxes payable, we estimate the likelihood that we will be able to recover our deferred tax assets each reporting period. Realization of our deferred tax assets is dependent upon future taxable income. To the extent we believe it is more-likely-than-not that some portion or all of our net deferred tax assets will not be realized, we establish a valuation allowance recorded against deferred tax assets. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. We released the entire valuation allowance on deferred tax assets as of December 31, 2008 based on our belief that it is more likely than not that our net deferred tax assets will be realized in future periods.
Stock-based compensation
              We grant options to purchase our common stock to certain employees and directors under our equity incentive plans. The benefits provided under these plans are share-based payments subject to the provisions of revised SFAS No. 123, Share-Based Payments, or SFAS 123R. Effective January 1, 2006, we adopted the provisions of SFAS 123R. SFAS 123R, which is a revision of SFAS 123, Accounting for Stock-Based Compensation , replaces our previous accounting for share-based awards under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees . SFAS 123R requires all share-based payments to employees, including grants of stock options and the compensatory elements of employee stock purchase plans, to be recorded in our consolidated statement of income based upon their fair values.
              Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date fair value of the award and is expensed over the vesting period. We estimate the fair value of stock options awards on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating our volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
              Our computation of expected term was calculated using the simplified method, as permitted by SAB No. 107, Share-Based Payment , and SAB No. 110, Share-Based Payment . The risk-free interest rate is based on the United States Treasury yield of those maturities that are consistent with the expected term of the stock option in effect on the grant date of the award. Dividend rates are based upon historical dividend trends and expected future dividends. As we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future, a zero dividend rate is assumed in our calculation. Because our stock has not been publicly traded for a significant period of time and we had no substantial historical data on the volatility of our stock as of June 30, 2009, our expected volatility is estimated by analyzing the historical volatility of comparable public companies, which we refer to as guideline companies. In evaluating the comparability of the guideline companies, we consider factors such as industry, stage of life cycle, size and financial leverage.
              The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The effect of changes of the estimates to the inputs to the Black-Scholes option pricing model, such as estimated life or volatility, would not have a material impact to our consolidated financial statements.
              Our board of directors grants options with an exercise price that equals or exceeds the closing price of our common stock, as reported by the New York Stock Exchange, on the date of grant.
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Results of Operations
              The following table sets forth our consolidated statements of income data as a percentage of revenue for each of the periods indicated:

 	 	Year Ended December 31,	 	Six Months Ended June 30,	 	
 	 	2006	 	2007	 	2008	 	2008	 	2009	 	
Revenue	 	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	
Costs and expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional cost and services	 	 	43.7	 	 	34.8	 	 	28.8	 	 	28.9	 	 	25.9	 	
 	Marketing and promotional	 	 	42.7	 	 	42.0	 	 	37.1	 	 	37.6	 	 	35.2	 	
 	General and administrative	 	 	30.4	 	 	18.6	 	 	18.8	 	 	17.0	 	 	34.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total operating expenses	 	 	116.8	 	 	95.4	 	 	84.7	 	 	83.5	 	 	95.4	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(16.8	)	 	4.6	 	 	15.3	 	 	16.5	 	 	4.6	 	
Interest income	 	 	—	 	 	—	 	 	(0.1	)	 	(0.1	)	 	(0.1	)	
Interest expense	 	 	1.2	 	 	0.6	 	 	0.1	 	 	0.2	 	 	0.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(18.0	)	 	4.0	 	 	15.3	 	 	16.4	 	 	4.6	 	
Income tax expense	 	 	—	 	 	0.2	 	 	3.2	 	 	2.9	 	 	2.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(18.0	)%	 	3.8	%	 	12.1	%	 	13.5	%	 	2.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	
              We have experienced significant growth in enrollments, revenue and operating income as well as improvement in liquidity since our acquisition of Ashford University in March 2005. We continue to grow in response to the increasing demand in the market for higher education. We believe our enrollment and revenue growth has been driven primarily by (i) our significant investment in enrollment advisors and online advertising which commenced immediately upon our acquisition of Ashford University and (ii) students' acceptance of our value proposition. Our significant growth in operating income is a result of leveraging our fixed costs with increased revenue.
              Through 2008 and the first half of 2009, we have seen enrollments and revenue continue to increase even though general economic conditions have deteriorated. During 2008 and the first half of 2009, we did not see any unfavorable impact from the decline in general economic conditions on our liquidity, capital resources or results of operations. While we cannot guarantee that these trends will continue, we believe that the performance of our company, as well as the performance of other for-profit education providers generally, has been resilient in the current economic downturn due to (i) the continued availability of Title IV funds to finance student tuition payments, (ii) increased demand for postsecondary education resulting from a deteriorating labor market, (iii) lower advertising costs and (iv) decreased turnover in enrollment advisors and other personnel. To meet the challenges of the current economy, we plan to continue to invest significantly in enrollment advisors and online advertising, which actions we expect will result in our enrollments and operating income continuing to grow, though perhaps not at the same rate as in the past.
              We expect certain expenses to have a significant effect on the comparability of recent and future results of operations. In particular, our operating results have been adversely impacted by the recording of expenses related to (i) the settlement of the stockholder dispute in the first quarter of 2009, an expense of $11.1 million (of which $10.6 million was a non-cash expense), (ii) the acceleration of exit options in the second quarter of 2009, a non-cash expense of $30.4 million, and (iii) expenses related to this offering, which we expect to be approximately $1.0 million. See "Factors Affecting Comparability" above. In addition, we estimate that our incremental annual costs associated with being a publicly traded company will be between $2.5 million and $4.0 million per year.
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Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
              Revenue.     Our revenue for the six months ended June 30, 2009 was $195.2 million, representing an increase of $106.3 million, or 119.6%, as compared to revenue of $88.9 million for the six months ended June 30, 2008. This increase was primarily due to enrollment growth of 101.3%, from 22,607 students at June 30, 2008 to 45,504 students at June 30, 2009. Enrollment growth is driven by various factors including the students' acceptance of our value proposition, the quality of lead generation efforts, the number of enrollment advisors and our ability to retain existing students. In addition to the increase in student enrollment, the revenue increase was also positively impacted by the 5% tuition increase effective April 1, 2009 and the decision to move to a single credit hour price for all Ashford undergraduate students. The tuition increase and the move to a single credit hour price accounted for approximately 3.4% and 6.8%, respectively, of the revenue increase between periods. These increases were partially offset by an increase in institutional scholarships of $8.4 million, or 263.1%, between periods.
              Instructional costs and services expenses.     Our instructional costs and services expenses for the six months ended June 30, 2009 were $50.5 million, representing an increase of $24.8 million, or 96.6%, as compared to instructional costs and services expenses of $25.7 million for the six months ended June 30, 2008. This increase was primarily due to an increase in educational support services and increases in instructional costs as a result of the increase in enrollments, as well as a $2.1 million charge related to the instructional costs and services portion of the acceleration of exit options that occurred in the second quarter of 2009. Our instructional costs and services expenses as a percentage of revenue decreased by 3.0% to 25.9% for the six months ended June 30, 2009, as compared to 28.9% for the six months ended June 30, 2008. This decrease in 2009 was driven by improvements in our variable cost structure due to ongoing work on process improvements, including more efficient course scheduling and use of faculty, offset partially by the exit option charge. Bad debt as a percentage of revenue was 4.7% for the six months ended June 30, 2009 as compared to 6.0% for the six months ended June 30, 2008, primarily due to the procedural improvements in the processing of receivables.
              Marketing and promotional expenses.     Our marketing and promotional expenses for the six months ended June 30, 2009 were $68.8 million, representing an increase of $35.4 million, or 105.7%, as compared to marketing and promotional expenses of $33.4 million for the six months ended June 30, 2008. This increase was driven by greater spending in targeted marketing and online media and an increase in recruitment and marketing staffing, as well as a $5.0 million charge related to the marketing and promotional portion of the acceleration of exit options that occurred in the second quarter of 2009. Our marketing and promotional expenses as a percentage of revenue decreased by 2.4% to 35.2% for the six months ended June 30, 2009, from 37.6% for the six months ended June 30, 2008, primarily due to improvements in our variable cost structure as they relate to advertising.
              General and administrative expenses.     Our general and administrative expenses for the six months ended June 30, 2009 were $67.0 million, representing an increase of $51.9 million, or 342.5%, as compared to general and administrative expenses of $15.1 million for the six months ended June 30, 2008. This increase was primarily attributable to (i) an $11.1 million charge related to the stockholder settlement in the first quarter of 2009 and (ii) a $23.3 million charge related to the general and administrative portion of the acceleration of exit options that occurred in the second quarter of 2009, as well as increased wages of $7.3 million, increased rent of $6.0 million, increased legal and accounting expenses of $2.7 million, increased travel of $0.7 million and other costs of $0.8 million. Our general and administrative expenses as a percentage of revenue increased by 17.3% to 34.3% for the six months ended June 30, 2009, from 17.0% for the six months ended June 30, 2008, primarily due to the increased costs noted above.
              Other income (expense), net.     Other income was $0.1 million for the six months ended June 30, 2009, as compared to other expense of $0.1 million for the six months ended June 30, 2008,
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representing a change of $0.2 million. The increase was principally due to increased levels of interest income on higher average cash balances.
              Income tax expense.     We recognized tax expense for the six months ended June 30, 2009 and 2008 of $3.9 million and $2.5 million, at effective tax rates of 43.3% and 17.3%, respectively. The increase in our effective tax rate in 2009 as compared to 2008 was primarily due to (i) an increase in our FIN 48 liability in 2009 and (ii) a nonrecurring benefit related to the release in 2008 of the valuation allowance existing at December 31, 2007. The higher effective tax also reflects the fact that the $11.1 million stockholder settlement charge recorded in the first quarter of 2009 is only partially deductible for tax purposes.
              Net income.     Net income was $5.1 million for the six months ended June 30, 2009, compared to net income of $12.0 million for the six months ended June 30, 2008, a decrease of $6.9 million, as a result of the factors discussed above.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
              Revenue.     Our revenue for 2008 was $218.3 million, an increase of $132.6 million, or 154.7%, as compared to $85.7 million for 2007. Our revenue growth was primarily attributed to enrollment growth. Enrollment growth is driven by various factors including prospective students' acceptance of our value proposition, the quality of lead generation efforts, the number of enrollment advisors and our ability to retain existing students. To a lesser extent, the growth is due to increases in the average tuition per student as a result of tuition price increases, partially offset by an increase in institutional scholarships of $9.5 million. Student enrollment as of December 31, 2008, was 31,558, an increase of 18,935, or 150.0%, compared to 12,623 as of December 31, 2007.
              Instructional costs and services.     Our instructional costs and services for 2008 were $62.8 million, an increase of $33.0 million, or 110.5%, as compared to $29.8 million for 2007. This increase was primarily due to increases in instructional compensation costs of $17.6 million to meet the needs of a 150.0% increase in student enrollment, as well as related increases in financial aid processing costs of $2.7 million, facilities costs of $1.0 million, license fees of $1.3 million, bad debt expense of $8.7 million and other costs of $1.7 million. Instructional costs and services decreased, as a percentage of revenue, to 28.8% for 2008, as compared to 34.8% for 2007. The decrease, as a percentage of revenue, is primarily due to certain scalable fixed costs which relate primarily to the online environment (such as the student services and financial aid personnel, software license fees and online program development costs) being spread over increased enrollment and increased revenue. Such decrease was offset by the increase in our bad debt expense, as a percentage of revenue, to 6.2% for 2008, from 5.5% for 2007. The increase in bad debt expense, as a percentage of revenue, resulted, in part, from increased stipends due to greater availability of Title IV funds per student. Because a portion of our allowance for doubtful accounts is a result of the students' inability to repay excess funds received for stipends when they withdraw from their course of study, our bad debt expense increased. Additionally, the general deterioration of economic conditions negatively impacted our students' ability to pay for services provided.
              Marketing and promotional.     Our marketing and promotional expenses for 2008 were $81.0 million, an increase of $45.0 million, or 125.1%, as compared to $36.0 million for 2007. The increase was primarily due to increases in compensation costs of $26.1 million, advertising expenses of $12.0 million, facilities expenses of $3.5 million and promotional conferences and other costs of $3.4 million. Of these increased costs, annual conference costs of $1.0 million and new facility costs of $0.8 million were incurred in the fourth quarter of 2008. This increase in compensation and advertising spending is expected to continue as we grow our enrollment advisor base and increase our lead generation efforts to support those advisors. Our marketing and promotional expenses, as a percentage
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of revenue, decreased to 37.1% for 2008 from 42.0% for 2007. The decrease is primarily due to operating leverage associated with compensation costs and advertising costs.
              General and administrative.     Our general and administrative expenses for 2008 were $41.0 million, an increase of $25.1 million, or 158.1%, as compared to $15.9 million for 2007. The increase was primarily due to increases in compensation costs of $14.8 million, professional fees of $3.7 million, office supplies and phone expense of $2.1 million, facilities costs of $3.5 million and travel and conference costs of $0.6 million and other administrative costs of $0.4 million. Of these increased costs, we recorded (i) stock-based compensation expense of $1.6 million related to the modification of a director's stock award and (ii) new facility costs of $0.3 million in the fourth quarter of 2008. Our general and administrative expenses, as a percentage of revenue, increased slightly to 18.8% for 2008 from 18.6% for 2007.
              Interest income.     Our interest income for 2008 was $0.3 million, an increase of $0.3 million from less than $0.1 million for 2007, as a result of increased levels of cash and cash equivalents.
              Interest expense.     Our interest expense for 2008 was $0.2 million, a decrease of $0.3 million from $0.5 million for 2007. The decrease was primarily due to reductions in borrowings.
              Income tax expense.     Income tax expense for 2008 was $7.1 million, an increase of $6.9 million from $0.2 million for 2007. This increase was primarily attributable to increased income before income taxes as well as net operating loss carryforwards that completely eliminated regular taxable income in 2007 and only partially offset the income in 2008. This increase in tax expense was partially offset by release of the valuation allowance that existed at December 31, 2007. In 2008, we reversed our valuation allowance of $7.3 million that was recognized at December 31, 2007, based on our belief that it is more likely than not that our net deferred tax assets will be realized in future periods. As a result, our effective income tax rate increased to 21.1% from 4.8%.
              Net income.     Our net income for 2008 was $26.4 million, an increase of $23.1 million, as compared to net income of $3.3 million for 2007, due to the factors discussed above.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
              Revenue.     Our revenue for 2007 was $85.7 million, an increase of $57.1 million, or 199.5%, as compared to $28.6 million for 2006. The increase was primarily due to increased student enrollment, partially offset by an increase in institutional scholarships of $2.5 million. Student enrollment as of December 31, 2007, was 12,623, an increase of 8,152, or 182.3%, compared to 4,471 as of December 31, 2006.
              Instructional costs and services.     Our instructional costs and services expenses for 2007 were $29.8 million, an increase of $17.3 million, or 138.5%, as compared to $12.5 million for 2006. The increase was primarily due to increases in instructional compensation costs of $8.4 million to meet the needs of a 182.3% increase in student enrollment financial aid processing fees of $1.8 million and license fees of $1.0 million. Bad debt expense increased to $4.7 million for 2007 from $1.0 million for 2006 as a result of a proportional increase in revenue. The change in allowance for doubtful accounts in 2007 includes $4.7 million of bad debt expense, net of bad debt write-offs of $0.6 million. As a percentage of revenue, instructional costs and services decreased to 34.8% for 2007 as compared to 43.7% for 2006. The decrease, as a percentage of revenue, is primarily due to operating leverage associated with instructional compensation costs, partially offset by an increase in our bad debt expense, as a percentage of revenue, to 5.5% for 2007 from 3.4% for 2006. The increase in bad debt expense, as a percentage of revenue, resulted from increased receivables due to a greater availability of Title IV funds per student.
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              Marketing and promotional.     Our marketing and promotional expenses for 2007 were $36.0 million, an increase of $23.8 million, or 194.7%, as compared to $12.2 million for 2006. The increase was primarily due to increases in compensation of $10.9 million and advertising expenses of $10.0 million. Our marketing and promotional expenses, as a percentage of revenue, decreased to 42.0% for 2007, from 42.7% for 2006. The decrease, as a percentage of revenue, was primarily due to operating leverage in compensation costs.
              General and administrative.     Our general and administrative expenses for 2007 were $15.9 million, an increase of $7.2 million, or 82.6%, as compared to $8.7 million for 2006. The increase was primarily due to increases in compensation costs of $4.1 million, professional fees of $0.8 million and travel costs of $0.6 million. Our general and administrative expenses, as a percentage of revenue, decreased to 18.6% for 2007 from 30.4% for 2006, primarily due to operating leverage associated with compensation costs and miscellaneous other expenses.
              Interest income.     Interest income for 2007 and 2006 was less than $0.1 million.
              Interest expense.     Interest expense for 2007 was $0.5 million, an increase of $0.2 million, or 55.0%, from $0.3 million for 2006, as a result of increased borrowings.
              Income tax expense.     Income tax expense for 2007 was $0.2 million primarily due to federal and state alternative minimum tax. There was no income tax provision for 2006 due to our net operating losses incurred in the current and prior years.
              Net income.     Our net income for 2007 was $3.3 million, an increase of $8.4 million as compared to a net loss of $5.2 million for 2006, due to the factors discussed above.
Quarterly Results
              The following tables set forth certain unaudited financial and operating data for each quarter during 2007 and 2008 and the first two quarters of 2009. We believe that the information reflects all adjustments, which include only normal and recurring adjustments, necessary to present fairly the information below. Basic and diluted earnings per share are computed independently for each of the
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quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

 	 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	
 	 	(In thousands, except enrollment and per share data)	 	
2007	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	13,749	 	$	16,607	 	$	24,202	 	$	31,151	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	5,282	 	 	6,114	 	 	7,758	 	 	10,683	 	
 	Marketing and promotional	 	 	6,280	 	 	8,562	 	 	9,690	 	 	11,465	 	
 	General and administrative	 	 	2,952	 	 	3,176	 	 	3,375	 	 	6,389	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	14,514	 	 	17,852	 	 	20,823	 	 	28,537	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Operating income (loss)	 	 	(765	)	 	(1,245	)	 	3,379	 	 	2,614	 	
 	Interest income	 	 	(1	)	 	—	 	 	—	 	 	(11	)	
 	Interest expense	 	 	120	 	 	110	 	 	102	 	 	212	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Income (loss) before income taxes	 	 	(884	)	 	(1,355	)	 	3,277	 	 	2,413	 	
 	Income tax expense (benefit)	 	 	(42	)	 	(64	)	 	156	 	 	114	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Net income (loss)	 	$	(842	)	$	(1,291	)	$	3,121	 	$	2,299	 	
 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(0.40	)	$	(0.53	)	$	0.03	 	$	0.02	 	
 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	$	(0.40	)	$	(0.53	)	$	0.02	 	$	0.01	 	
 	 	 	 	 	 	 	 	 	 	
Period end enrollment:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	6,440	 	 	8,365	 	 	12,117	 	 	12,104	 	
 	Ground	 	 	416	 	 	301	 	 	599	 	 	519	 	
 	 	 	 	 	 	 	 	 	 	
 	Total:	 	 	6,856	 	 	8,666	 	 	12,716	 	 	12,623	 	

																
 	 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter(1)	 	
 	 	(In thousands, except enrollment and per share data)	 	
2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	38,948	 	$	49,942	 	$	60,277	 	$	69,123	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	12,948	 	 	12,734	 	 	16,368	 	 	20,772	 	
 	Marketing and promotional	 	 	15,063	 	 	18,369	 	 	21,058	 	 	26,546	 	
 	General and administrative	 	 	7,210	 	 	7,925	 	 	11,191	 	 	14,686	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	35,221	 	 	39,028	 	 	48,617	 	 	62,004	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Operating income (loss)	 	 	3,727	 	 	10,914	 	 	11,660	 	 	7,119	 	
 	Interest income	 	 	(32	)	 	(59	)	 	(104	)	 	(127	)	
 	Interest expense	 	 	86	 	 	97	 	 	14	 	 	43	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Income (loss) before income taxes	 	 	3,673	 	 	10,876	 	 	11,750	 	 	7,203	 	
 	Income tax expense (benefit)	 	 	(309	)	 	2,831	 	 	2,999	 	 	1,550	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Net income (loss)	 	$	3,982	 	$	8,045	 	$	8,751	 	$	5,653	 	
 	 	 	 	 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.05	 	$	0.14	 	$	0.16	 	$	0.10	 	
 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	$	0.03	 	$	0.06	 	$	0.07	 	$	0.04	 	
 	 	 	 	 	 	 	 	 	 	
Period end enrollment:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	18,918	 	 	22,201	 	 	29,786	 	 	30,921	 	
 	Ground	 	 	591	 	 	406	 	 	761	 	 	637	 	
 	 	 	 	 	 	 	 	 	 	
 	Total:	 	 	19,509	 	 	22,607	 	 	30,547	 	 	31,558	 	

(1)
Operating income decreased to $7.1 million in the fourth quarter of 2008 from $11.7 million in the third quarter of 2008 in part due to the following events that occurred in the fourth quarter of 2008: (i) a one-time stock-based compensation expense of $1.6 million related to the modification of a stock award held by a director; (ii) a one-time compensation expense of $1.9 million related to special overachievement bonuses awarded to our management team, which our compensation committee does not expect to award in the future; and (iii) $1.0 million in annual conference costs, which costs are recurring in nature but historically occur only in the fourth quarter. The fourth quarter of 2008 also contained 12 weeks, as compared to the third quarter of 2008 which contained 13 weeks.
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 	 	First
Quarter	 	Second
Quarter	 	
 	 	(In thousands, except enrollment and per share data)	 	
2009	 	 	 	 	 	 	 	
Revenue	 	$	84,275	 	$	110,908	 	
Costs and expenses:	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	22,134	 	 	28,357	 	
 	Marketing and promotional	 	 	29,106	 	 	39,655	 	
 	General and administrative	 	 	25,882	 	 	41,093	 	
 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	77,122	 	 	109,105	 	
 	 	 	 	 	 	
 	 	Operating income	 	 	7,153	 	 	1,803	 	
 	Interest income	 	 	(130	)	 	(140	)	
 	Interest expense	 	 	58	 	 	96	 	
 	 	 	 	 	 	
 	 	Income before income taxes	 	 	7,225	 	 	1,847	 	
 	Income tax expense	 	 	3,338	 	 	587	 	
 	 	 	 	 	 	
 	 	Net income	 	$	3,887	 	$	1,260	 	
 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	
 	Basic	 	$	0.07	 	$	0.02	 	
 	 	 	 	 	 	
 	Diluted	 	$	0.03	 	$	0.02	 	
 	 	 	 	 	 	
Period end enrollment:	 	 	 	 	 	 	 	
 	Online	 	 	41,278	 	 	45,006	 	
 	Ground	 	 	747	 	 	498	 	
 	 	 	 	 	 	
 	Total:	 	 	42,025	 	 	45,504	 	
 	 	 	 	 	 	
Liquidity and Capital Resources
Liquidity
              We financed our operating activities and capital expenditures during 2006 primarily through proceeds from the prior issuances of shares of Series A Convertible Preferred Stock and from borrowings. We financed our operating activities and capital expenditures during 2007 and 2008 and during the six months ended June 30, 2009 primarily through cash provided by operating activities. We realized net proceeds from our initial public offering in April 2009 of $28.8 million, of which $27.7 million was used to pay the accreted value of the Series A Convertible Preferred Stock upon the optional conversion of all outstanding shares of such preferred stock at the closing of our initial public offering. Our cash and cash equivalents were $0.1 million, $7.4 million, $56.5 million and $111.9 million at December 31, 2006, 2007 and 2008 and June 30, 2009, respectively. Our restricted cash was $0.7 million at June 30, 2009 and December 31, 2008. At June 30, 2009, we had marketable securities of $10.0 million.
Credit Agreement
              We have a credit agreement, which we refer to as the Credit Agreement, with Comerica Bank which provides for a maximum amount of borrowing under a revolving credit facility of $15.0 million, with a letter of credit sub-limit of $15.0 million. The Credit Agreement also provides for an equipment line of credit not to exceed $0.2 million. As of June 30, 2009, we used the availability under the revolving credit facility to issue letters of credit aggregating $14.3 million. We had no borrowings outstanding under the revolving credit facility as of June 30, 2009.
              Under the Credit Agreement, we are subject to certain limitations including restrictions on our ability to incur additional debt, make certain investments or acquisitions and enter into certain merger
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and consolidation transactions, among other restrictions. The Credit Agreement also contains a material adverse change clause, and we are required to maintain compliance with a minimum tangible net worth financial covenant. As of June 30, 2009 and December 31, 2008, we were in compliance with all financial covenants in our Credit Agreement. If we fail to comply with any of the covenants or experience a material adverse change, the lenders could elect to prevent us from borrowing or issuing letters of credit and declare the indebtedness to be immediately due and payable.
Title IV funding
              A significant portion of our revenue is derived from tuition funded by Title IV programs. As such, the timing of disbursements under Title IV programs is based on federal regulations and our ability to successfully and timely arrange financial aid for our students. Title IV funds are generally provided in multiple disbursements before we earn a significant portion of tuition and fees and incur related expenses over the period of instruction. Students must apply for new loans and grants each academic year. These factors, together with the timing of our students beginning their programs, affect our operating cash flow.
              Based on the financial statements for the fiscal year ended December 31, 2007, Ashford University and the University of the Rockies did not satisfy the composite score requirement of the financial responsibility test, which institutions must satisfy in order to participate in Title IV programs. As a result, (i) Ashford University posted a letter of credit in favor of the U.S. Department of Education in the amount of $12.1 million, remaining in effect through September 30, 2009, and (ii) the University of the Rockies posted a letter of credit in favor of the U.S. Department of Education in the amount of $0.7 million, which was scheduled to remain in effect through October 1, 2009. In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, and the University of the Rockies was released from the requirement to post a letter of credit.
              Although we also expect Ashford University to satisfy the composite score requirement of the financial responsibility test under Title IV for the year ending December 31, 2008, and as a result would not be required to replace its outstanding letter of credit upon expiration, we expect to have sufficient cash on hand and availability of credit to replace or increase the letter of credit if necessary.
              To help comply with the 90/10 rule in the future, we are exploring a number of options to increase the amount of revenues our institutions derive from non-Title IV sources. For example, we are considering a program for the University of the Rockies in which the institution would provide direct loans to students. If this program is implemented, we expect initially that the total number of students receiving these loans during 2009 would be approximately 125 and the total amount of the loans would be approximately $1.5 million. We have no current plans to implement a similar program for Ashford University.
Operating activities
              Net cash provided by operating activities was $76.5 million and $23.2 million for the six months ended June 30, 2009 and 2008, respectively. The increase from 2008 to 2009 was primarily due to an increase in net income (excluding the non-cash charges related to the stockholder settlement and the acceleration of exit options) and $42.7 million of deferred revenue related to our overall growth and timing of receivables. We expect to continue to generate cash from our operations for the foreseeable future.
              Net cash provided by operating activities for 2008 was $70.7 million, primarily due to our increased net income of $26.4 million and increased Title IV disbursements in excess of amounts charged to students of $50.6 million. Net cash provided by operating activities for 2007 was
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$10.4 million, primarily due to our increased net income. Net cash used in operating activities for 2006 was $1.1 million, primarily due to our net loss of $5.2 million.
Investing activities
              Net cash used in investing activities was $23.5 million and $2.5 million for the six months ended June 30, 2009 and 2008, respectively. Capital expenditures were $12.0 million and $1.8 million for the six months ended June 30, 2009 and 2008, respectively. The increase in 2009 is primarily related to the purchase of property and equipment and leasehold improvements relating to a facility for which we began rental payments in the first quarter of 2009. We will continue to invest in computer equipment and office furniture and fixtures to support our increasing employee headcounts.
              During the second quarter of 2009, we purchased $10.0 million of marketable securities. We manage our excess cash pursuant to the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which was adopted by our audit committee and our board of directors in May 2009 and is managed by our chief financial officer, has the following primary objectives (in order of priority): preserving principal, meeting our liquidity needs, minimizing market and credit risk and providing after-tax returns. Under the policy's guidelines, we invest our excess cash exclusively in high-quality, short-term, U.S.-dollar denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see "Quantitative and Qualitative Disclosures About Market Risk" included elsewhere in this prospectus.
              Net cash used in investing activities was $1.4 million, $2.9 million and $16.6 million for 2006, 2007 and 2008, respectively. Our cash used in investing activities is primarily related to the purchase of property and equipment and leasehold improvements. A majority of our historical capital expenditures are related to the establishment of our initial infrastructure to support our online operations and to improve our ground campus. Capital expenditures were $1.4 million, $3.6 million and $15.9 million for 2006, 2007 and 2008, respectively. Our planned capital expenditures for the second half of 2009 are approximately $10 million.
Financing activities
              Net cash provided by financing activities was $2.4 million for the six months ended June 30, 2009 and used in financing was $3.0 million for the six months ended June 30, 2008. During the six months ended June 30, 2009, net cash provided by financing activities was generated primarily from the net proceeds of our initial public offering, after deducting underwriting discounts and commissions and offering expenses ($28.8 million), offset by the payment of the accreted value of the Series A Convertible Preferred Stock ($27.7 million) upon the optional conversion of all outstanding shares of Series A Convertible Preferred Stock into common stock at the closing of our initial public offering.
              Net cash provided by (used in) financing activities was $0.3 million, $(0.1) million and $(5.1) million for 2006, 2007 and 2008, respectively. Net cash used in financing activities for 2008 was primarily due to repayments of borrowing of $4.9 million.
              We expect to continue to utilize commercial financing, lines of credit and term debt for the purpose of expansion of our online business infrastructure and to expand and improve our ground campuses in Clinton, Iowa and Colorado Springs, Colorado. Based on our current level of operations and anticipated growth in enrollments, we believe that our cash flow from operations, existing cash and cash equivalents and other sources of liquidity will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.
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Significant Cash and Contractual Obligations
              The following table sets forth, as of December 31, 2008, certain significant cash obligations that will affect our future liquidity:

 	 	Payments Due by Period	 	
 	 	Total	 	Less than
1 Year	 	Years 2 - 3	 	Years 4 - 5	 	More than
5 Years	 	
 	 	(In thousands)	 	
Long term debt(1)	 	$	234	 	$	74	 	$	160	 	$	—	 	$	—	 	
Capital lease obligations(2)	 	 	486	 	 	179	 	 	236	 	 	71	 	 	—	 	
Operating lease obligations(2)	 	 	246,176	 	 	13,450	 	 	41,809	 	 	48,541	 	 	142,376	 	
Uncertain tax positions(3)	 	 	2,740	 	 	—	 	 	2,740	 	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	249,636	 	$	13,703	 	$	44,945	 	$	48,612	 	$	142,376	 	

(1)
See Note 7, "Notes Payable and Long-Term Debt," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(2)
See Note 8, "Lease Obligations," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(3)
See Note 13, "Income Taxes," to our annual consolidated financial statements, which are included elsewhere in this prospectus.
Off-Balance Sheet Arrangements
              We have no off-balance sheet arrangements.
Segment Information
              We operate in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both our ground and online students regardless of geography. Our chief operating decision maker, our CEO and President, manages our operations as a whole, and no expense or operating income information is evaluated by our chief operating decision maker on any component level.
Recent Accounting Pronouncements
              For recent accounting pronouncements, see Note 2, "Summary of Significant Accounting Policies—Recent Accounting Pronouncements," to the interim condensed consolidated financial statements, which are included elsewhere in this prospectus.
Quantitative and Qualitative Disclosure About Market Risk
Market and credit risk
              Pursuant to our cash investment policy (adopted in May 2009), we attempt to mitigate the exposure of our cash investments to market and credit risk by (i) diversifying concentration risk to ensure that we are not overly concentrated in a limited number of financial institutions, (ii) monitoring and managing the risks associated with the national banking and credit markets, (iii) investing in U.S. dollar-denominated assets and instruments only, (iv) diversifying account structures so that we maintain a decentralized account portfolio with numerous stable, highly-rated and liquid financial institutions and (v) ensuring that our investment procedures maintain a defined and specific scope such that we will not invest in higher-risk investment accounts, including long-term corporate bonds, financial swaps or derivative and corporate equities. Accordingly, under the guidelines of the policy, we invest our excess
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cash exclusively in high-quality, short-term, U.S.-dollar denominated financial instruments. All of our marketable securities as of June 30, 2009 were certificates of deposit at financial institutions that maintain a rating of A1 or P1 or higher.
              Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments, and we may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline further in this time of economic uncertainty. In addition, unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.
              We have no derivative financial instruments or derivative commodity instruments.
Interest rate risk
              All of our capital lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates. However, to the extent we borrow funds under the Credit Agreement, we would be subject to fluctuations in interest rates. As of June 30, 2009, we had no borrowings under the Credit Agreement.
              Our future investment income may fall short of expectations due to changes in interest rates. At June 30, 2009, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair value, or cash flows related to investments in cash equivalents or interest earning marketable securities.
Related Party Transactions
              Ryan Craig, one of our directors, entered into an agreement with Warburg Pincus, our principal investor, in August 2004 to serve on our board of directors and as a consultant to us in 2004 on behalf of Warburg Pincus. Under this agreement, Warburg Pincus agreed to compensate Mr. Craig from its equity ownership in us upon a liquidity event, which was deemed not to be probable when the agreement was signed. This agreement was amended in December 2008. See Note 15, "Related Party Transactions—Director Agreement," to our consolidated financial statements, which are included elsewhere in this prospectus. For his services as a Warburg Pincus representative to our board of directors from August 2004 to August 2008, Mr. Craig earned the right to receive 44,114 shares of our common stock from Warburg Pincus. In his role as an independent consultant to us in 2004, Mr. Craig earned the right to receive 67,962 shares of our common stock from Warburg Pincus. For these services, Mr. Craig received an aggregate amount of 112,076 shares of common stock in January 2009. Based on the fair value of our common stock on December 31, 2008, we recorded stock-based compensation expense of $1.6 million for the fair value of those shares in the fourth quarter of 2008.
              In November 2003, Warburg Pincus loaned $75,000 to Andrew Clark to finance Mr. Clark's purchase of 75,000 shares of Series A Convertible Preferred Stock from us. In connection with such loan, Mr. Clark entered into a Secured Recourse Promissory Note and Pledge Agreement with Warburg Pincus which provided that the principal amount due under the note would accrue simple interest at a rate of 8% per year until November 26, 2005, the maturity date, after which time interest would accrue at a penalty rate of 16% per year, compounded monthly. The loan was secured by 75,000 shares of Series A Convertible Preferred Stock held by Mr. Clark. Mr. Clark repaid the loan in full on March 10, 2009, at which time the amount due under the note was $146,740 (including accrued interest of $71,740).
              In 2004, Warburg Pincus entered into a guarantee in favor of a postsecondary college in the Connecticut state college system pursuant to which Warburg Pincus agreed to guarantee certain of our obligations. See "Certain Relationships and Related Transactions—Warburg Pincus Guarantee." Additionally, in 2007, we entered into a line of credit with Warburg Pincus. See "Certain Relationships
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and Related Transactions—Line of Credit with Warburg Pincus." As of December 31, 2007, all amounts borrowed under the line of credit were repaid and the line of credit was cancelled.
              Our current certificate of incorporation and bylaws, as well as the certificate of incorporation and bylaws that will be in effect upon the closing of this offering, require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. We have also entered into indemnification agreements with each of our directors and executive officers. See "Certain Relationships and Related Transactions—Indemnification Agreements."
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 BUSINESS
Overview
              We are a regionally accredited provider of postsecondary education services. We offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences.
              We deliver our programs online as well as at our traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado. As of June 30, 2009, we offered approximately 1,000 courses and 50 degree programs, 35 minors and 110 specializations. We had approximately 45,504 students enrolled in our institutions as of June 30, 2009, 99% of whom were attending classes exclusively online.
              We have designed our offerings to have four key characteristics that we believe are important to students:
•
Affordability —our tuition and fees fall within Title IV loan limits; 

•
Transferability —our universities accept a high level of prior credits; 

•
Accessibility —our delivery model makes our education services accessible to a broad segment of the population; and 

•
Heritage —our institutions' respective histories as traditional universities provide a sense of familiarity, a connection to a student community and a campus-based experience for both online and ground students.
              We believe these characteristics create an attractive and differentiated value proposition for our students. In addition, we believe this value proposition expands our overall addressable market by enabling potential students to overcome the challenges associated with cost, transferability of credits and accessibility—factors that frequently discourage individuals from pursuing a postsecondary degree.
              We are committed to providing a high-quality educational experience to our students. We have a comprehensive curriculum development process, and we employ qualified faculty members with significant academic and practitioner credentials. We conduct ongoing faculty and student assessment processes and provide a broad array of student services. Our ability to offer a quality experience at an affordable price is supported by our efficient operating model, which enables us to deliver our programs, as well as market, recruit and retain students, in a cost-effective manner.
              We have experienced significant growth in enrollment, revenue and operating income since our acquisition of Ashford University in March 2005. At December 31, 2008 and June 30, 2009, our enrollment was 31,558 and 45,504, respectively, an increase of 150.0% and 101.3% over our enrollment as of December 31, 2007 and June 30, 2008, respectively. At June 30, 2009, our ground enrollment was 498, as compared to 312 in March 2005, reflecting our commitment to invest in further developing our traditional campus heritage. For the year ended December 31, 2008 and the six months ended June 30, 2009, our revenue was $218.3 million and $195.2 million, respectively, an increase of 154.7% and 119.6%, respectively, over the same periods for the prior years. For the year ended December 31, 2008 and the six months ended June 30, 2009, our operating income was $33.4 million and $9.0 million, respectively, as compared to $4.0 million and $14.6 million, respectively, for the same periods in the prior years. We intend to pursue growth in a manner that continues to emphasize a quality educational experience and that satisfies regulatory requirements.
Our History
              In January 2004, our principal investor, Warburg Pincus, and our CEO and President, Andrew Clark, as well as several other members of our current executive management team, launched Bridgepoint Education, Inc. to establish a differentiated postsecondary education provider. They
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developed a business plan to provide individuals previously discouraged from pursuing an education due to cost, the inability to transfer credits or difficulty in completing an education while meeting personal and professional commitments, the opportunity to pursue a quality education from a trusted institution. The business plan incorporated our management team's experience with other online and campus-based postsecondary providers and sought to employ processes and technologies that would enhance both the quality of the offering and the efficiency with which it could be delivered. As the foundation for this plan, we sought out opportunities to acquire a traditional university with a history of providing quality education to its students and with a rich heritage of student community.
              In March 2005, we acquired the assets of The Franciscan University of the Prairies, located in Clinton, Iowa, and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs. The university obtained regional accreditation in 1950 from the Higher Learning Commission. At the time of the acquisition, the university had 332 students, 20 of whom were enrolled in the university's first online program, which launched in January 2005.
              The majority of our current executive management team was in place at the time we acquired Ashford University. As a result, we were able to begin implementing processes and technologies to prepare for the launch of an online education offering to serve a large student population immediately after the acquisition. In spring 2005, we introduced several new online programs through Ashford University, including four bachelor's and two master's programs. Since then, we have continued to introduce new online programs. At present, we offer 1 associate's program and approximately, 20 bachelor's programs and 6 master's programs, online, including numerous specializations and concentrations within these programs. During this same period, we also invested in enhancing and expanding the campus' physical infrastructure. In 2006, Ashford University received re-accreditation from the Higher Learning Commission through 2016. In 2007, we formally launched our military and corporate channel development efforts and, as a result, expanded our relationships with military and corporate employers through which we seek to recruit students.
              In September 2007, we acquired the assets of the Colorado School of Professional Psychology, located in Colorado Springs, Colorado, and renamed it the University of the Rockies. Founded as a non-profit institution in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology. At the time of the acquisition, the school had 75 students and did not offer any online courses or programs. In October 2008, through the University of the Rockies, we launched one online master's program with two specializations and our first online doctoral program. Originally accredited in 2003 for a period of five years by the Higher Learning Commission, the University of the Rockies received re-accreditation from the Higher Learning Commission in 2008 for a period of seven years.
Our Market Opportunity
              The postsecondary education market in the United States represents a large, growing opportunity. Based on a March 2009 report by the NCES, revenue of postsecondary degree-granting educational institutions exceeded $410 billion in the 2005-2006 academic year. In the same report, the number of students enrolled in postsecondary institutions was 18.2 million in 2007 and is projected to grow to 20.1 million by 2017.
              Within the postsecondary education market, enrollments at private for-profit institutions have grown at a higher rate than enrollments at not-for-profit postsecondary institutions. According to a March 2009 NCES report, from 1997 to 2007, private for-profit enrollments grew at a compound annual growth rate of 13.7% compared to compound annual growth rates of 1.9% and 1.8% for public and private not-for-profit enrollments, respectively. We believe this growth is due to the ability of
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for-profit providers to assess marketplace demand, to quickly adapt program offerings, to scale their operations to serve a growing student population, to provide strong customer service and to offer a high-quality education.
              Online postsecondary enrollment is growing at a rate well in excess of the growth rate of overall postsecondary enrollment. According to Eduventures, online postsecondary enrollment increased from 0.4 million to 1.7 million between 2002 and 2007, representing a compound annual growth rate of 32.0%. By comparison, according to a March 2009 NCES report, enrollment in overall postsecondary programs increased at a projected compound annual growth rate of 1.9% during the same period. We believe the rapid growth in online postsecondary enrollment has been driven by a number of factors, including:
•
the greater convenience and flexibility that online programs offer as compared to ground programs; 

•
the increased acceptance of online programs as an effective educational medium by students, academics and employers; and 

•
the broader potential student base, including working adults, that can be reached through the use of online delivery.
              We expect continued growth in postsecondary education based on a number of factors, including (i) an increase in the number of occupations that require a bachelor's or a master's degree and (ii) the higher compensation that individuals with postsecondary degrees typically earn as compared to those without a degree. According to a December 2007 report from the BLS, occupations requiring a bachelor's or master's degree are expected to grow 17% and 19%, respectively, between 2006 and 2016, or nearly double the growth rate BLS has projected for occupations that do not require a postsecondary degree. Further, individuals with postsecondary degrees are generally able to achieve higher compensation than those without a degree. According to data published by the NCES, the 2007 median incomes for individuals 25 years or older with a bachelor's, master's and doctoral degree were 67%, 100% and 167% higher, respectively, than for a high school graduate (or equivalent) of the same age with no college education.
              Although obtaining a postsecondary education has significant benefits, many prospective students are discouraged from pursuing, and ultimately completing, an undergraduate or graduate degree program. According to a March 2009 NCES report, 67% of all individuals 25 or older in the United States who have obtained a high school degree, or over 112 million individuals, have not completed a bachelor's degree or higher. We believe this is due to a number of factors, including:
•
High tuition costs.   According to a March 2009 NCES report, tuition prices have increased at a compound annual growth rate of 7.4% and 7.2% for public and private institutions, respectively, over the past three decades, well in excess of the rate of inflation during this period. As a result, according to the NCES, average tuition prices at public and private institutions during the 2007-2008 academic year, were 83% and 65% greater, respectively, as compared to tuition prices during the 1997-1998 academic year. Many students are not able to afford such tuition prices and, as a result, elect not to pursue an education. 

•
Restrictions on credit transferability.   According to a March 2009 NCES report, over 33 million individuals 25 years or older in the United States have completed some postsecondary education coursework but have not obtained a degree. These individuals typically seek to transfer credits for previously completed coursework when they re-enroll in a postsecondary degree program. However, institutions often do not allow new students to obtain full credit for prior coursework, forcing them to incur incremental expense and to commit additional time to complete a program. Further, the willingness of accrediting agencies to sanction
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credit transferability depends, in part, on the extent to which it is consistent with an institution's mission.
•
Personal and professional commitments.   Many postsecondary students, particularly working adults, must balance other personal and professional commitments while pursuing an education. As a result, these students often require significant scheduling flexibility, both with daily coursework and with start and end dates for any particular course, to be able to complete a program. Additionally, attending courses in person, rather than online, can present an obstacle for some individuals given the time and expense required to commute to campus. 

•
Inadequate community support network.   Students often seek, and in many cases require, a sense of student community and the associated support network to successfully complete their coursework, particularly in a rigorous academic environment. For some institutions, particularly those with limited direct interaction between students, these factors can be difficult to establish.
              We believe postsecondary institutions that effectively address these challenges not only access a broader segment of the overall postsecondary market, but also have the potential to expand the market opportunity and to include individuals who previously were discouraged from pursuing a postsecondary education.
Our Competitive Strengths
              We believe that we have the following competitive strengths:
Attractive, differentiated value proposition for students
              We have designed our educational model to provide our students with a superior value proposition relative to other educational alternatives in the market. We believe our model allows us to attract more students, as well as to target a broader segment of the overall population. Our value proposition is based on the following:
•
Affordable tuition.   We structure the tuition and fees for our programs to be below Title IV loan limits, permitting students who do not otherwise have the financial means to pursue an education the ability to gain access to our programs. We believe that removing the financial burden of obtaining incremental private loans, or making significant cash tuition payments while pursuing a postsecondary education, not only permits more students to access our programs but also enables students to focus more on their coursework and on program completion while in school. We also recognize that private loans are increasingly difficult to obtain, which can prevent academically qualified students from pursuing an education at institutions with higher tuition and fees. 

•
High transferability of credits.   Based on our research, we believe we are one of six postsecondary education institutions in the United States, and the only for-profit provider, that accepts up to 99 transfer credits for a bachelor's degree program. Many adult students have completed some postsecondary education and have credits which they would like to transfer to a new degree program, but are often prevented from doing so, thereby increasing the time and expense incurred to earn a degree. This situation is common among military personnel who, as of June 30, 2009, comprised 17.2% of our total enrollment. We believe students should receive credit for their prior work and, as such, we have worked closely with our accrediting agencies to obtain the right to accept a high level of transfer credits. Based on a recent review of our fully admitted undergraduate students, over 76% transferred in credits and 54% of those who transferred in credits transferred in 50 credits or more.
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•
Accessible educational model.   Our online delivery model, weekly start dates and commitment to affordability and the transferability of credits make our programs highly accessible. Our online platform has been designed to deliver a quality educational experience while offering the flexibility and convenience that many students, particularly working adults, require. As of June 30, 2009, 99% of our students were taking classes exclusively online. Our weekly starts provide students with significant flexibility to structure their course schedule around their other personal and professional commitments. 

•
Heritage as a traditional university with a campus-based student community.   We believe that a strong sense of community and the familiarity associated with a traditional campus environment are important to recruiting and retaining students and differentiate us from many other online providers. We encourage our online students to follow activities on our campuses, including our 15 NAIA athletic teams, our student clubs and our student projects with our campuses' local communities. Additionally, all online student activity, including completing coursework and seeking support services, is initiated through each university's homepage, which also highlights campus activities, including athletic and social events. As a result, students have the opportunity to become more connected to their fellow students and to develop a stronger connection with our institutions. Additionally, we hold graduation ceremonies at our Ashford University campus for online and ground students. In the May 2009 graduation, 85% of the students participating in the ceremony were graduating from online programs.
Commitment to academic quality
              We are committed to providing our students with a rigorous and rewarding academic experience, which gives them the knowledge and experience necessary to be contributors, educators and leaders in their chosen professions. We seek to maintain a high level of quality in our curriculum, faculty and student support services, all of which contribute to the overall student experience. Our curriculum is reviewed annually to ensure that content is refined and updated as necessary. Our faculty members have over seven years of instructional experience on average, and all hold graduate degrees in their respective fields of instruction and typically have relevant practitioner experience. We provide extensive student support services, including academic, administrative and technology support, to help maximize the success of our students. Additionally, we monitor the success of our educational delivery processes through periodic faculty and student assessments. We believe our commitment to quality is evident in the satisfaction and demonstrated proficiency of our students, which we measure at the completion of every course. In a spring 2009 survey we conducted, in which over 1,700 Ashford students responded, 96% indicated they would recommend Ashford University to others seeking a degree.
Cost-efficient, scalable operating model
              We have designed our operating model to be cost-efficient, allowing us to offer a quality educational experience at an affordable tuition rate while still generating attractive operating margins. Our management team has relied upon its significant experience with other online education models to develop processes and employ technology to enhance the efficiency and scalability of our business model. Our processes and related technologies allow us to efficiently meet our students' instructional support services needs and to execute our marketing, recruiting and retention strategy. These processes and related technologies enable our management team to operate the business effectively and to identify areas for opportunity to refine the model further. Additionally, we have developed our operating model to be scalable and to support a much larger student population than is currently enrolled.
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Experienced management team and strong corporate culture
              Our management team possesses extensive experience in postsecondary education, in many cases with other large online postsecondary providers. Andrew Clark, our CEO and President, served in senior management positions at such institutions for 12 years prior to joining us and has significant experience with online education businesses. The other members of our executive management team, most of whom have been with us since our launch of Bridgepoint Education, Inc., also bring a combination of academic, operational, technological and financial expertise that we believe has been critical to our success. The continuity of our executive management team demonstrates the strong relationship between functional areas within our business and the team's belief in the potential of our business model. Additionally, our executive management team has been critical to establishing and maintaining our corporate culture during our rapid growth. Our culture is based on four core values: integrity, ethics, service and accountability. We believe these values (i) have allowed us to create an environment that makes us a sought-after employer for professionals within our industry and (ii) have contributed to the strong relationships we maintain with each of our regulatory and accrediting agencies.
Our Growth Strategies
              We intend to pursue the following growth strategies:
Focus on high-demand disciplines and degree programs
              We seek to offer programs in disciplines in which there is strong demand for education and significant opportunity for employment. Our current program portfolio includes offerings at the associate's, bachelor's, master's and doctoral levels in the disciplines of business, education, psychology, social sciences and health sciences. We follow a defined process for identifying new degree program opportunities which incorporates student, faculty and market feedback, as well as macro trends in the relevant disciplines, to evaluate the expected level of demand for a new program prior to developing the content and marketing it to potential students. Based on a March 2009 NCES report, programs in our disciplines represent 69% of total bachelor's degrees conferred by all postsecondary institutions in 2006-2007.
Increase enrollment in our existing programs through investment in marketing, recruiting and retention
              We have invested significant resources in developing processes and implementing technologies that allow us to effectively identify, recruit and retain qualified students. We intend to continue to invest in marketing, recruiting and retention and to expand our enrollment advisor workforce to increase enrollment in our existing programs. Our proprietary CRM system and related processes allow us to effectively pursue potential new students that have expressed an interest in a postsecondary program. Additionally, our superior value proposition allows us to differentiate our educational offering to potential students. Once a student enrolls in our programs, we provide consistent, ongoing support to assist the student in acclimating to the online environment and to address challenges that arise in order to increase the likelihood that the student will persist through graduation. We also intend to continue to develop our brand recognition through targeted marketing efforts to students and employers.
Expand our portfolio of programs, specializations and concentrations
              We intend to continue to expand our academic offerings to attract a broader portion of the overall market. In addition to adding new programs in high-demand disciplines, we intend to enhance our programs through the addition of more specializations and concentrations. Specializations and concentrations are used to create an offering that is tailored to the specific objectives of a target
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student population and therefore is more attractive to potential students interested in a particular program. As a result, the addition of specializations and concentrations represents a cost-effective way both to expand our target market and to further enhance the differentiation of our programs in that market. Additionally, we intend to expand our portfolio of master's and doctoral degree programs, consistent with our commitment to a quality academic offering, and to pursue graduate students because we believe they represent an attractive segment of the population.
Further develop strategic relationships in the military and corporate channels
              We intend to broaden our relationships with military and corporate employers, as well as seek additional relationships in these channels. Through our dedicated channel development teams, we are able to cost-effectively target specific segments of the market as well as better understand the needs of students in these segments so that we can design programs that more closely meet their needs. We believe our value proposition is attractive to potential students in these markets. In the military segment, individuals may frequently change locations or may seek to complete a program intermittently over the course of several years. In the corporate channel, employers value our traditional campus heritage, while our affordability allows employer tuition reimbursement to be used more efficiently.
Deliver measurable academic outcomes and a positive student experience
              We are committed to offering an educational solution that supports measurable academic outcomes, thereby allowing our students to increase their probability of success in their chosen profession. We use a comprehensive course development program and ongoing assessments to define the desired outcomes for a course, to design the course to deliver these outcomes and to measure each student's progress towards achieving these outcomes as they progress through a course. Our online platform supports this objective as we are able to monitor each student's action in an online course. Additionally, our students benefit from the strong sense of community that exists from being associated with a traditional campus and student community, including the related student activities. We believe our combination of measurable outcomes and a positive experience is important to helping students persist through graduation.
Approach to Academic Quality
Rigorous curricula
              We are committed to offering academically rigorous curricula, which provide students the knowledge and skills necessary to be successful in their respective professions. Our curricula are developed to ensure a consistent, high-quality learning experience for all students. Faculty and subject matter experts design our curricula to emphasize the requisite professional knowledge and skills that our students will need following graduation. Our programs and curricula are continuously monitored and undergo regular reviews to ensure their quality, efficacy and relevance.
Qualified faculty
              Our faculty members have over seven years of instructional experience on average, and all hold graduate degrees in their respective fields of instruction and typically have relevant practitioner experience. As of June 30, 2009, 94.5% of our faculty teaching graduate courses, at Ashford University, and 100% at University of the Rockies, have earned doctoral degrees. Faculty members participate in ongoing professional development as well as regional face-to-face meetings designed to ensure appropriate levels of faculty engagement and student learning.
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Consistent delivery
              We use standard curricula, texts and syllabi each time a given course is taught to ensure consistency in delivery. The course sequences we offer are standardized in a given program to enable consistent delivery. Courses have clear, consistent objectives which enable us to measure learning outcomes every time a course is given. Additionally, standard course student assessment materials are used to guarantee a consistent approach. Our uniform content, course objectives, assessment process and course sequences allow us to consistently deliver our programs to a large student population.
Effective student services
              Each student is provided a dedicated support team to assist such student in pursuing academic objectives. Financial aid and student services personnel help each new student evaluate financial service options and provide assistance in reviewing prior credits and planning scheduled classes. Each student is also assigned a teaching assistant at the beginning of matriculation to serve as a personal writing coach and is offered access to writing skills assistance, tutoring services and library resources.
Academic assessment and oversight
              An academic leadership team and board provide oversight to ensure the academic integrity of all program offerings. Academic quality is measured and assessed by our faculty and monitored by our instructional specialists and assessment staff. In order to measure the efficacy of our programs, we have implemented a technologically-enabled assessment model that allows for continuous assessment, thoughtful review and revision of courses when necessary. Faculty performance is routinely reviewed by our instructional specialists to assess the quality of the student learning experience.
Surveys
              We use internal and external surveys to monitor the quality of our academic programs and student experience. In the past five student satisfaction surveys we have conducted, 97% indicated they would recommend Ashford University to others seeking a degree. Additionally, in Ashford University's 2009 alumni survey which we conducted, 99% of alumni participating in the survey felt their education prepared them for their current jobs, and more than 90% said that they were satisfied with their respective experiences at Ashford University.
              In the Noel-Levitz Student Satisfaction Survey administered in the spring of 2009, a survey conducted by an external source, Ashford University outperformed the national average in overall student satisfaction, and also with respect to questions in such survey which measure whether students would recommend the university to others seeking their degrees.
Accreditation
              Both of our institutions are accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools. Our continuing accreditations are a testament to the quality of our academic programs.
              Furthermore, the Higher Learning Commission requested that we submit our self-studies to be used as a model for peer institutions to follow at the annual meeting of the Higher Learning Commission. We also have three faculty members serving as consultant evaluators for the Higher Learning Commission and have two faculty members chosen to serve as HLC Assessment Mentors.
              Ashford University was originally accredited in 1950 and received its most recent ten-year reaccreditation in 2006. The University of the Rockies was originally accredited in 2003 for five years and received a seven-year reaccreditation in 2008.
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Curricula and Scheduling
              As of December 31, 2008, we offered 44 degree programs and 85 specializations and concentrations. Specializations comprise a select number of courses offered by us within an existing program which supplement that program's required courses. Specializations, which encompass endorsements, also include a select number of courses designed to meet certain state requirements, specifically in education coursework. Concentrations comprise a select number of courses offered by us which focus on one area of study within the program. We offer the following programs, specializations and concentrations through Ashford University's three colleges: the College of Business and Professional Studies; the College of Education; and the College of Arts and Sciences; and through the University of the Rockies' two schools: the School of Organizational Leadership and the School of Professional Psychology.
(Ashford University)

					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	

Business	
 	
Associate's Degree 
Business	

 	
 	
Bachelor's of Arts Degree 
Business Administration	

 	 	 	 	Finance (C)
Marketing (C)
Entrepreneurship (S)
Human Resource
    Management (S)
Information Systems (S)
International Management (S)
Project Management (S)	
 	 	Computer Graphic Design	 	 	
 	 	 	 	Animation (C)
Print Media (C)
Web Design (C)	
 	 	Accounting	 	 	
 	 	Professional Accounting
Organizational
    Management
Public Relations and
    Marketing
Sports and Recreation
    Management	 	 	

 	
Bachelor's of Applied Science Degree 
Computer Graphic Design	

 	 	 	 	Animation (C)
Print Media (C)
Web Design (C)	
 	 	Accounting
Computer
Management	 	 	

 	
Master's Degree 
Business Administration	

 	 	 	 	Finance (S)
Global Management (S)
Human Resources
    Management (S)
Information Systems (S)
Marketing (S)
Organizational
    Leadership (S)	
 	 	 	 	Entrepreneurship (S)
Health Care    Administration (S)
Project Management (S)
Supply Chain Management (S)
Public Administration (S)	
 	 	Organizational
    Management	 	 	

Education	
 	
Bachelor's of Arts Degree 
Elementary Education
    with endorsement areas
    in:	

 	 	 	 	English/Language Arts (S)
Math (S)
Science (S)
Reading (S)
Middle School (S)
Coaching (S)
Early Childhood (S)
Instructional Strategist (S)
Social Sciences—History (S)
Social Sciences—Social    Studies (S)
Physical Education (S)	
 	 	Early Childhood Education
Early Childhood Education
    Administration
Physical Education
Social Science	 	 	
 	 	 	 	Education (C)	
					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	
 	 	Secondary Education with
    endorsement areas
    in:	 	 	
 	 	 	 	Math (S)
English/Language Arts (S)
General Science (S)
Biology (S)
Chemistry (S)
American History (S)
Business (S)	
 	 	 	 	World History (S)
Sociology (S)
Psychology (S)	
 	 	Education (non licensure)
Business Education	 	 	

 	
Master's of Arts Degree 
Teaching and Learning w/
    Technology	

Psychology	
 	
Bachelor's of Arts Degree 
Psychology	

Social
Sciences	
 	
Bachelor's of Arts Degree 
Communication Studies
English and
    Communication	

 	 	 	 	Communications (C)
English/Language
    Arts (C)
Literature (C)	
 	 	Social Science	 	 	
 	 	 	 	Health and Human
    Services Management (C)
History (C)
Human Services (C)
Psychology (C)
Sociology (C)	
 	 	Liberal Arts
Environmental Studies
Natural Science
Social and Criminal
    Justice	 	 	
 	 	 	 	Corrections Management (S)
Forensics (S)
Homeland Security (S)
Security Management (S)	
 	 	Sociology
Visual Art	 	 	

 	
Bachelor's of Science Degree 
Computer Science and
    Mathematics	

 	 	 	 	Computer Science (C)
Mathematics (C)	
 	 	 	 	Education (C)	
 	 	Natural Science	 	 	

Health
Sciences	
 	
Bachelor's of Arts Degree 
Health Care
    Administration	

 	
 	
Bachelor's of Science Degree 

Biology
Clinical Cytotechnology
Clinical Laboratory
    Science
Health Science
Health Science
    Administration
Nuclear Medicine
    Technology	

 	
 	
Bachelor's of Applied Science Degree 
Health Care
    Administration	

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(University of the Rockies)

					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	
Psychology	 	
Master's Degree 
Psychology (Organizational)	 	 	

Psychology (Professional)	 	Executive Coaching (S) Organizational
    Leadership (S)
Business Psychology (S)
Evaluation, Research &
    Measurement (S)
Non-Profit Management (S)

Professional
    Counselor (S)
Marriage and Family
    Therapy (S)
General Psychology (S)	

	 	 	
					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	
Psychology	 	
Doctoral Degree 
Psychology (Organizational)	 	 	

Psychology (Professional)	 	Executive Coaching (S)
Organizational
    Leadership (S)
Business Psychology (S)
Evaluation, Research &
    Measurement (S)
Non-Profit Management (S)

Clinical (S)
Child and Adolescent
    Therapy (C)
Eating Disorders (C)
Existential Humanistic
    Psychology (C)
Forensics (C)
Health Psychology (C)
Marriage & Family
    Therapy (C)
Neuropsychology (C)
Organizational Consulting (C)
Spirituality (C)
Trauma (C)	

              As of June 30, 2009, we offered approximately 50 degree programs and 110 specializations and concentrations.
              Online courses are offered with weekly start dates throughout the year except for two weeks in late December and early January. Courses typically run five to six weeks, and all courses are offered in an asynchronous format, so students can complete their coursework as their schedule permits. Online students typically enroll in one course at a time. This focused approach to learning allows the student to engage fully in each course.
              Ground courses typically run 16 weeks and have two start dates per year for semesters beginning in January and September. Undergraduate ground students can enroll in up to six concurrent courses at a time and typically enroll in at least four courses in a given semester.
              Doctoral students, both online and ground, are required to participate in periodic seminars located on campus as well as compose and defend a dissertation on an approved topic.
              Total credits required to obtain a degree are consistent for online and campus programs. An associate's degree requires 61 credits, a bachelor's degree requires 120 credits, a master's degree typically requires a minimum of 33 additional credits and a doctoral degree typically requires a minimum of 60 additional credits.
Program Development
              Potential new programs, specializations and concentrations are determined based on proposals submitted by faculty and staff and on an assessment of overall market demand. Our faculty and academic leadership work in collaboration with our marketing team to research and select new programs that are expected to have strong market demand and that can be developed at a reasonable cost. Programs are reviewed by the appropriate college and must also receive approval through the normal governance process at the relevant institution.
              Once a program is selected for development, a subject matter expert is assigned to work with our curriculum development staff to define measurable program objectives. Each course in a program is designed to include learning activities that address the program objectives and assess learning outcomes. A new program is reviewed for approval by the dean of the applicable college, the office of the provost and the chief academic officer of the institution prior to launching with students. Following the approval, the programs are conformed to the standards of our online learning management system, and the marketing department creates a marketing plan for the program. In most cases, the time frame to identify, develop and approve a new program is approximately six months.
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Assessment
              Each institution has developed and implemented a comprehensive assessment plan focused on student learning and effective teaching. The plans measure learning outcomes at the course, program and institutional levels. Learning outcomes are unique to each institution and demonstrate the skills that graduates should be able to demonstrate upon completion of their respective program. With the assistance of our dedicated assessment team, our faculty routinely evaluates and revises courses and learning resources based upon outcomes and institutional research data. Using direct and indirect measurements, student performance is assessed on an ongoing basis to ensure student success. Both Ashford University and the University of the Rockies have been accepted into the Higher Learning Commission Assessment Academy which promotes a continuous improvement cycle in the area of assessment.
              In addition to course and program assessments, our faculty's performance is continuously assessed by our institutional specialists and by results of student surveys at the completion of each course. The results of all of our assessment practices are reviewed by an assessment team, and, based on their conclusions, recommendations may be made to add or modify our programs.
Faculty
              Faculty members are selected based upon academic credentials, prior teaching experience and on performance in faculty orientation and in the classroom. Currently, we have over 1,780 adjunct faculty members (individuals that have taught a course for us in the last 12 months) and over 60 full-time campus faculty members. All of our faculty members have earned a graduate degree, and of the faculty members teaching graduate courses, 94.5% at Ashford University and 100% at University of the Rockies have earned doctoral degrees.
              All faculty members participate in an extensive initial interview and orientation. Online faculty candidates must participate in three weeks of online training to understand the instructional design of our courses, our online platform and teaching expectations. The online environment that we use to train and evaluate candidates is designed to replicate the learning experience of our students, as well as provide a platform for the candidates to demonstrate their competence as an instructor.
              Ongoing professional development is also provided to support and assist all faculty members in continually enhancing the quality of instruction provided to our students. Our instructional specialists are a team of faculty members who assess the performance of and provide feedback to our online faculty to ensure quality and consistent delivery across all of our programs. Our instructional specialists evaluate online faculty on their ability to:
•
inspire an atmosphere of sincerity and encouragement; 

•
establish trust among the community of students; 

•
establish clear expectations and outcomes that maintain academic standards; 

•
respond promptly to students and provide needed expertise; 

•
provide constructive criticism; 

•
advance written communication skills; and 

•
motivate and engage students in active and positive dialogue.
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              We believe our instructional specialists serve a critical role in allowing us to deliver a quality education to our students.
              We believe that supporting faculty in classroom duties as well as in their professional development is an integral component to the success of our students. We place significant emphasis on supporting and rewarding faculty for quality teaching and have implemented programs designed to provide necessary faculty support. We employ faculty mentors to acclimate new instructors to our online platform and instructional model, and we employ teaching assistants to assist faculty members in certain online undergraduate courses. Faculty members are encouraged to be active in their field by presenting at national conferences, conducting research, writing and joining professional organizations. Additionally, faculty members may earn formal recognition for excellence such as earning acceptance into the Ashford University Provost's Circle or Teaching Academy or by receiving formal faculty recognition awards.
              We believe providing a supportive community for our faculty is critical to the success of our institutions. Accordingly, we foster a sense of community among our online and our campus faculty through both in-person gatherings as well as online community building. We hold regional faculty meetings two to four times per year where all of our online faculty from a specific region are invited to gather to discuss experiences, best practices and effective teaching approaches. Additionally, we publish newsletters and maintain a faculty website to facilitate professional development and intra-faculty communication and exchange of ideas.
Student Support Services
              To promote academic success, support new students and enhance persistence, we offer a broad array of services that assist students at our institutions. A majority of our student support services are accessible online, permitting convenient student access. Our service infrastructure includes academic, administrative, technology and library services.
Academic
              Students enrolling in an undergraduate program are given access to teaching assistants who serve as personal writing coaches and provide feedback and guidance on academic matters. Additionally, every student is offered unlimited access to Smarthinking, an online tutoring service for writing, math, statistics and accounting. We also offer students access to an online writing center that utilizes a virtual writing tutor and provides sample essays, an automated reference generator and tutorials on utilizing our online library. For students with disabilities, we provide appropriate educational accommodations through our disability support services team.
Administrative
              We offer students access to our administrative services telephonically, as well as via the Internet. We believe online accessibility provides the convenience and self-service capabilities that our students value. Each student is assigned an enrollment advisor, a financial services advisor and an academic advisor who work together as a team and serve as a student's main point of contact. Financial service advisors work with enrollment advisors to ensure that the student is financially prepared to pursue their degree. Academic advisors work with the student to evaluate any past credits they have earned, to plan their degree path and to schedule their classes.
Technology
              We provide online technology support to assist our students and faculty with technology-related issues. Our internal technology support team is available from 8:00 am EST to 10:00 pm EST. In
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addition, we provide our students with support 24 hours per day, seven days per week to address common issues such as password resets and questions related to our learning management system.
Library
              We provide access to online and ground libraries containing materials to assist students and faculty with research and instruction. Our libraries satisfy the criteria established by the Higher Learning Commission for us to offer undergraduate, master's and doctoral degree programs.
Campus Operations
              Ashford University is located on 17 acres in Clinton, Iowa. Since our acquisition of Ashford University in March 2005, we have invested in enhancing and expanding the physical infrastructure of the campus, which currently includes seven buildings used for academic, athletic, administrative and social activities. Ground enrollments at Ashford University were 363 as of June 30, 2009, reflecting the lower level of enrollment during the summer months.
              The University of the Rockies is located in Colorado Springs, Colorado. We have begun to implement a plan to further enhance the infrastructure of the University of the Rockies and to increase the ground enrollment at this institution.
              We believe that the continued growth of our ground enrollment, our commitment to academic quality, student athletics and social activities and community involvement by students at our campuses will continue to contribute to the heritage of the institutions. As a result, we intend to continue to seek opportunities to invest in developing our campus operations.
Marketing, Recruiting and Retention
Marketing
              We develop and participate in various marketing activities to generate leads for prospective students and to build the Ashford University and University of the Rockies brands. For our online student population, we target working adults, many of whom have already completed some postsecondary courses and are seeking an accessible, affordable education from a quality institution. For our campus student population, we target traditional college students, typically between the ages of 18 and 24.
              Our leads are primarily generated from online sources. Our main source of leads is third party online lead aggregators. Typically, our contracts with online lead aggregators are for a period of 30 days, which provides us with significant flexibility to add or remove vendors on short notice. We also purchase key words from search providers to generate online leads directly, rather than acquiring them through lead aggregators. Additionally, we have an in-house team focused on generating online leads through search engine optimization techniques. In select instances, primarily for potential ground students, we utilize print, television and radio media campaigns as well as direct mail to generate leads.
              We use print media as well as trade show appearances to enhance the brand equity of Ashford University and the University of the Rockies. These campaigns are designed to increase awareness among potential students, differentiate us from other postsecondary education providers, start dialogues between our enrollment advisors and potential students, motivate existing students to re-register and encourage referrals from existing students.
              Our military and corporate channel relationships are developed and managed by our channel development teams. Our military development specialists and corporate liaisons work with representatives in these organizations to demonstrate the quality, impact and value that our programs can provide to individuals in the organizations as well as to the organizations themselves. We also
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attend trade shows and conferences to communicate our value proposition to potential channel partners.
              Military relationships.     We offer scholarships to all members of the military, including active duty members, veterans, national guard members, reservists, civilian employees of the Department of Defense and immediate family members of active duty personnel. In July 2009, in conjunction with the 2009 Supplemental Appropriations Bill which extends the G.I. Bill benefits to the children of fallen soldiers, we also began offering scholarships to the children of military personnel who lost their lives while serving their country. Additionally, we announced in July 2009 that our institutions will participate in the G.I. Bill's Yellow Ribbon Education Enhancement Program which allows colleges and universities to enter into dollar-for-dollar matching agreements with the federal government to pay veterans' educational costs above those covered by the base G.I. Bill benefit. As of June 30, 2009, 17.2% of our students were affiliated with the military.
              In May 2009, the U.S. Army selected Ashford University for participation as a Letter-of-Instruction school in the GoArmyEd program, beginning on October 1, 2009. We believe this selection will help facilitate the process by which active-duty soldiers may apply for courses through Ashford University, which will have a direct link to the GoArmyEd web site. In July 2009, the U.S. Coast Guard selected Ashford University to become a SOCCOAST-4 member. As a result, upon completion of a peer review of its courses, Ashford University will join more than 40 other colleges and universities in the SOCCOAST-4 degree network in offering bachelor degree programs to Coast Guard students, their adult family members and Coast Guard civilian personnel. We plan to capitalize on these developments to expand our educational offerings to military personnel.
              Corporate relationships.     We develop corporate relationships to offer our programs to employees of large companies. Based on these relationships, corporations make information about Ashford University and the University of the Rockies available to their employees. In addition to our current corporate liaisons, we have launched a national corporate team to focus exclusively on partnering with corporations to address their respective company education initiatives and education reimbursement programs. In related actions, in June 2009, we announced the launch of Ashford University's Auto Industry Grant Program which is designed to help currently-employed and certain laid-off General Motors, Chrysler and Ford employees by reducing the university's regular undergraduate price per credit hour by 30% for these persons.
Recruiting
              We employ a team structure in our recruiting operations. Each team consists of enrollment advisors, academic advisors and financial service advisors. Our teams provide a single point of contact and facilitate all aspects of enrollment and integration of a prospective student into a program of study. Our team structure promotes internal accountability among employees involved in identifying, recruiting, enrolling and retaining new students.
              All leads are managed through our proprietary CRM system. Our CRM system directs a lead for a prospective student to a recruiting team and assigns an enrollment advisor within that team to serve as the primary liaison for that prospective student. Once contact with the prospective student is established, our enrollment advisors, along with the academic and financial service advisors, begin an assessment process to determine if our program offerings match the student's needs and objectives. Additionally, our enrollment advisors communicate other criteria, including expected duration and cost of our programs, to prospective students. Through our proprietary systems, our enrollment advisors are able to generate a comparison of tuition levels across our competitors in order for prospective students to make more informed decisions.
              Each enrollment advisor undergoes a comprehensive training program that addresses financial aid options, our value proposition, our academic offerings and the regulatory environment in which we
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operate, including the restrictions that regulations impose on the recruitment process. We place significant emphasis on regulatory requirements and promote an environment of strict compliance. An enrollment advisor typically does not achieve full productivity until four to six months after the advisor's date of hire.
              As of December 31, 2007 and 2008 and June 30, 2009, we employed 479, 749 and 905 enrollment advisors, respectively. As of June 30, 2009, we also employed 47 military development specialists and corporate liaisons.
Retention
              Providing a superior learning experience to every student is a key component in retaining students at our institutions. We feel that our team-based approach to recruitment and the robust student services we provide enhance retention because of each student's interaction with their contact in the team and the accountability inherent in the team architecture. We also incorporate a systematic approach to contacting students at key milestones during their enrollment, providing encouragement and highlighting their progress. Additional contact points include quarterly updates on the school and campus life. Academic advisors are measured on their ability to retain their assigned students and regularly work with at-risk students who have not attended their most recent class or who have not ordered books. These frequent personal interactions between academic advisors and students are a key component to our retention strategy. Additionally, we employ a retention committee that monitors performance metrics and other key data to analyze student retention rates and causes and potential risks for student drops. Also, our ombudsman department serves as a neutral third party for students to raise any concerns or complaints. Such concerns and complaints are then elevated to the appropriate department so we may proactively address any issues potentially impacting retention.
Admissions
              Our admission process is designed to offer access to prospective students who seek the benefits of a postsecondary education. Ashford University undergraduate students may qualify in various ways, including by having a high school diploma or a General Education Development equivalent. Graduate level students at Ashford University and the University of the Rockies are required to have an undergraduate degree from an accredited college and may be required to have a minimum grade point average or meet other criteria to qualify for admission to certain programs.
Enrollment
              We define enrollments as the number of active students on the last day of the financial reporting period. A student is considered an active student if he or she has attended a class within the prior 30 days unless the student has graduated or provided us with a notice of withdrawal.
              As of June 30, 2009, 71% of our online students were female, 40% have identified themselves as minorities and the average age of our online students was 35. We have online students from all 50 states.
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              The following summarizes our enrollments as of December 31, 2007 and 2008 and June 30, 2009:

 	 	December 31, 2007	 	December 31, 2008	 	June 30, 2009	 	
Doctoral	 	 	60	 	 	0.5	%	 	113	 	 	0.3	%	 	280	 	 	0.6	%	
Master's	 	 	905	 	 	7.2	 	 	2,266	 	 	7.2	 	 	3,973	 	 	8.7	 	
Bachelor's	 	 	11,071	 	 	87.7	 	 	26,340	 	 	83.5	 	 	36,323	 	 	79.8	 	
Associate's	 	 	533	 	 	4.2	 	 	2,699	 	 	8.6	 	 	4,739	 	 	10.4	 	
Other*	 	 	54	 	 	0.4	 	 	140	 	 	0.4	 	 	189	 	 	0.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	12,623	 	 	100.0	%	 	31,558	 	 	100.0	%	 	45,504	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Online	 	 	
12,104	 	 	
95.9	
%	 	
30,921	 	 	
98.0	
%	 	
45,006	 	 	
98.9	
%	
Ground	 	 	519	 	 	4.1	 	 	637	 	 	2.0	 	 	498	 	 	1.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	12,623	 	 	100.0	%	 	31,558	 	 	100.0	%	 	45,504	 	 	100.0	%	

*
Includes students who are taking one or more courses with us, but have not declared that they are pursuing a specific degree.
Tuition and Fees
              The price of our courses varies based upon the number of credits per course (with most courses representing three credits), the degree level of the program and the discipline. For the 2009-10 academic year (which began on July 1, 2009), our price per credit is $354 for undergraduate online courses and ranges from $463 to $840 for graduate online courses. Based on these per credit prices, our prices for a three-credit course are $1,062 for undergraduate online courses and range from $1,389 to $2,520 for graduate online courses. For the 2009-2010 academic year, we charge a fixed $7,860 "block tuition" for undergraduate ground students taking between 12 and 18 credits per semester, with an additional $458 per credit for credits in excess of 18. Total credits required to obtain a degree are consistent for online and ground programs: an associate's degree requires 61 credits; a bachelor's degree requires 120 credits; a master's degree typically requires a minimum of 33 additional credits; and a doctoral degree typically requires a minimum of 60 additional credits.
              Revenue realized from tuition is reduced by the amount of scholarships we award to our students. For the years ended December 31, 2006, 2007 and 2008 and the six months ended June 30, 2009, revenue was reduced by $2.7 million, $5.3 million, $14.7 million and $16.4 million, respectively, as a result of institutional scholarships that we awarded to our students.
              Tuition prices for students in our online programs increased by an average of 2.1% for our 2008-2009 academic year as compared to an average increase of 11.6% for our 2007-2008 academic year. Tuition increases have not historically been, and may not in the future be, consistent across our programs due to market conditions and differences in operating costs of individual programs. Tuition for our traditional ground programs did not increase for our 2008-2009 academic year, as compared to an increase of 3.0% for the prior academic year.
Student Financing
              We have engaged Affiliated Computer Services, Inc., or ACS, to provide call center and transactional processing services for the financial aid student populations at Ashford University and the University of the Rockies, including services related to disbursement eligibility review and Title IV fund returns. We believe our engagement of ACS centralizes these processing services to improve student financing outcomes, and enhances our efforts to comply with Title IV rules and regulations. If our engagement with ACS were terminated, we would handle these processing services in-house.
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              Our students finance their education through a combination of the following financing options:
Title IV Programs
              If a student attends any institution certified as eligible by the U.S. Department of Education and meets applicable student eligibility standards, that student may receive grants and loans to fund their education under programs provided for by Title IV of the Higher Education Act, which we refer to as Title IV. Some of this aid is based on need, which is generally defined as the difference between the tuition levels the student and his or her family can reasonably afford and the cost of attending the eligible institution. An institution participating in Title IV programs must ensure that all program funds are accounted for and disbursed properly. To continue receiving program funds, students must demonstrate satisfactory academic progress toward the completion of their program of study.
              In the years ended December 31, 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV programs administered by the U.S. Department of Education.
              FFEL.     Under the Federal Family Education Loan (FFEL) Program, banks and other lending institutions make loans to students. The FFEL Program includes the Federal Stafford Loan Program, the Federal PLUS Program (which provides loans to graduate students, as well as parents of dependent undergraduate students) and the Federal Consolidation Loan Program. If a student defaults on a FFEL loan, payment to the lender is guaranteed by a federally recognized guaranty agency, which is then reimbursed by the U.S. Department of Education. Students who demonstrate financial need may qualify for a subsidized Stafford loan. With a subsidized Stafford loan, the federal government pays the interest on the loan while the student is in school and during grace periods and any approved periods of deferment, until the student's obligation to repay the loan begins. Unsubsidized Stafford loans are not based on financial need, and are available to students who do not quality for a subsidized Stafford loan, or in some cases, in addition to a subsidized Stafford loan. Loan funds are paid to us, and we in turn credit the student's account for tuition and fees and disburse any amounts in excess of tuition and fees to the student.
              Effective July 1, 2008, under the Federal Stafford Loan Program, a dependent undergraduate student can borrow up to $5,500 for the first academic year, $6,500 for the second academic year and $7,500 for each of the third and fourth academic years. Students classified as independent, and dependent students whose parents have been denied a PLUS loan for undergraduate students, can obtain up to an additional $4,000 for each of the first and second academic years and an additional $5,000 for each of the third and fourth academic years. Students enrolled in graduate programs can borrow up to $20,500 per academic year.
              Recent proposed legislation would prohibit new federally-guaranteed loans from being made under the FFEL Program commencing July 1, 2010; instead, such loans would be required to be made under the Federal Direct Loan Program, which is described below. For more information, see "Regulation—Regulation of Federal Student Financial Aid Programs."
              Pell.     Under the Pell Program, the U.S. Department of Education makes grants to undergraduate students who demonstrate financial need. Effective July 1, 2008, the maximum annual grant a student can receive under the Pell Program is $4,731. Under the August 2008 reauthorization of the Higher Education Act, students are able for the first time to receive Pell Grant funds for attendance on a year-round basis, and can potentially receive more in a given year than the traditionally defined maximum annual amount. For the July 1, 2009 through June 30, 2010 award year, the maximum Pell Grant award will be $5,350. Under the August 2008 reauthorization of the Higher Education Act, effective July 1, 2009, students are able for the first time to receive Pell Grant funds for
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attendance on a year-round basis and can potentially receive more in a given year than the traditionally defined maximum amount. Recent proposed legislation would also provide for automatic increases in the maximum amount of Pell Grant for which a student would be eligible, subject to federal appropriations.
              Federal Direct Loan Program.     We are eligible to participate in the Federal Direct Loan Program, under which the U.S. Department of Education, rather than a private lender, lends to students. The types of loans, the maximum annual loan amounts and other terms of the loans made under the Federal Direct Loan Program are similar to those for loans made under the FFEL Program. We have not yet participated in this program; however, recent proposed legislation would require all federal education loans to be originated through the Federal Direct Loan Program commencing July 1, 2010, in which case our institutions would be required to certify loans through that program moving forward. For more information, see "Regulation—Regulation of Federal Student Financial Aid Programs."
              Federal Work Study Program.     Under the Federal Work Study Program, federal funds are made available to pay up to 75% of the cost of part-time employment of eligible students, based on their financial need to perform work for the school or for off-campus public or non-profit organizations.
Military and other governmental financial aid
              Some of our students also receive financial support from military and other government financial aid programs. In the years ended December 30, 2007 and 2008, Ashford University derived 1.9% and 2.2%, respectively, and the University of the Rockies derived 1.3% and 0.0%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from military and other governmental financial aid sources.
Cash pay and corporate reimbursement
              Some students pay a portion or all of their tuition with cash. In some instances, these payments are reimbursable to the student or directly to us, by the student's employer under a corporate tuition reimbursement program. In the years ended December 31, 2007 and 2008, Ashford University derived 12.9% and 9.8%, respectively, and the University of the Rockies derived 36.8% and 19.2%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from cash pay and other corporate reimbursement.
Private loans
              Some students use private loans to assist with the financing of their tuition. Due to our affordable value proposition, our students generally have limited need for private loans. In the years ended December 31, 2007 and 2008, Ashford University derived 1.9% and 1.2%, respectively, and the University of the Rockies derived 0.0% and 0.0%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from private loans.
Technology
              We have created a scalable technology system that is secure, reliable and redundant and permits our courses and support services to be offered online.
Online course delivery and management
              We use the Blackboard Academic Suite, provided by Blackboard Inc., a third-party software and services provider, for our online platform. The suite provides an online learning management
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system and provides for the storage, management and delivery of course content. The suite includes collaborative spaces for student communication and participation with other students and faculty as well as grade and attendance management for faculty, and assessment capabilities to assist us in maintaining quality. Blackboard hosts the software for us in its data center to allow us to efficiently scale the applications to meet the needs of our growing student population. Access to our systems is provided through our student portals, an extension of our individual university websites. These portals are dynamic destinations for students to securely access personal information and services and also serve as vehicles for student communications, activities and student support services.
Internal administration
              We employ a proprietary customer relations management, or CRM, system for lead management, document management, workflow, analytics and reporting. Our CRM suite enables rapid response to new leads. We believe our CRM system is able to support the needs of our business for the foreseeable future. We also utilize an online application portal to accept, integrate and process student applications.
              We utilize CampusVue, a student information system provided by Campus Management Corp., to manage student data (including grades, attendance, status and financial aid) and to generate periodic management reports. This system interfaces with our learning management system.
Infrastructure
              Our core infrastructure and servers are located in a secure data center at our corporate headquarters. All of our servers are on a scalable and redundant meshed network. All systems and their associated data are included in a backup and recovery plan. We currently use industry standard servers and related equipment. We also have a disaster recovery plan in place.
Student Community and Activities
Athletics
              Our athletic teams at Ashford University compete as members of the Midwest Collegiate Conference and the National Association of Intercollegiate Athletics (NAIA). We field teams as the Ashford University Saints in men's baseball, basketball, cross-country, golf, soccer and track and field, and in women's basketball, cross-country, golf, soccer, softball, track and field and volleyball.
Student organizations and activities
              Our students have the ability to participate in a wide range of social and recreational activities and organizations, including Ashford University's student-run newspaper and interest groups ranging from choir and fine arts to cheerleading. Additionally, we periodically have influential corporate, political and academic leaders on campus to speak to students on a variety of topical issues.
Graduation
              Every December and May, Ashford University holds a ceremony on campus for students graduating from our campus and online programs. In May 2009, we hosted approximately 1,500 family members and guests of 425 attending graduates; and in December 2008, we hosted approximately 1,100 family members and guests of 221 attending graduates. Of the students in attendance in May 2009 and December 2008, approximately 360 and 153, respectively, were graduating from online programs. We believe the opportunity to attend a traditional graduation ceremony on campus is an important component to recognizing our online students for their achievements. It also provides online students with the opportunity to further develop their connection to us and to our broader student population.
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Employees
              As of June 30, 2009, we had over 1,840 faculty members, consisting of over 1,780 adjunct faculty and over 60 full-time campus faculty. Our adjunct faculty are part-time employees.
              We engage our adjunct faculty on a course-by-course basis. Adjunct faculty are compensated a fixed amount per course, which varies among faculty members based on each individual's experience and background. In addition to teaching assignments, adjunct faculty may also be asked to serve on student committees, such as comprehensive examination and dissertation committees, or assist with course development.
              As of June 30, 2009, we also employed over 2,300 non-faculty staff in university services, academic advising and academic support, enrollment services, university administration, financial aid, information technology, human resources, corporate accounting, finance and other administrative functions. None of our employees is a party to any collective bargaining or similar agreement with us.
Competition
              The postsecondary education market is highly fragmented and competitive, with no private or public institution enjoying a significant market share. We compete primarily with public and private degree-granting regionally accredited colleges and universities. Our competitors include the University of Phoenix, Kaplan University and other private and public universities and community colleges. Many of these colleges and universities enroll working adults in addition to traditional 18 to 24 year-old students. In addition, many of those colleges and universities offer a variety of distance education and online initiatives.
              We believe that the competitive factors in the postsecondary education market include the following:
•
relevant, practical and accredited program offerings; 

•
convenient, flexible and dependable access to programs and classes; 

•
program costs; 

•
reputation of the college or university among students and employers; 

•
relative marketing and selling effectiveness; 

•
regulatory approvals; 

•
qualified and experienced faculty; 

•
level of student support services; and 

•
the time necessary to earn a degree.
              We expect to face increased competition as a result of new entrants to the online education market, including traditional colleges and universities that had not previously offered online education programs.
Intellectual Property
              Intellectual property is important to our business. We rely on a combination of copyrights, trademarks, service marks, trade secrets, domain names and agreements with third parties to protect our proprietary rights. In many instances, our course content is produced for us by faculty and other content experts under work-for-hire agreements pursuant to which we own the course content in return for a fixed development fee. In certain limited cases, we license course content from third parties on a royalty fee basis.
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              We have trademark and service mark registrations and pending applications in the U.S. and select foreign jurisdictions. We also own domain name rights to www.ashford.com, www.ashford.edu, www.ashforduniversity.edu, www.rockies.edu and www.universityoftherockies.com, as well as other words and phrases important to our business.
Properties
              Corporate headquarters.     Our corporate headquarters in San Diego, California, where we house enrollment services, student support services and corporate functions, occupy an aggregate of 310,300 square feet pursuant to leases that expire in 2017 and 2018. We also lease 248,000 square feet in a separate location in San Diego under a lease that expires in 2019, which premises house additional enrollment services, student support services and corporate functions. Additionally, we lease 36,700 square feet under a lease that expires in 2014 in Clinton, Iowa to complement our California enrollment services and student services functions.
              Campus facilities.     We own campus facilities of 286,000 square feet in Clinton, Iowa for Ashford University and we lease 31,500 square feet in Colorado Springs, Colorado for the University of the Rockies campus under a lease that expires in 2015.
              We believe our existing facilities are adequate for current requirements and that additional space can be obtained on commercially reasonable terms to meet future requirements.
Environmental Matters
              We believe our facilities are substantially in compliance with federal, state and local laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. Compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, earnings or competitive position.
Legal Proceedings
              From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not at this time a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial condition or results of operations.
              In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against us, our directors and officers and Warburg Pincus based primarily on allegations of breach of fiduciary duty and violations of corporate governance requirements involving amendments to our certificate of incorporation made in connection with financings in 2005 and by certain stock options granted by us to our employees. On March 29, 2009, we reached a settlement with the claimants regarding these claims. The terms of the settlement were approved by our board of directors upon the recommendation of a special committee comprised of independent directors not affiliated with Warburg Pincus. The settlement did not constitute an admission of guilt or liability on our part or on the part of Warburg Pincus or any of our officers or directors. See "Management's Discussion and Analysis of Financial Condition and Results of Operation—Factors Affecting Comparability—Settlement of Stockholder Dispute."
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 REGULATION
              Ashford University and the University of the Rockies are accredited institutions of higher education that participate in federal student financial aid programs and, as a result, are subject to extensive regulation by a variety of agencies. These agencies include the agency that accredits our institutions, thereby providing an independent assessment of educational quality; the U.S. Department of Education, which administers the federal student aid programs relied upon by many of our students to help finance their educations; and state education licensing authorities, which provide legal authority to deliver educational programs and to grant degrees and other credentials in states where our campuses are physically located. The laws, regulations and standards of these agencies address the vast majority of our operations.
              Our institutions are accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools. The Higher Learning Commission is one of six regional accrediting agencies recognized by the U.S. Department of Education for colleges and universities in the United States. Accreditation is a non-governmental process through which an institution submits to qualitative review by an organization of peer institutions based on the standards of the accrediting agency and the mission of the institution. The Higher Learning Commission reviews and evaluates many aspects of an institution's operations, primarily related to educational quality and effectiveness.
              We are also subject to regulation by the U.S. Department of Education due to our participation in federal student financial aid programs authorized by Title IV of the Higher Education Act of 1965, as amended, which we refer to in this prospectus as Title IV programs. Title IV programs include (i) subsidized and unsubsidized loans to students and their parents by private lenders which are guaranteed by the federal government, (ii) similar loans provided directly by the federal government, (iii) grants to students with demonstrated financial need and (iv) federal subsidies for a school's part-time employment of eligible students. To participate in Title IV programs, a school must obtain and maintain authorization by the state education agency or agencies where it is physically located, be accredited by an accrediting agency recognized by the U.S. Department of Education and be certified by the U.S. Department of Education as an eligible institution. Certification by the U.S. Department of Education carries with it an extensive set of regulations.
              Our institutions are also subject to regulation by educational licensing authorities in states where our institutions are physically located or conduct certain operations. State authorization, or exemption from it, in the states where a school is physically located is also a prerequisite for eligibility to participate in Title IV programs.
              We plan and implement our activities to comply with the standards of these regulatory agencies. We employ a full-time vice president of compliance who is responsible for regulatory matters relevant to student financial aid programs and reports to our General Counsel. Our CEO and President, Chief Financial Officer, Chief Academic Officer, Chief Administrative Officer and General Counsel also provide oversight designed to ensure that we meet the requirements of our regulated operating environment.
Accreditation
              Ashford University and the University of the Rockies have been institutionally accredited since 1950 and 2003, respectively, by the Higher Learning Commission. The Higher Learning Commission is one of six regional accrediting agencies that accredits colleges and universities in the United States. Most traditional, public and private non-profit, degree-granting colleges and universities are accredited by one of these six agencies. Accreditation by the Higher Learning Commission is recognized by the U.S. Department of Education as a reliable indicator of educational quality. Accreditation is a private, non-governmental process for evaluating the quality of an educational institution and its programs and an institution's effectiveness in carrying out its mission in areas including integrity, student
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performance, curriculum, educational effectiveness, faculty, physical resources, administrative capability and resources, financial stability and governance. To be recognized by the U.S. Department of Education, an accrediting agency, among other things, must adopt specific standards to be maintained by educational institutions, conduct peer-review evaluations of institutions' compliance with those standards, monitor compliance through periodic institutional reporting and the periodic renewal process and publicly designate those institutions that meet the agency's criteria. An accredited school is subject to periodic review by its accrediting agency to determine whether it continues to meet the performance, integrity, quality and other standards required for accreditation. An institution that is determined not to meet the standards of accreditation may have its accreditation revoked or not renewed.
              The Higher Learning Commission renewed Ashford University's accreditation in 2006 for the maximum period of ten years. The renewal followed a review process, including a change in ownership review resulting from our acquisition of the university in 2005, as well as a comprehensive evaluation in connection with the regularly scheduled renewal process following the university's previous ten-year grant of accreditation in 1995. In connection with this renewal, the Higher Learning Commission also approved (i) the university's online delivery of all programs already approved for campus-based offering, without seeking any further approval, (ii) an additional graduate degree (the Master of Arts in Organizational Management) in both campus-based and online delivery modalities and (iii) the university's awarding of up to 99 credits to students from transfer sources, including both credits earned at other educational institutions and through assessments of college-level learning experiences acquired outside the traditional university classroom. The Higher Learning Commission also directed the university to submit progress reports in June 2007 and June 2008 regarding success in meeting its enrollment, revenue and expense projections and in making capital improvements at the Iowa campus. Those reports were timely filed and the university was notified in October 2008 that no further financial reporting is required. The Higher Learning Commission has scheduled a visit to Ashford University's campus for the 2009-2010 academic year, which will focus on a review of (a) institutional finances, (b) effectiveness and outcomes of current experiential learning formats and transfer of credit and (c) the impact on the Clinton campus of campus-based programs offered online. The Commission has scheduled the university for a comprehensive evaluation during the 2016-2017 academic year in connection with the next regularly scheduled accreditation renewal process.
              The University of the Rockies' initial grant of accreditation from the Higher Learning Commission was in 2003, for a period of five years. Its accreditation was renewed by the Higher Learning Commission in 2008 for a period of seven years. The renewal followed a review process, including a change of ownership review resulting from our acquisition of the university in 2007, as well as a comprehensive evaluation in connection with the regularly scheduled renewal process following the university's previous five year grant of accreditation in 2003. The university has been scheduled to report to the Higher Learning Commission by May 31, 2011, concerning student learning assessments and institutional planning. The Higher Learning Commission has scheduled the university for a comprehensive evaluation during the 2015-2016 academic year in connection with the next regularly scheduled accreditation renewal process.
              In addition, the Higher Learning Commission has scheduled an on-site focused visit to each of Ashford University and the University of the Rockies within six months following our initial public offering to verify that the institutions continue to meet Higher Learning Commission requirements. The Higher Learning Commission has postponed consideration of a request by the University of the Rockies for approval of three new graduate programs until completion of the on-site visit and formal acceptance of the visiting team's recommendations by the Higher Learning Commission.
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              Our accreditation by the Higher Learning Commission is important to our institutions for the following reasons:
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it establishes comprehensive criteria designed to promote educational quality and effectiveness; 

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it represents a public acknowledgement by a recognized independent agency of the quality and effectiveness of our institutions and their programs; 

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it facilitates the transferability of educational credits when our students transfer to or apply for graduate school at other regionally accredited colleges and universities; and 

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the U.S. Department of Education relies on accreditation as an indicator of educational quality and effectiveness in determining a school's eligibility to participate in Title IV programs, as do certain corporate and government sponsors in connection with tuition reimbursement and other student aid programs.
              We believe that regional accreditation is viewed favorably by certain students when choosing a school, by other schools when evaluating transfer and graduate school applications and by certain employers when evaluating the credentials of candidates for employment.
              In addition, by approving Ashford University's offerings of approved campus-based programs through online delivery modalities and by approving increased transfer credit allowance and prior learning assessments, accreditation by the Higher Learning Commission supports our mission of serving students by providing innovative online programs and allowing student accessibility through increased transfer of credit for prior traditional and non-traditional learning.
Regulation of Federal Student Financial Aid Programs
              To be eligible to participate in Title IV programs, an institution must comply with the Higher Education Act and regulations thereunder that are administered by the U.S. Department of Education. Among other things, the law and regulations require that an institution (i) be licensed or authorized to offer its educational programs by the states in which it is physically located, (ii) maintain institutional accreditation by an accrediting agency recognized for such purposes by the U.S. Department of Education and (iii) be certified to participate in Title IV programs by the U.S. Department of Education. Our institutions' participation in Title IV programs subjects us to extensive oversight and review pursuant to regulations promulgated by the U.S. Department of Education. Those regulations are subject from time to time to revision and amendment by the U.S. Department of Education. The U.S. Department's interpretation of its regulations likewise is subject to change. As a result, it is difficult to predict how Title IV program requirements will be applied in all circumstances.
Congressional action
              Congress must reauthorize the Higher Education Act on a periodic basis, usually every five to six years. It was reauthorized most recently in August 2008, extending Title IV programs through September 2014. The 2008 reauthorization revised a number of requirements governing Title IV programs, including provisions concerning the relationship between an institution and its students' private Title IV lenders, an institution's maximum permissible student loan default rates and the maximum percentage of revenue that an institution may derive from Title IV programs. In addition, Congress enacted legislation in 2007 that reduced interest rates on certain Title IV loans and reduced government subsidies to private lenders that participate in Title IV programs. In May 2008, Congress enacted additional legislation increasing by $2,000 the maximum annual loan for which students are eligible and aimed at ensuring that a sufficient number of private lenders will continue to provide Title IV loans to all eligible students seeking to obtain them.
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              In addition, Congress determines the funding levels for Title IV programs annually through the budget and appropriations process.
              In July 2009, the House Committee on Education and Labor passed the Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221. This legislation, which was designed to address the goals outlined by the budget of the Obama Administration, would amend the Higher Education Act to prohibit new federally guaranteed loans from being made under the Federal Family Education Loan, or FFEL, Program, beginning on July 1, 2010, at which time all new federal education loans would be originated through the Federal Direct Loan Program. The legislation would also, among other matters, provide for automatic increases in the maximum amount of the Federal Pell Grant for which a student would be eligible (subject to appropriations), create a new Federal Direct Perkins Loan program (to replace the current Perkins loan program) and provide relief to for-profit institutions by amending the "90/10 rule" to (i) extend to July 2012 the ability of for profit institutions to exclude from their Title IV revenues the additional $2,000 per student in certain annual federal student loan amounts that became available in June 2008, (ii) exclude from the 90/10 rule calculation for the period July 1, 2010 through July 1, 2012 the revenue received from loans disbursed under the Federal Direct Perkins Loan program, (iii) give for profit institutions three years (as opposed to two) to come into compliance with the 90/10 rule and (iv) give for-profit institutions two years (as opposed to one) of non compliance with the 90/10 rule before they would be moved into provisional eligibility status. The Student Aid and Fiscal Responsibility Act of 2009 has not been passed by Congress and is subject to further review and amendment. If the legislation passes, our institutions would be required to certify loans through the Federal Direct Loan Program, for which we are eligible to participate, rather than through the FFEL Program. We expect to be able to fully transition from the FFEL Program to the Federal Direct Loan Program by the proposed July 1, 2010 phase out date, if necessary.
U.S. Department of Education development of new regulations
              In June 2009, the U.S. Department of Education held three public hearings focused on developing new Title IV regulations, including those related to satisfactory academic progress, incentive compensation paid by institutions to persons or entities engaged in student recruiting or admission activities, gainful employment in a recognized occupation, state authorization as a component of institutional eligibility, the definition of a credit hour for purposes of determining program eligibility status, verification of information included on student aid applications and the definition of a high school diploma as a condition of receiving federal student aid. The U.S. Department of Education has stated that it plans to convene negotiated rulemaking sessions in the fall of 2009 with the objective of developing regulations to address these and other issues raised at the public hearings. Additionally, the U.S. Department of Education is in the process of issuing new regulations to implement the amendments made to the Higher Education Act by the Higher Education Opportunity Act enacted in August 2008. The new regulations will emerge from five negotiated rulemaking sessions conducted and concluded earlier this year and will cover a broad range of topics including the 90/10 rule, cohort default rates and other matters. The first four sets of new regulations were published in proposed form on July 23, 2009, July 28, 2009, August 6, 2009, and August 21, 2009, respectively. We expect the remaining one set of new regulations to be published in proposed form in the near future. We are closely monitoring any policy or regulatory changes resulting from these rulemaking sessions which could impact our institutions and our business.
Certification procedures; provisional certification
              The U.S. Department of Education certifies institutions to participate in Title IV programs for a fixed period of time, typically three years for a provisionally certified institution and six years in most other instances. The terms and conditions of an institution's participation in Title IV programs, including any special terms and conditions by virtue of a provisional certification, are set forth in a
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program participation agreement entered into between the U.S. Department of Education and the institution.
              The U.S. Department of Education automatically places an institution on provisional certification status when the institution is certified for the first time or when it undergoes a change in ownership. The U.S. Department of Education may also place an institution on provisional certification status under other circumstances, including if the institution fails to satisfy certain standards of financial responsibility or administrative capability. Students attending a provisionally certified institution are eligible to receive Title IV program funds to the same extent as if the institution's certification were not provisional. During a period of provisional certification, however, an institution must comply with any additional conditions imposed by the U.S. Department of Education and must seek and obtain the U.S. Department of Education's advance approval before adding a new location. In addition, the U.S. Department of Education may more closely review an institution that is provisionally certified if it applies for renewal of certification or approval to add an educational program, acquire another school or seek to make other significant changes. If the U.S. Department of Education determines that a provisionally certified institution is unable to meet its responsibilities under its program participation agreement, the U.S. Department of Education may seek to revoke the institution's certification to participate in Title IV programs without advance notice and without the same rights to due process in contesting the revocation as are afforded to institutions whose certification is not provisional.
              The U.S. Department of Education issued Ashford University's program participation agreement in December 2008. Because Ashford University's composite score for the year ended December 31, 2007 was 0.6 and did not meet the 1.5 standard prescribed by the U.S. Department of Education (see "Regulation of Federal Student Financial Aid Programs—Financial responsibility"), the institution was placed on provisional certification status and required to post a letter of credit in favor of the U.S. Department of Education equal to 10% of total Title IV funds received in 2007 and to receive certain Title IV funds under the heightened cash monitoring level one method of payment (pursuant to which an institution may not receive Title IV funds before disbursing them to students) rather than under the advance method of payment (pursuant to which an institution may receive Title IV program funds before disbursing them to students).
              The U.S. Department of Education issued the University of the Rockies' current program participation agreement in September 2007, following the change in ownership that occurred in connection with its September 2007 acquisition. Because of the change in ownership, the institution was placed on provisional certification status for a period of three years. The University of the Rockies' participation in Title IV programs was also conditioned on its having in place a letter of credit in favor of the U.S. Department of Education and on its receiving certain Title IV funds under the heightened cash monitoring level one method of payment.
              In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
              We expect our composite score on a consolidated basis to be approximately 1.6 for the year ended December 31, 2008. We believe that this composite score also would support the release of Ashford University from its letter of credit requirements and from conforming to the regulations of the heightened cash monitoring level one method of payment. However, the release from these requirements is subject to determination by the U.S. Department of Education once it receives and reviews our audited financial statements.
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              We do not currently have plans to establish new locations, acquire other schools or make other significant changes in our operations. In addition, we do not currently have plans to initiate new educational programs that would require approval of the U.S. Department of Education. Accordingly, we do not believe that the provisional certification of our institutions has had or will have a material impact on our day-to-day operations.
              An institution is required to apply for a renewal of its certification no later than three months before a scheduled expiration of certification. Our current provisional certification for Ashford University is scheduled to expire on June 30, 2011. Our current provisional certification for the University of the Rockies is scheduled to expire on September 30, 2010.
Compliance reviews and reports
              In addition to reviews in connection with periodic renewals of certification to participate in Title IV programs, our institutions are subject to announced and unannounced compliance reviews and audits by various external agencies, including the U.S. Department of Education, its Office of Inspector General (OIG), state licensing agencies, agencies that guarantee private lender Title IV program loans, the U.S. Department of Veterans Affairs and the Higher Learning Commission. In addition, as part of the U.S. Department of Education's ongoing monitoring of institutions' administration of Title IV programs, the Higher Education Act requires institutions to submit to the U.S. Department of Education an annual Title IV compliance audit conducted by an independent registered public accounting firm. In addition, to enable the U.S. Department of Education to make a determination of an institution's financial responsibility, each institution must annually submit audited financial statements prepared in accordance with GAAP and U.S. Department of Education regulations.
Audit by Office of the Inspector General
              The OIG is responsible for, among other things, promoting the effectiveness and integrity of the U.S. Department of Education's programs and operations. With respect to educational institutions that participate in Title IV programs, the OIG conducts its work primarily through an audit services division and an investigations division. The audit services division typically conducts general audits of schools to assess their administration of federal funds in accordance with applicable rules and regulations. The investigation services division typically conducts focused investigations of particular allegations of fraud, abuse or other wrongdoing against schools by third parties, such as a lawsuit filed under seal pursuant to the federal False Claims Act.
              The OIG audit services division is conducting a compliance audit of Ashford University which commenced in May 2008. The period under audit is March 10, 2005 through June 30, 2009. The scope of the audit covers Ashford University's administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, award and disbursement of Title IV program funds, verification of awards, returns of unearned funds and compensation of financial aid and recruiting personnel. The OIG is expected to issue a draft audit report, to which we will have an opportunity to respond. We expect that the OIG will not issue a final audit report until several months after our response. The final audit report would include any findings and any recommendations to the U.S. Department of Education's Federal Student Aid office based on those findings. Because of the ongoing nature of the OIG audit, we cannot predict with certainty the ultimate extent of the draft or final audit findings or recommendations or what effect any such findings might have on us and our business.
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Administrative capability
              U.S. 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 must, among other things:
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comply with all applicable Title IV program requirements; 

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have an adequate number of qualified personnel to administer Title IV programs; 

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have acceptable standards for measuring the satisfactory academic progress of its students; 

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have procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required records; 

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administer Title IV programs with adequate checks and balances in its system of internal control over financial reporting; 

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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; 

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provide financial aid counseling to its students; 

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refer to the OIG any credible information indicating that any student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs; 

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timely submit all required reports and financial statements; and 

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not otherwise appear to lack administrative capability.
Financial responsibility
              The Higher Education Act and U.S. Department of Education regulations establish standards of financial responsibility which an institution must satisfy to participate in Title IV programs. The U.S. Department of Education evaluates compliance with these standards annually upon receipt of an institution's annual audited financial statements and also when an institution applies to the U.S. Department of Education to reestablish its eligibility to participate in Title IV programs following a change in ownership. One financial responsibility standard is based on the institution's composite score, which is derived from a formula established by the U.S. Department of Education that is a weighted average of three financial ratios:
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equity ratio, which measures the institution's capital resources, financial viability and ability to borrow; 

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primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and 

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net income ratio, which measures the institution's ability to operate at a profit or within its means.
              The formula defines each of the three ratios and assigns a strength factor and weighting percentage to each ratio. The weighted scores for the three ratios are then added to produce a composite score for the institution. The composite score is a number between negative 1.0 and positive 3.0. It must be at least 1.5 for the institution to be deemed financially responsible without the need for further U.S. Department of Education financial oversight. In addition to having an acceptable composite score, an institution must, among other things, provide the administrative resources necessary to comply with Title IV program requirements, meet all of its financial obligations (including required refunds to students and any Title IV liabilities and debts), be current in its debt payments and
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not receive an adverse, qualified or disclaimed opinion by its accountants in its audited financial statements.
              For the year ended December 31, 2007, Ashford University's composite score of 0.6 did not meet the 1.5 standard prescribed by the U.S. Department of Education. The composite scores for the University of the Rockies for years ended July 31, 2006 and July 31, 2007 also did not meet the 1.5 standard. As a result, each of our institutions was required to participate in the Title IV programs under provisional certification, to post a letter of credit in favor of the U.S. Department of Education and to receive Title IV program funds pursuant to the heightened cash management level one method. As a result, (i) we may not draw down Title IV funds until the day we disburse them to our students, (ii) Ashford University has posted a letter of credit in the amount of $12.1 million, which will remain in effect through September 30, 2009 and (iii) the University of the Rockies posted a letter of credit in the amount of $0.7 million, which was to remain in effect through June 30, 2009.
              In July 2009, the U.S. Department of Education notified us that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
              We expect our composite score on a consolidated basis to be approximately 1.6 for the year ended December 31, 2008. We believe that this composite score also would support the release of Ashford University from its letter of credit requirement and from conforming to the requirements of the heightened cash monitoring level one method of payment. However, the release of the school from these requirements is subject to determination by the U.S. Department of Education once it completes its review of our audited consolidated financial statements.
Return of Title IV funds for students who withdraw
              If a student who has received Title IV funds withdraws, the institution must determine the amount of Title IV program funds the student has earned, pursuant to applicable regulations. If the student withdraws during the first 60% of any payment period (which, for our online students, typically is a 20-week term consisting of four five-week courses and, for our ground students, is a 16-week semester), the amount of Title IV funds that the student has earned is equal to a pro rata portion of the funds the student received or for which the student would otherwise be eligible for the payment period. If the student withdraws after the 60% threshold, then the student is deemed to have earned 100% of the Title IV funds received. If the student has not earned all of the Title IV funds disbursed, the institution must return the unearned funds to the appropriate lender or the U.S. Department of Education in a timely manner, which is generally no later than 45 days after the date the institution determined that the student withdrew. If an institution's annual financial aid compliance audit in either of its two most recently completed fiscal years determines that 5% or more of such returns were not timely made, the institution must submit a letter of credit in favor of the U.S. Department of Education equal to 25% of the Title IV funds that the institution should have returned for withdrawn students in its most recently completed fiscal year.
              For the year ended December 31, 2007, Ashford University exceeded the 5% threshold for late refunds sampled due to human error. As a result, Ashford University is subject to the requirement to post a letter of credit in favor of the U.S. Department of Education equal to 25% of the total refunds in 2007. Ashford University notified the U.S. Department of Education of its intention to post this letter of credit, but was advised by the U.S. Department of Education that such posting was unnecessary because we had already posted a letter of credit due to our composite score which was in
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excess of the amount required for late funds. Although we have taken steps to reduce late refunds, we cannot ensure that such steps will be sufficient to address this issue.
The "90/10 rule"
              Pursuant to a provision of the Higher Education Act, as reauthorized in August 2008, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV program funds for two consecutive fiscal years, commencing with the institution's first fiscal year that ends after the new law's effective date of August 14, 2008. This rule is commonly referred to as the "90/10 rule." Any institution that violates the 90/10 rule becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single year will be placed on provisional certification and may be subject to other enforcement measures. We are currently assessing what impact, if any, the U.S. Department of Education's revised formula and other changes in federal law will have on our 90/10 calculation.
              In the years ended December 31, 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenues (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds. In connection with the change by the University of the Rockies to a December 31 fiscal year end date, the U.S. Department of Education required the University of the Rockies to calculate its compliance with the 90/10 rule for the fiscal year ending July 31, 2008 and for the 5-month period ending December 31, 2008 and those percentages are 74.3% and 80.8%, respectively.
              Recent changes in federal law that increased Title IV grant and loan limits, and any additional increases in the future, may result in an increase in the revenues we receive from Title IV programs, which could make it more difficult for us to satisfy the 90/10 rule. However, such effects may be mitigated, at least on a temporary basis, by another provision in the rule that allows institutions to exclude (for three years) from their Title IV revenues when calculating their compliance the additional $2,000 per student in certain annual federal student loan amounts that became available starting in July 2008. Additionally, recent changes permit institutions to include in their calculation as non-Title IV revenues certain non-cash revenues, such as institutional loan proceeds under certain circumstances.
              To help comply with the 90/10 rule in the future, we are exploring a number of options to increase the amount of revenues our institutions derive from non-Title IV sources. For example, we are considering a program for the University of the Rockies in which the institution would provide direct loans to students. If this program is implemented, we expect initially that the total number of students receiving these loans during 2009 would be approximately 125 and the total amount of the loans would be approximately $1.5 million. We have no current plans to implement a similar program for Ashford University.
Student loan defaults
              Under the Higher Education Act, as in effect prior to its August 2008 reauthorization, an educational institution may lose its eligibility to participate in some or all Title IV programs if defaults by its students on the repayment of student loans exceed certain levels. For each federal fiscal year, the U.S. Department of Education calculates a rate of student defaults for each institution which is known as a "cohort default rate." An institution's cohort default rate for a federal fiscal year is calculated by determining the rate at which students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year.
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              If the U.S. Department of Education notifies an institution that its cohort default rates for each of the three most recent federal fiscal years are 25% or greater, the institution's participation in the FFEL, Direct Loan and Pell grant programs ends 30 days after that notification, unless the institution appeals that determination on specified grounds and according to specified procedures. In addition, an institution's participation in the FFEL and Direct Loan programs ends 30 days after notification by the U.S. Department of Education that its cohort default rate in its most recent fiscal year is greater than 40%, unless the institution timely appeals that determination on specified grounds and according to specified procedures. An institution whose participation ends under either of these provisions may not participate in the relevant Title IV programs for the remainder of the fiscal year in which the institution receives the notification and for the next two fiscal years. If an institution's cohort default rate equals or exceeds 25% in any single year, the institution may be placed on provisional certification status.
              Ashford University's cohort default rates for the 2004, 2005 and 2006 federal fiscal years, the three most recent years for which information is available, were 2.4%, 4.1% and 4.1%, respectively. The cohort default rates for the University of the Rockies for the 2004, 2005 and 2006 federal fiscal years, the three most recent years for which information is available, were 5.5%, 0% and 0%, respectively. The draft cohort default rate for Ashford University for the 2007 federal fiscal year is 13.2%. Management believes possible factors that may have contributed to this increased draft cohort default rate include (i) a greater number of online students entering repayment and (ii) deteriorating economic conditions which made repayment of loans more difficult for our students. The draft cohort default rate for University of the Rockies for the 2007 federal fiscal year is 0%. These rates are subject to change prior to the issuance of the U.S. Department of Education's final report. Because Ashford University's draft cohort default rate for the 2007 federal fiscal year exceeds 10%, it would no longer be exempt from the 30-day disbursement delay rule for first-year, first-time undergraduate student borrowers once the official rate is published by the U.S. Department of Education, which is expected to take place in September 2009, if the official rate is equal to or greater than 10%. The loss of this exemption would result in a delay in Ashford University receiving Title IV funds for such students and, accordingly, would negatively affect our cash flows, to the extent we would have otherwise been able to receive such funds sooner.
              The August 2008 reauthorization of the Higher Education Act includes significant revisions to the requirements concerning cohort default rates. Under the revised law, the period for which students' defaults on their loans are included in the calculation of an institution's cohort default rate has been extended by one additional year, which is expected to increase the cohort default rates for most institutions. That change will be effective with the calculation of institutions' cohort default rates for the federal fiscal year ending September 30, 2009, which rates are expected to be calculated and issued by the U.S. Department of Education in 2012. The U.S. Department of Education will not impose sanctions based on rates calculated under this new methodology until three consecutive years of rates have been calculated, which is expected to occur in 2014. Until that time, the U.S. Department of Education will continue to calculate rates under the old calculation method and impose sanctions based on those rates. The revised law also increases the threshold for ending an institution's participation in the relevant Title IV programs from 25% to 30%, effective in the federal fiscal year 2012.
Incentive compensation rule
              An institution that participates in Title IV programs may not provide 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, admissions or financial aid awarding activity. The U.S. Department of Education's regulations set forth 12 "safe harbors" which describe compensation arrangements that do not violate the incentive compensation rule, including the payment and adjustment of salaries and bonuses under certain conditions. The regulations clarify that the safe
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harbors are not a complete list of permissible practices under this law. The law and regulations do not establish clear criteria for compliance in all circumstances, and the U.S. Department of Education no longer reviews and approves compensation plans prior to their implementation. Although we cannot provide any assurances that the U.S. Department of Education would not find deficiencies in our compensation plans, we believe that our compensation policies comply with applicable law and regulations.
Potential effect of regulatory noncompliance
              The U.S. Department of Education can impose sanctions for violating the statutory and regulatory requirements of Title IV programs, including:
•
transferring an institution from the advance method or the heightened cash monitoring level one method of Title IV payment, which permit the institution to receive Title IV funds before or concurrently with disbursing them to students, to the heightened cash monitoring level two method of payment or to the reimbursement method of payment, which delay an institution's receipt of Title IV funds until student eligibility has been verified; 

•
requiring an institution to post a letter of credit in favor of the U.S. Department of Education as a condition for continued Title IV certification; 

•
imposing a monetary liability against an institution in an amount equal to any funds determined to have been improperly disbursed; 

•
initiating proceedings to impose a fine or to limit, suspend or terminate an institution's participation in Title IV programs; 

•
taking emergency action to suspend an institution's participation in Title IV programs without prior notice or a prior opportunity for a hearing; 

•
failing to grant an institution's application for renewal of its certification to participate in Title IV programs; or 

•
referring a matter for possible civil or criminal prosecution.
              In addition, the agencies that guarantee Title IV private lender loans for our students could initiate proceedings to limit, suspend or terminate our ability to obtain guarantees of our students' loans through that agency.
              If sanctions were imposed resulting in a substantial curtailment or termination of our participation in Title IV programs, our enrollments, revenues and results of operations would be materially and adversely affected. If we lost our eligibility to participate in Title IV programs, or if the amount of available Title IV program funds were reduced, we would seek to arrange or provide alternative sources of financial aid for students. We believe that one or more private organizations would be willing to provide financial assistance to our students, but there is no assurance of that. Additionally, the interest rate and other terms of such financial aid would likely not be as favorable as those for Title IV program funds, and we might be required to guarantee all or part of such alternative assistance or might incur other additional costs in connection with securing such alternative assistance. It is unlikely that we would be able to arrange alternative funding to replace all the Title IV funding our students receive. Accordingly, our loss of eligibility to participate in Title IV programs, or a reduction in the amount of available Title IV program funding for our students, would be expected to have a material adverse effect on our enrollments, revenues and results of operations, even if we could arrange or provide alternative sources of student financial aid.
              In addition to the actions that may be brought against us as a result of our participation in Title IV programs, we are also subject to complaints and lawsuits relating to regulatory compliance
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brought not only by our regulatory agencies but also by other government agencies and third parties, such as current or former students or employees and other members of the public, including lawsuits filed pursuant to the federal False Claims Act.
Uncertainties, increased oversight and changes in student loan environment
              During 2007 and 2008, student loan programs, including Title IV programs, came under increased scrutiny by the U.S. Department of Education, Congress, state attorneys general and other parties. Issues that have received extensive attention include allegations of conflicts of interest between some institutions or their employees and lenders that provide Title IV loans, inappropriate incentives given by lenders to some schools and school employees and allegations of deceptive practices in the marketing of student loans and in schools encouraging students to use certain lenders.
              The practices of numerous schools and lenders have been examined by government agencies at the federal and state level. Several of them have been cited for these problems and have paid several million dollars in the aggregate to settle those claims without admitting wrongdoing. As a result of this activity, Congress has passed new laws, the U.S. Department of Education has enacted regulations and several states have adopted codes of conduct or enacted state laws that further regulate the conduct of lenders, schools and school personnel. These new laws and regulations, among other things:
•
limit schools' relationships with lenders; 

•
restrict the types of services that schools may receive from lenders; 

•
prohibit lenders from providing other types of funding to schools in exchange for Title IV loan volume; 

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require schools to provide additional information to students concerning institutionally preferred lenders; and 

•
reduce the amount of federal payments to lenders who participate in Title IV loan programs.
              The cumulative impact of these developments and conditions, combined with market conditions affecting the availability of credit generally, have caused some lenders, including some lenders that have previously provided Title IV loans to our students, to cease providing Title IV loans to students. Other lenders have reduced the benefits and increased the fees associated with the Title IV loans they provide. In addition, the new regulatory refinements may result in higher administrative costs for schools, including us. If Congress increases interest rates on Title IV loans, or if private loan interest rates rise, our students would have to pay higher interest rates on their loans. Any future increase in interest rates will result in a corresponding increase in educational costs to our existing and prospective students.
              In May 2008, new federal legislation was enacted to attempt to ensure that all eligible students would be able to obtain Title IV loans and that a sufficient number of lenders will continue to provide Title IV loans. Among other things, the new legislation:
•
increases the maximum annual amount of certain student loans by $2,000; 

•
authorizes the U.S. Department of Education to purchase Title IV loans from lenders, thereby providing capital to the lenders to enable them to continue making Title IV loans to students; and 

•
permits the U.S. Department of Education to designate institutions eligible to participate in a "lender of last resort" program, under which federally recognized student loan guaranty agencies will be required to make Title IV loans to all otherwise eligible students at those institutions.
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              We cannot predict whether this legislation will be effective in ensuring students' access to Title IV loan funding through private lenders. In February 2009, President Barack Obama released a budget blueprint that proposes that all Title IV loans be originated through the Federal Direct Loan Program rather through the Federal Family Education Loan Program beginning in the 2010 federal fiscal year. The proposal has not been passed by Congress and is subject to further review and amendment. If the proposal passes, our institutions would be required to certify loans through the Federal Direct Loan Program (for which we are eligible to participate) rather than through the Federal Family Education Loan Program.
Adding teaching locations and implementing new educational programs
              The requirements and standards of accrediting agencies, state education agencies and the U.S. Department of Education limit our ability in certain instances to establish additional teaching locations or implement new educational programs. The Higher Learning Commission, the Colorado Commission on Higher Education and other state education agencies that may authorize or accredit us or our programs generally require institutions to notify them in advance of adding new locations or implementing new programs, and upon notification may undertake a review of the quality of the facility or the program and the financial, academic and other qualifications of the institution.
              If an institution participating in Title IV programs plans to add a new location or educational program, the institution must generally apply to the U.S. Department of Education to have the additional location or educational program designated as within the scope of the institution's Title IV eligibility. However, degree-granting institutions are not required to obtain the U.S. Department of Education's approval of additional programs that lead to a degree at the same or lower degree level as degree programs previously approved by the U.S. Department of Education. Similarly, an institution is not required to obtain advance approval for new programs that prepare students for gainful employment in the same or a related recognized occupation as an educational program that has previously been designated by the U.S. Department of Education as an eligible program at that institution if the program meets certain minimum-length requirements. If an institution that is required to obtain the U.S. Department of Education's advance approval for the addition of a new program or new location fails to do so, the institution may be liable for repayment of Title IV program funds received by the institution or by students in connection with that program or enrolled at that location.
Acquiring other schools
              If we were to seek to acquire an existing accredited institution participating in Title IV programs, we would need to obtain the approval of the state education agency that authorizes the school being acquired, any accrediting agency that accredits the school being acquired and the U.S. Department of Education. The level of review varies by individual state and by individual accrediting commission, with some requiring approval of such an acquisition before it occurs and with others only considering approval after the acquisition has occurred. The approval of the applicable state education agencies and accrediting agencies is a necessary prerequisite to the U.S. Department of Education's certifying the acquired school to participate in Title IV programs. In addition, the U.S. Department of Education's certification of a school following a change in ownership and control is always a provisional certification. The restrictions imposed by any of the applicable regulatory agencies could delay or prevent our acquisition of other schools in some circumstances.
Change in ownership resulting in a change of control
              The U.S. Department of Education and most state and accrediting agencies require institutions of higher education to report or obtain approval of certain changes of control and changes in other aspects of institutional organization or operations. Transactions or events that constitute a change of control may include significant acquisitions or dispositions of an institution's common stock and
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significant changes in the composition of an institution's board. The types of thresholds for such reporting and approval vary among the states and among accrediting agencies. The Higher Learning Commission issued amended policies in June 2009 which, among other provisions, provide that a disposition of stock by a holder that reduces the holder's ownership below 25% of the outstanding stock of a publicly traded company is a change of control requiring the prior approval of the Higher Learning Commission. The amended policies also provide that a sale of more than 10% and less than 25% of the outstanding common stock of a publicly traded company must be reported to the staff of the Higher Learning Commission, which may determine in some cases that such sale requires prior approval, or additional monitoring, by the Higher Learning Commission. The U.S. Department of Education regulations provide that a change of control occurs for a publicly traded corporation if either (i) a person acquires such ownership and control of the corporation so that the corporation is required to file a current report on Form 8-K with the SEC disclosing a change of control, or (ii) the corporation's largest stockholder who owns at least 25% of the total outstanding voting stock of the corporation, ceases to own at least 25% of such stock or ceases to be the largest stockholder. A significant purchase or disposition of our voting stock, including a disposition of voting stock by Warburg Pincus, could be determined by the U.S. Department of Education to be a change of control under this standard. In such event, the regulatory procedures applicable to a change in ownership and control would have to be followed in connection with the transaction. Similarly if such a disposition were deemed a change of control by the Higher Learning Commission or applicable state educational licensing agency, any required regulatory notifications and approvals would have to be made or obtained.
              After giving effect to this offering, we expect Warburg Pincus' beneficial ownership of our common stock to decrease from 64.9% to            %, or            % in the event the underwriters exercise their overallotment option in full. The U.S. Department of Education confirmed that our initial public offering did not constitute a change of control under its regulations. This offering also will not constitute a change of control under U.S. Department of Education regulations. The Higher Learning Commission determined that our initial public offering constituted a change of control under its standards. The Higher Learning Commission approved Ashford University's and the University of the Rockies' applications seeking permission to proceed with the initial public offering and informed us that the Higher Learning Commission would conduct separate on-site focused visits to both institutions within six months following our initial public offering to verify their compliance with the Higher Learning Commission's requirements. These site visits are scheduled to occur in November 2009. In light of the Higher Learning Commission's treatment of our initial public offering, and pursuant to its June 2009 amended policies, we believe that pre-approval of this offering by the Higher Learning Commission will not be required. We have provided the staff of the Higher Learning Commission with the requisite notification of this offering and its impact on Warburg Pincus' beneficial ownership of our common stock, and requested confirmation that pre-approval of this offering is not required. We are also seeking confirmation from certain state agencies that this offering does not constitute a change of control requiring approval from those agencies. If the Higher Learning Commission or any of these agencies deem this offering to be a change of control requiring pre-approval, we would have to apply for and obtain approval from the applicable agency prior to the closing of this offering.
Privacy of student records
              The Family Educational Rights and Privacy Act of 1974, or FERPA, and the U.S. Department of Education's FERPA regulations require educational institutions to protect the privacy of students' educational records by limiting an institution's disclosure of a student's personally identifiable information without the student's prior written consent. FERPA also requires institutions to allow students to review and request changes to their educational records maintained by the institution, to notify students at least annually of this inspection right and to maintain records in each student's file listing requests for access to and disclosures of personally identifiable information and the interest of
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such party in that information. If an institution fails to comply with FERPA, the U.S. Department of Education may require corrective actions by the institution or may terminate an institution's receipt of further federal funds. In addition, educational institutions are obligated to safeguard student information pursuant to the Gramm-Leach-Bliley Act, or GLBA, a federal law designed to protect consumers' personal financial information held by financial institutions and other entities that provide financial services to consumers. GLBA and the applicable GLBA regulations require an institution to, among other things, develop and maintain a comprehensive, written information security program designed to protect against the unauthorized disclosure of personally identifiable financial information of students, parents or other individuals with whom such institution has a customer relationship. If an institution fails to comply with the applicable GLBA requirements, it may be required to take corrective actions, be subject to monitoring and oversight by the Federal Trade Commission, or FTC, and be subject to fines or penalties imposed by the FTC. For-profit educational institutions are also subject to the general deceptive practices jurisdiction of the FTC with respect to their collection, use and disclosure of student information.
State Education Licensure and Regulation
Iowa and Colorado
              Ashford University's campus is located in Iowa, and the institution is exempt from having to register as a postsecondary school in the state of Iowa. The University of the Rockies' campus is located in Colorado. The institution is licensed and authorized to deliver educational programs and to grant degrees and other credentials by the Colorado Commission on Higher Education. We do not have campuses in any states other than Iowa and Colorado. The Higher Education Act requires Ashford University to maintain its exemption from registration in Iowa (or become registered in its absence) and requires the University of Rockies to maintain its authorization from the Colorado Commission on Higher Education in order to participate in Title IV programs. To maintain our Colorado authorization, we must continuously meet standards relating to, among other things, educational programs, facilities, instructional and administrative staff, marketing and recruitment, financial operations, addition of new locations and educational programs and various operational and administrative procedures. Failure to maintain our Iowa exemption or our Colorado Commission on Higher Education authorization would cause Ashford University or the University of the Rockies, respectively, to lose their authorization to deliver educational programs and to grant degrees and other credentials and lose their eligibility to participate in Title IV programs.
Additional state regulation
              Most state education agencies impose regulatory requirements on educational institutions operating within their boundaries. Some states have sought to assert jurisdiction over out-of-state educational institutions offering online programs that have no physical location or other presence in the state but that have some activity in the state, such as enrolling or offering educational services to students who reside in the state, employing faculty who reside in the state or advertising to or recruiting prospective students in the state. In addition to Iowa and Colorado, we have determined that our activities in certain states constitute a presence requiring licensure or authorization under the requirements of the state education agency in those states, and in other states we have obtained state education agency approvals as we have determined necessary in connection with our marketing and recruiting activities. We review state licensure requirements when appropriate to determine whether our activities in those states constitute a presence or otherwise require licensure or authorization. Because we enroll students from all 50 states and from the District of Columbia, we may have to seek licensure or authorization in additional states in the future. State regulatory requirements for online education vary among the states, are not well developed in many states, are imprecise or unclear in some states and are subject to change. Consequently, a state education agency could disagree with our conclusion
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that we are not required to obtain a license or authorization in the state and could restrict one or more of our business activities in the state, including the ability to recruit or enroll students in that state or to continue providing services or advertising in that state. If we fail to comply with state licensing or authorization requirements for any state, we may be subject to the loss of state licensure or authorization by that state, or be subject to other sanctions, including restrictions on our activities in that state, fines and penalties. The loss of any required license or authorization in states other than Iowa and Colorado could prohibit us from recruiting prospective students or from offering services to current students in those states.
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 MANAGEMENT
Directors and Executive Officers
              Our directors and executive officers and their ages and positions are as follows:

Name 	 	Age	 	Position	
Andrew S. Clark	 	44	 	CEO and President and Director	
Daniel J. Devine	 	45	 	Chief Financial Officer	
Christopher L. Spohn	 	49	 	Senior Vice President/Chief Admissions Officer	
Jane McAuliffe	 	42	 	Senior Vice President/Chief Academic Officer	
Rodney T. Sheng	 	43	 	Senior Vice President/Chief Administrative Officer	
Ross L. Woodard	 	43	 	Senior Vice President/Chief Marketing Officer	
Charlene Dackerman	 	49	 	Senior Vice President of Human Resources	
Thomas Ashbrook	 	44	 	Senior Vice President/Chief Information Officer	
Diane L. Thompson	 	53	 	Senior Vice President/General Counsel	
Ryan Craig	 	37	 	Director	
Dale Crandall	 	68	 	Director	
Patrick T. Hackett	 	48	 	Chairman of the Board and Director	
Robert Hartman	 	61	 	Director	
Adarsh Sarma	 	35	 	Director	
               Andrew S. Clark has served as our Chief Executive Officer and a director since November 2003 and as our President since February 2009. Mr. Clark also served from March 2005 to December 2008 on the Board of Trustees for Ashford University and currently serves on the University of the Rockies Board of Trustees, which he joined in September 2007. Prior to joining us in November 2003, Mr. Clark consulted with several private equity firms examining the postsecondary education sector. Prior to 2003, Mr. Clark worked for Career Education Corporation as Divisional Vice President of Operations and Chief Operating Officer for American InterContinental University in 2002. From 1992 to 2001, Mr. Clark worked for Apollo Group, Inc. (University of Phoenix), where he served in various management roles, culminating in his position as Regional Vice President for the Mid-West region from 1999 to 2001. Mr. Clark earned an M.B.A. from the University of Phoenix and a B.A. from Pacific Lutheran University.
               Daniel J. Devine has served as our Chief Financial Officer since January 2004 and has over 20 years of senior finance experience. From March 2002 to December 2003, Mr. Devine served as the Chief Financial Officer of A-Life Medical. From 1994 to 2000, Mr. Devine served in various management roles for Mitchell International culminating in his position as Chief Financial Officer from 1998 to 2000. From 1987 to 1993, Mr. Devine served in various management roles for Foster Wheeler Corporation, culminating in his position of divisional Chief Financial Officer from 1990 to 1993. Mr. Devine earned a B.A. from Drexel University and is a certified public accountant.
               Christopher L. Spohn joined us in January 2004 as the Vice President of Admissions and has served as our Senior Vice President/Chief Admissions Officer since October 2008. From 2002 to 2003, Mr. Spohn served as the Vice President of Marketing and Admissions for the University Division of Career Education Corporation. From 1996 to 2001, Mr. Spohn served in various management roles for Apollo Group, Inc. (University of Phoenix), culminating in his position as Senior Director of Enrollment for the Southern California Campus from 1999 to 2002. Mr. Spohn earned a B.S. from Azusa Pacific University.
               Jane McAuliffe joined us in July 2005 and has served as Chancellor/President of Ashford University since that time. She also served as our Vice President of Academic Affairs from September 2007 until November 2008 at which time she assumed the title of Senior Vice President/Chief Academic Officer. From 2003 to 2005, Dr. McAuliffe served as President of Argosy University/Sarasota Campus
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in Sarasota, Florida. Prior to 2003, Dr. McAuliffe served in various management roles including Vice President for Academic Affairs at American InterContinental University in 2002, and prior to that Dean, Associate Dean and Program Director in the College of Education at the University of Phoenix from 1996 to 2002. Dr. McAuliffe earned a Ph.D., M.A. and B.A. from Arizona State University.
               Rodney T. Sheng joined us in January 2004 and has served as our Senior Vice President/Chief Administrative Officer since November 2008. From January 2004 to November 2008, Mr. Sheng served as our Vice President of Operations. Mr. Sheng has 18 years of experience in the postsecondary sector, during which time he has worked for four different colleges and universities and served in a variety of management roles. From 1995 to 2003, Mr. Sheng worked for Apollo Group, Inc. (University of Phoenix). From 2000 to 2002, Mr. Sheng served as Vice President/Campus Director and opened two campuses for the University of Phoenix in the state of Ohio. In 2002, Mr. Sheng was responsible for the marketing and recruitment for 12 learning centers throughout the Los Angeles metropolitan area. Mr. Sheng earned an M.A. from the University of Phoenix and a B.A. from San Diego State University.
               Ross L. Woodard joined us in June 2004 and has served as our Senior Vice President/Chief Marketing Officer since November 2008. From June 2004 to February 2005, Mr. Woodard served as our Director of E-Commerce and from March 2005 to October 2008 he served as our Vice President of Marketing. From June 1992 to May 2004, Mr. Woodard held multiple senior management positions with Road Runner Sports. From 1998 to 2004, Mr. Woodard served as Director of E-Commerce for Road Runner Sports and was responsible for the internet sales and marketing channel. From 1992 through 1997, Mr. Woodard served in various management roles with Road Runner Sports, including Director of Sales. From 1989 to 1992, he served as a Regional Manager for Nike, Inc. in San Diego. Mr. Woodard earned a B.A. from San Diego State University.
               Charlene Dackerman joined us in September 2004 and has served as our Senior Vice President of Human Resources since November 2008. From September 2004 to December 2005, Ms. Dackerman served as our Director of Human Resources, and from January 2006 to October 2008, she served as our Vice President of Human Resources. Ms. Dackerman has worked in the postsecondary sector for over 18 years. From 1986 to 2002, Ms. Dackerman served in various management roles for Kelsey Jenney College, including College Director, Campus Director, Dean and Director of Admissions. Ms. Dackerman earned an M.S. from National University and a B.S. from Humboldt State University.
               Thomas Ashbrook joined us in November 2008 and has served as our Senior Vice President/Chief Information Officer since that time. From March 2005 to March 2008, Mr. Ashbrook served as the Divisional Information Officer for Fremont Investment & Loan, a California industrial bank and lending institution, where he led information technology strategy for the residential business. From 2001 to 2005, Mr. Ashbrook served as the Senior Vice President of Technology Solutions for Fidelity National Information Solutions, a subsidiary of Fidelity National Financial. Mr. Ashbrook earned a B.S. from California State University, Long Beach.
               Diane L. Thompson joined us in December 2008 and has served as our Senior Vice President/General Counsel since that time. From September 1997 to November 2008, Ms. Thompson served in various management roles for Apollo Group, Inc. (University of Phoenix). From November 2000 to February 2006, Ms. Thompson served as Vice President/Counsel for Apollo Group, Inc. (University of Phoenix) and from March 2006 to November 2008, Ms. Thompson served as Chief Human Resources Officer. From October 1992 to July 1996, Ms. Thompson served as an attorney in the Pima County Attorney's Office in Tucson Arizona. Ms. Thompson earned a B.A. from St. Cloud University, an M.A. from Antioch University and a J.D. from the University of Arizona College of Law.
               Ryan Craig has served as a director of our company since November 2003. Mr. Craig is the Founder and President of Wellspring, an organization providing treatment programs for overweight and obese adolescents. From 2001 to 2004, Mr. Craig was an Associate at Warburg Pincus LLC in the
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education sector. From 1999 to 2001, Mr. Craig served as Vice President Business Development for Fathom, a consortium of universities, museums and libraries. From 1994 to 1996, he worked as a consultant with McKinsey & Company. Mr. Craig earned a B.A. from Yale University and a J.D. from Yale Law School.
               Dale Crandall has served as a director of our company since December 2008. Mr. Crandall founded Piedmont Corporate Advisors, Inc., a private financial consulting firm, in 2003 and currently serves as its President. From March 2000 to June 2002, Mr. Crandall served as the President and Chief Operating Officer of Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals. From June 1998 to March 2000, Mr. Crandall served as the Senior Vice President and Chief Financial Officer of Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals. Mr. Crandall also serves as a director for Ansell Limited, Coventry Health Care, Inc., Metavante Technologies, Inc. and as a Trustee for The Dodge & Cox Mutual Funds. Mr. Crandall earned a B.A. from Claremont McKenna College, an M.B.A. from the University of California, Berkeley and is a certified public accountant.
               Patrick T. Hackett has served as a director of our company since March 2008 and as Chairman of the Board since February 2009. Mr. Hackett is a Managing Director and co-head of the Technology, Media and Telecommunications group at Warburg Pincus LLC, which he joined in 1990. Mr. Hackett also serves as a director of Nuance Communications, Inc. and four privately-held companies. Mr. Hackett earned a B.A. from the University of Pennsylvania and a B.S. from the Wharton School of Business at the University of Pennsylvania.
               Robert Hartman has served as a director of our company since November 2006. Mr. Hartman is currently a private investor. From 1979 to September 2005, Mr. Hartman served in various management roles for Universal Technical Institute, including President, Chief Executive Officer and Chairman of the Board. During the 1980's, Mr. Hartman served as Chairman of the Arizona State Board for Private Postsecondary Education and was Founder and Chairman of the Western Council of Private Career Schools. Mr. Hartman earned an M.B.A. from DePaul University and a B.A. from Michigan State University.
               Adarsh Sarma has served as a director of our company since July 2005. Mr. Sarma is a Managing Director in the Technology, Media and Telecommunication group at Warburg Pincus LLC, which he joined as a Principal in 2005. From 2002 to early 2005, Mr. Sarma was a Principal at Chryscapital, a private equity firm. Mr. Sarma also serves as a director of Metavante Technologies, Inc. and one privately-held company. Mr. Sarma earned a B.A. from Knox College and an M.B.A. from the University of Chicago.
              In June 2003, Mr. Clark acquired and subsequently hired the management to operate Foundation College, an education provider which conducted campus-based training programs through the California Employment Training Panel. From November 2003 to August 2004, Ms. Dackerman served as President and Chief Financial Officer of Foundation College. Due to a significant decrease in state funding, the business filed for bankruptcy in December 2005.
Board Composition
              Our board of directors consists of six members. Our bylaws provide that the number of directors will be fixed from time to time by resolution of the board.
              All directors hold office until their successors have been elected and qualified or until their earlier death, resignation, disqualification or removal. We have divided the terms of office of the directors into three classes:
•
Class I, whose term will expire at the annual meeting of stockholders to be held in 2010;
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•
Class II, whose term will expire at the annual meeting of stockholders to be held in 2011; and 

•
Class III, whose term will expire at the annual meeting of stockholders to be held in 2012.
              Class I consists of Messrs. Craig and Hartman, Class II consists of Messrs. Crandall and Sarma and Class III consists of Messrs. Clark and Hackett. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms then expire will serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors.
Director Independence
              Our board of directors has determined that Messrs. Craig, Crandall, Hackett, Hartman and Sarma are independent for purposes of NYSE rules.
              There are no family relationships between any of our directors and executive officers.
Board Committees
              We have an audit committee, a compensation committee and a nominating and governance committee. Our board generally meets at least quarterly, and the committees usually meet on a similar schedule.
Audit Committee
              Our audit committee consists of three directors, Messrs. Crandall, Craig and Hartman. The chair of the audit committee is Mr. Crandall, whom the board of directors has determined is an audit committee financial expert. The functions of this committee include:
•
selecting and overseeing the engagement of a firm to serve as an independent registered public accounting firm; 

•
helping to ensure the independence of our independent registered public accounting firm; 

•
overseeing the integrity of our financial statements; 

•
preparing an audit committee report as required by the SEC to be included in our annual proxy statement; and 

•
overseeing our compliance with legal and regulatory requirements.
              We believe the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee will comply with, applicable NYSE and SEC rules, including the requirement that the audit committee have at least one qualified financial expert. All members of our audit committee are independent for purposes of NYSE and SEC rules applicable to audit committees.
Compensation Committee
              Our compensation committee consists of four directors, Messrs. Craig, Crandall, Hackett and Sarma, all of whom are independent directors. The chair of the compensation committee is Mr. Hackett. The functions of this committee include:
•
evaluating and approving all compensation plans, policies and programs as they affect the CEO and President and other executive officers; and
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•
producing an annual report on executive compensation for our annual proxy statement or annual report.
              We believe that the composition of our compensation committee meets the criteria for independence under, and the functioning of our compensation committee will comply with, applicable NYSE and SEC rules.
Nominating and Governance Committee
              Our nominating and governance committee consists of three directors, Messrs. Craig, Hartman and Sarma, all of whom are independent directors. The chair of the nominating and governance committee is Mr. Sarma. The functions of this committee include:
•
identifying, evaluating and recommending nominees to our board of directors and committees of our board of directors; 

•
evaluating the performance and independence of our board of directors and of individual directors; 

•
reviewing developments in corporate governance practices; and 

•
evaluating the adequacy of our corporate governance practices.
              We believe that the composition of our nominating and governance committee meets the criteria for independence under, and the functioning of our nominating and governance committee will comply with applicable NYSE and SEC rules.
Code of Ethics
              We have adopted a written code of ethics applicable to our board of directors, officers and employees in accordance with the rules of the NYSE and the SEC. Our code of ethics is designed to deter wrongdoing and to promote:
•
honest and ethical conduct, 

•
full, fair, accurate, timely and understandable disclosure in reports and documents that we will file with the SEC and in our other public communications; 

•
compliance with applicable laws, rules and regulations, including insider trading compliance; and 

•
accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices.
Compensation Committee Interlocks and Insider Participation
              In 2008 and in 2009 through the date of this prospectus, none of the members of our compensation committee had a relationship with us other than as directors and stockholders and they were not (i) one of our officers or employees, (ii) a participant in a "related person" transaction or (iii) an executive officer of another entity where one of our executive officers serves on the board of directors.
Compensation of Directors
              For 2008 and in 2009 through the date of this prospectus, no non-employee director received any compensation for their services as a director other than as discussed below. Directors who are one of our employees, such as Mr. Clark, do not receive any compensation for their services as our directors. Directors are reimbursed for travel and other expenses directly related to activities as
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directors. Directors are also entitled to the protection provided by the indemnification provisions in our certificate of incorporation and bylaws and indemnification agreements.
              The following table provides compensation information for the non-employee directors for 2008:

Name 	 	Fees earned
or paid
in cash	 	Stock
Awards(1)	 	Option
Awards(1)	 	All Other
Compensation	 	Total	 	
Robert Hartman(2)	 	 	 	 	 	 	 	$	2,513	 	$	30,000	 	$	32,513	 	
Dale Crandall(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—	 	
Patrick Hackett(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—	 	
Ryan Craig(5)	 	 	 	 	$	1,593,721	 	 	 	 	 	 	 	$	1,593,721	 	
Adarsh Sarma	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—	 	

(1)
The amounts in these columns are the expenses recorded in our financial statements, excluding any assumed forfeitures, for the year ended December 31, 2008 according to Statement of Financial Accounting Standards No. 123(R) (SFAS 123R). Assumptions used to calculate these amounts are included in Note 11, "Stock-Based Compensation," to our annual consolidated financial statements, which are included elsewhere in this prospectus.

(2)
Mr. Hartman entered into an independent consulting agreement with us in November 2006, which was amended in January 2008. The agreement provided for an original one year term with one year automatic extensions unless either party gave notice that it did not want to so extend the agreement. The agreement was terminated in March 2009. His services included providing operational and strategic planning. The original agreement provided that Mr. Hartman was entitled to a fee of $20,000 per year, which could be reduced if he worked only a portion of the year. The January 2008 amendment increased this amount to $30,000 per year effective in 2008. On February 28, 2007, Mr. Hartman was awarded a time-based vesting nonqualified stock option to purchase up to 44,114 common shares at a per share exercise price of $0.41 which was equal to the fair market value of one of our common shares on the date of grant. This award had a grant date fair value of $7,941 under SFAS 123R. Mr. Hartman's option vests as follows: (i) 25% of the option vests on the first anniversary of the vesting commencement date, (ii) an additional 2% of the option vests on each monthly anniversary of the vesting commencement date for the thirty-three months following the first anniversary of the vesting commencement date and (iii) an additional 3% of the option vests on each of the 46th, 47th and 48th monthly anniversaries of the vesting commencement date. In addition, upon termination of Mr. Hartman's services by us without cause or due to termination of services because of death or disability, the vesting of the option will accelerate as if service had terminated twelve months later in time. In addition, the outstanding unvested portion of the option will become fully vested upon a change of control of us if the option is not assumed or replaced. No dividend equivalent payments will be provided on the stock option if we were to pay dividends on our common stock.

(3)
Mr. Crandall was appointed to our board of directors on December 11, 2008. We entered into an agreement with Mr. Crandall to serve as a member of our board and also to serve as the chair of our audit committee.

(4)
Mr. Hackett was appointed to our board of directors on March 11, 2008.

(5)
Mr. Craig entered into an agreement with Warburg Pincus in August 2004 to serve on our board of directors and to serve as a consultant in 2004 to us on behalf of Warburg Pincus. This agreement was amended in December 2008. Under this agreement, Warburg Pincus agreed to compensate Mr. Craig from its equity ownership of us. For his director services from August 2004 to August 2008, Mr. Craig earned the right to receive 44,114 shares of our common stock from Warburg Pincus. In his role as a consultant to us in 2004, Mr. Craig earned the right to receive 67,962 shares of our common stock from Warburg Pincus. In January 2009, Mr. Craig
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received the sum total of 112,076 of our common shares for his services. See Note 15, "Related Party Transactions—Director Agreement," to our annual consolidated financial statements, which are included elsewhere in this prospectus.
              The below table reflects the aggregate number of stock option awards held by each of the non-employee directors as of December 31, 2008. No stock awards have been granted to the non-employee directors by us.

Name 	 	Time-Based
Vesting
Nonqualified
Stock Options
(#)	 	Grant
Date	 	Per Share
Exercise
Price	 	Expiration
Date	 	
Robert Hartman	 	 	44,114	 	 	2/28/07	 	$	0.41	 	 	9/15/16	 	
Dale Crandall	 	 	—	 	 	 	 	 	 	 	 	 	 	
Patrick Hackett	 	 	—	 	 	 	 	 	 	 	 	 	 	
Ryan Craig	 	 	—	 	 	 	 	 	 	 	 	 	 	
Adarsh Sarma	 	 	—	 	 	 	 	 	 	 	 	 	 	
              In March 2009, our board of directors unanimously adopted a compensation program for non-employee directors in connection with our initial public offering, which program became effective in 2009.
              The following table presents our non-employee director compensation program:

Position 	 	Annual
retainer	 	Annual Stock
Option Award	 	
Continuing Director	 	$	20,000	 	$	35,000	 	
Audit Committee Chair	 	$	10,000	 	 	—	 	
Compensation Committee Chair	 	$	5,000	 	 	—	 	
Nominating and Governance Committee Chair	 	$	5,000	 	 	—	 	
Audit Committee Member	 	$	5,000	 	 	—	 	
Compensation Committee Member	 	$	3,000	 	 	—	 	
Nominating and Governance Committee Member	 	$	3,000	 	 	—	 	
              In addition to the annual stock option award referenced in the above table, a newly elected director will receive a special one-time stock option grant, with an exercise price of $60,000, in connection with such director's commencement of service on the board of directors. This stock option award will vest as follows: (i) 25% of the shares subject to the option vests on the first anniversary of the grant date, (ii) an additional 2% of the shares subject to the option vests on each monthly anniversary of the grant date for the thirty-three months following the first anniversary of the grant date and (iii) an additional 3% of the shares subject to the option vests on each of the 46th, 47th and 48th monthly anniversaries of the grant date.
              The annual cash retainers will be paid in equal installments on a quarterly basis, beginning on January 1, 2009 for Messrs. Craig and Hartman and beginning on April 1, 2009 for Messrs. Hackett and Sarma. The number of shares subject to the stock option awards shall be calculated by dividing its dollar value by the Black-Scholes option value at the time of grant. The annual stock option award for continuing directors will fully vest on the first anniversary of grant subject to continued service.
              In addition, upon a "change of control," as defined in the stock option agreement, 50% of the director's stock options will become additionally vested and the remaining unvested portion of the director's stock options will continue to vest pursuant to the original vesting schedule but at 50% of the original rate of vesting over the vesting period. If, within the 12 month period following a change of control, the director is no longer serving as a voting member of the board of directors of Bridgepoint's
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acquiring or surviving entity due to either (i) the director being asked to resign (other than for cause) from the board of directors or (ii) the director not being re-elected to a new term on the board of directors, then the outstanding unvested portions of the director's stock options will become fully vested upon the termination of his service as a director. Additionally, if the shares of Bridgepoint's acquiring or surviving entity are not publicly traded and the director resigns from the board of directors within the 12 month period following a change of control, then the outstanding unvested portions of the director's stock options will become fully vested upon the termination of his service as a director.
              In connection with our initial public offering and as set forth in the above table, the non-employee directors each received option grants on April 14, 2009 with a per share exercise price of $10.50, which is equal to the price at which shares were offered to the public in our initial public offering. Mr. Crandall received option grants as both a newly elected director and a continuing director while the other non-employee directors received continuing director option grants. We expect that the next annual stock option grants will be issued to directors on the date of our annual meeting of stockholders in 2010.
              Our compensation committee will review director compensation annually, including fees, retainers and equity compensation, as well as total compensation and make recommendations to the board of directors.
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 COMPENSATION DISCUSSION AND ANALYSIS
              The purpose of this compensation discussion and analysis section is to provide information about the material elements of compensation that are paid or awarded to, or earned by, our "named executive officers," who consist of our principal executive officer, principal financial officer, and the three other most highly compensated executive officers. For 2008, the named executive officers were:
•
Andrew S. Clark, CEO and President; 

•
Daniel J. Devine, Chief Financial Officer; 

•
Christopher L. Spohn, Senior Vice President/Chief Admissions Officer; 

•
Rodney T. Sheng, Senior Vice President/Chief Administrative Officer; and 

•
Ross L. Woodard, Senior Vice President/Chief Marketing Officer.
              This compensation discussion and analysis section addresses and explains the compensation practices that were followed in 2008, the numerical and related information contained in the summary compensation and related tables presented below and actions taken regarding executive compensation since December 31, 2008, that could reflect a fair understanding of a named executive officer's compensation during 2008.
Historical Compensation Decisions
              Prior to our initial public offering in April 2009, we were a privately-held company with a relatively small number of stockholders, including our principal investor, Warburg Pincus. Accordingly, we were not subject to stock exchange listing or SEC rules requiring a majority of our board of directors to be independent or relating to the formation and functioning of board committees, including audit, compensation and nominating committees. Most, if not all, of our prior compensation policies and determinations, including those made for 2008, were the product of negotiations between the named executive officers and our compensation committee, although the compensation committee did discuss the compensation for other executive officers with Mr. Clark (who is also a director).
Overview, Objectives and Compensation Philosophy
              Our compensation committee is responsible for determining the compensation of the named executive officers. The committee oversees the compensation programs for these officers to ensure consistency with our corporate goals and objectives and is responsible for designing and executing our compensation program with respect to the named executive officers.
              The compensation committee reviews overall company and individual performance in connection with the review and determination of each named executive officer's compensation. For company performance, historically the focus has been principally on achievement of annual revenue and EBITDA levels. See "Selected Consolidated Financial and Other Data" for details on our recent financial performance. As an emerging growth company, the compensation committee believes that increasing revenue and profitability are the most direct ways to enhance stockholder value and therefore has specifically linked incentive compensation with company performance in these two fundamental financial areas. For individual performance, the compensation committee also reviews an executive's achievement of non-financial objectives and considers the recommendations of Mr. Clark (who is also a director).
              We believe that we have assembled an outstanding management team which has produced excellent results from 2004 to the present. There has been no turnover in any of our named executive officers since their commencement of employment with us. We believe our growth and management team retention demonstrate the success and effectiveness of our compensation policies.
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              Our annual revenue of $218.3 million in 2008 was $132.6 million more than our annual revenue of $85.7 million in 2007 and $189.7 million more than our annual revenue in 2006. Our net income of $26.4 million in 2008 was $23.1 million more than our net income of $3.3 million in 2007. We believe that the compensation amounts paid to our named executive officers for their services in 2008 were reasonable, appropriate and in our best interests.
Peer Group Information and Compensation Consultants Reports
              In 2007, the compensation committee engaged an independent outside compensation consultant, Pearl Meyer & Partners, or Pearl, to construct a peer group of companies, provide marketplace information, provide advice on competitive market practices and also support specific decisions regarding compensation for the named executive officers. Pearl had not previously and has not subsequently provided any other services to us. In 2008, the compensation committee engaged Mercer, LLC, or Mercer, to assess our executive organizational structure and job titles, construct a peer group of companies, provide marketplace information, provide advice on competitive market practices and support specific decisions regarding long-term equity incentive compensation for the named executive officers. Mercer had not previously provided any services to us. Mercer has also been providing overall compensation analysis and position leveling analysis to assist us in our 2009 compensation analysis.
              In 2007 Pearl selected the following publicly-held postsecondary education companies to be the peer group for purposes of examining our executive compensation programs:
•
Apollo Group, Inc.; 

•
Capella Education Co.; 

•
Career Education Corp.; 

•
Corinthian Colleges, Inc.; 

•
DeVry, Inc.; 

•
ITT Educational Services, Inc.; 

•
Laureate Education, Inc.; 

•
Lincoln Educational Services Corp.; 

•
Strayer Education, Inc.; and 

•
Universal Technical Institute, Inc.
              Pearl selected publicly-held companies due to the greater availability of compensation data. Pearl performed a regression analysis to better calibrate market pay levels for a company of our current and projected size. Pearl also utilized the following general industry survey information for purposes of evaluating compensation comparisons:
•
Mercer (subsidiary of Marsh & McLennan Companies, Inc.)—2006 Executive Benchmark Database; 

•
Watson Wyatt Worldwide, Inc.—2006 Top Management Report; 

•
Watson Wyatt Worldwide, Inc.—2006/7 Survey Report on College & University Personnel Compensation; 

•
Private Survey—2005 Executive Total Direct Compensation Survey; and 

•
Private Survey—2006 Executive Compensation Databank.
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              In addition to surveying external compensation information, Pearl examined the named executive officers' employment agreements and interviewed each of the named executive officers and one of our board members in order to better understand the internal perception of our business objectives and compensation arrangements. Pearl provided the compensation committee with a written report that summarized its findings and contained Pearl's compensation recommendations. The findings of the Pearl report were one factor that the compensation committee considered, but it was not the predominant basis for the compensation committee's executive compensation decisions, in part because the surveyed peer group companies were publicly traded entities whereas we were a privately-held company at that time.
              In 2008, the compensation committee engaged an independent outside compensation consultant, Mercer, to construct a peer group and review and assess our compensation levels, organizational structure and long-term equity incentive plan features. Mercer selected a peer group of similarly-sized public for-profit education companies for purposes of conducting its review, which was similar to the peer group selected by Pearl (identified above), except that it excluded Apollo Group, Inc., Laureate Education, Inc. and Career Education Corp. and instead included:
•
Nobel Learning Communities; 

•
Learning Tree International; and 

•
Princeton Review.
              Mercer also utilized the following general industry survey information for purposes of its assessment:
•
2008 Presidio Pay Advisors' Initial Public Offering Executive Compensation Survey; 

•
Publicly-filed proxy statements for the peer group companies; and 

•
Mercer, 2008/2009 U.S. Compensation Planning Survey for Executives in the education Industry.
              In addition to surveying external compensation information, Mercer examined our compensation program, the Pearl report and the valuation of our equity compensation. Mercer also interviewed our senior executives for purposes of better understanding the long-term incentive/equity strategy. Mercer provided the compensation committee with a written report that summarized its findings.
Tax and Accounting Considerations
              In 2008, while the compensation committee generally considered the financial accounting and tax implications of its executive compensation decisions, neither element was a material consideration in the compensation awarded to our named executive officers during such fiscal year.
Components of Executive Compensation
              The compensation of the named executive officers has three primary components:
•
an annual base salary; 

•
an annual incentive bonus opportunity; and 

•
long-term equity-based compensation.
              Perquisites, and benefits generally available to other employees, represent only a minor portion of the total compensation of the named executive officers.
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Annual Base Salary and Annual Bonus
              The compensation committee sets base salaries primarily based on the abilities, performance and experience of the named executive officers. The compensation committee also reviews their past compensation and compensation data for comparable positions in the postsecondary education industry. The compensation committee seeks to set base salaries for the named executive officers at competitive levels.
              The compensation committee believes it is important to provide the named executive officers with an annual performance-based cash incentive bonus plan in order to further motivate the officers and provide compensation that is directly linked to achievement of corporate goals and objectives. As discussed further in the "Executive Employment Agreements" section, four of the five named executive officers are a party to an employment agreement with us, each of which provides that the named executive officer will be eligible for an annual discretionary incentive bonus based on attainment of company performance criteria. Each of the employment agreements also specifies an annual target bonus amount as a percentage of annual salary and that the actual bonus paid may be more or less than the target amount. In 2008, for each named executive officer with an employment agreement, their annual bonus was based on achievement of annual revenue and EBITDA goals with revenue receiving 65% of the weighting and EBITDA receiving the remaining 35%.
              Mr. Woodard is the only named executive officer who is not a party to an employment agreement with us. In November 2007, the compensation committee established Mr. Woodard's base salary and target annual bonus for 2008. The compensation committee used the same criteria it used for the named executive officers with employment agreements (described above) in order to determine Mr. Woodard's actual annual bonus amount for 2008.
              The annual bonus arrangements for 2008 are further described in the "Grants of Plan-Based Awards—2008" table below.
Amended and Restated 2005 Stock Incentive Plan
              We provide long-term equity incentive compensation to retain our named executive officers and to provide for a significant portion of their compensation to be at risk and linked directly with the appreciation of stockholder value. Long-term compensation has been generally provided through equity awards in the form of stock options with time and performance-based vesting conditions and under the terms and conditions of our Amended and Restated 2005 Stock Incentive Plan, which we refer to as the 2005 Plan.
              The 2005 Plan was last amended and approved by our stockholders in November 2007 and is scheduled to expire in January 2016 unless terminated earlier by us. Effective with our initial public offering, we no longer make any new grants under the 2005 Plan and instead issue equity compensation awards under our 2009 Stock Incentive Plan, which we refer to as the 2009 Plan, as discussed below.
              The 2005 Plan is administered by the compensation committee, which has the authority, among other things, to:
•
determine eligibility to receive awards; 

•
determine the types and number of shares of stock subject to awards; 

•
determine the price and terms of awards and the acceleration or waiver of any vesting; 

•
determine performance or forfeiture restrictions and other terms and conditions; and 

•
construe and interpret the terms of the plan, award agreements, and other related documents.
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              The 2005 Plan provides that we may grant awards to our employees, non-employee directors or consultants or those of our affiliates. We may award these individuals with either stock options and/or stock purchase rights.
              Stock options may be granted under the 2005 Plan, including incentive stock options, as defined under Section 422 of the Internal Revenue Code, as amended, or the Code, and nonqualified stock options. While we may grant incentive stock options only to employees, we may grant nonstatutory stock options or restricted stock purchase rights to any eligible participant. The option exercise price of all stock options granted under the 2005 Plan is determined by the compensation committee, except that any incentive stock option will not be granted at a price that is less than 100% of the fair market value of the stock on the date of grant. Stock options may be exercised as determined by the compensation committee, but in no event after the tenth anniversary of the date of grant. A stock purchase right award is the grant of shares of our common stock at a price determined by the compensation committee (including zero), that is nontransferable and is subject to a right of repurchase. No stock purchase rights have been awarded to any of the named executive officers.
              The named executive officers will not receive dividend equivalent payments on outstanding stock options granted under the 2005 Plan if we were to pay dividends on our common stock. The stock option grant agreements also generally provide for some or all of the unvested options to vest immediately when certain events occur, including a change of control of the company, the officer's death or disability and qualifying involuntary terminations of employment. The term "change of control" under the 2005 Plan is generally defined to include (i) the acquisition of at least 50% of our voting securities by any person other than an affiliate of ours or Warburg Pincus that holds our equity securities; or (ii) the sale or conveyance of all or substantially all of the company assets to a person who is not an affiliate of ours or Warburg Pincus. Unvested stock options are subject to forfeiture for non-qualifying terminations of employment.
              In 2008, the compensation committee granted no stock options under the 2005 Plan to the named executive officers. Details on previously granted awards under this 2005 Plan to the named executive officers are provided in the "Outstanding Equity Awards At Fiscal Year End—2008" table below.
              In March 2009, our board of directors unanimously approved the 2009 Plan to replace the 2005 Plan such that, effective as of our initial public offering, we no longer make any new grants under the 2005 Plan. Further details of the 2009 Plan are provided below under "2009 Compensation Decisions." As of August 15, 2009, there were 8,647,360 shares subject to outstanding options awarded under the 2005 Plan.
Timing of Stock Option Grants
              All stock option grants to named executive officers are granted with an exercise price equal to or above the fair market value of the underlying stock on the date of grant. We do not grant stock options, or any other form of equity compensation, in anticipation of the release of material non-public information. Similarly, we do not time the release of material non-public information based on stock option or other equity award grant dates.
Employee Benefits and Perquisites
              We do not offer extensive or elaborate benefits to the named executive officers. We seek to compensate our named executive officers at levels that eliminate the need for perquisites and enable each individual officer to provide for his own needs. We offer other employee benefits to the named executive officers for the purpose of meeting current and future health and security needs for the officers and their families. These benefits, which are generally offered to all eligible employees, include medical, dental, and life insurance benefits; short-term disability pay; long-term disability insurance;
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flexible spending accounts for medical expense reimbursements; and a 401(k) retirement savings plan. The 401(k) retirement savings plan is a defined contribution plan established in accordance with Section 401(a) of the Code. Employees may make pre-tax contributions into the plan, expressed as a percentage of compensation, up to annual limits prescribed by the Internal Revenue Service and we may make matching contributions. Beginning on July 1, 2009, we began making matching contributions under the 401(k) plan.
Senior Management Benefit Plan
              We have a Senior Management Benefit Plan, which we refer to as the Benefit Plan, in which members of our senior management, including named executive officers, are eligible to participate.
              The Benefit Plan provides an annual benefit of up to $100,000 per participant (including the participant's eligible dependents) for unreimbursed medical expenses during a calendar year that are not covered by our major medical plan. The unreimbursed medical expenses covered under the Benefit Plan include deductibles, coinsurance amounts, special health equipment, annual physicals, dental care and vision care, among others. Additionally, the Benefit Plan provides worldwide medical assistance services, including locating the nearest medical facility, finding an attorney and making arrangements for emergency medical evacuation.
Change of Control and Severance
              In 2008, only the named executive officers that were a party to an employment agreement were eligible to have received contractually-provided severance benefits. These severance benefits were generally intended to match what is provided by our competitors and also intended to provide compensation while the officer searches for new employment after experiencing an involuntary termination of employment from us. We believe that providing severance protection for these named executive officers upon their involuntary termination of employment is an important retention tool that is necessary in the competitive marketplace for talented executives. We believe that the amounts of these payments and benefits and the periods of time during which they would be provided are fair and reasonable. We have not historically taken into account any amounts that may be received by a named executive officer following termination of employment when establishing current compensation levels. Our stock option grant agreements with each of the named executive officers also generally provide for some or all of the unvested options to vest immediately when certain events occur, including a change of control of the company, the officer's death or disability and qualifying involuntary terminations of employment.
Compensation of the CEO and President and Other Named Executive Officers
              The base salary, bonus and equity compensation for each of the named executive officers for 2008 is reported below under the "Summary Compensation Table." In addition, as four of the five named executive officers are a party to an employment agreement with us, additional information regarding their compensation is described below under the "Executive Employment Agreements" section.
              The compensation of the CEO and President is greater than the other named executive officers' compensation because his responsibilities for the management and strategic direction of the company are significantly greater and he has substantial additional obligations as the CEO and President. As our Chief Executive Officer and a board member, Mr. Clark has been our primary guiding force for several years. The difference between his and the other named executive officers' compensation is primarily derived from stock option awards that will only create value for Mr. Clark if our share value appreciates. The compensation committee believes it is desirable to provide a
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significant amount of at-risk, performance-based compensation to the CEO and President to continue to encourage and reward him for superior accomplishments.
              The compensation committee uses the same criteria to set compensation among each of the other named executive officers. The compensation committee's objective in setting their compensation is to provide them with an equitable level of compensation, taking into account (i) their performance, (ii) their responsibilities, (iii) their past compensation, (iv) their compensation relative to each other, (v) compensation levels at companies in the peer group and (vi) compensation levels of the next tier of management, as well as the recommendations of the CEO and President. In general, the base salaries, bonus opportunities and long-term equity compensation awards of the other officers are substantially similar.
2008 Compensation Decisions
              In November 2007, in addition to setting salaries of our named executive officers for 2008, the compensation committee set the 2008 target annual bonuses for each of our named executive officers. As described above in "Annual Base Salary and Annual Bonus," four of the five named executive officers are a party to an employment agreement with us, which specifies an annual target bonus amount as a percentage of annual salary; however, the actual bonus amount paid to these named executive officers may be or more or less than the target amount provided in their employment agreements. For 2008, each named executive officer with an employment agreement was eligible to earn a fiscal year performance-based cash bonus pursuant to the target bonus amount set forth in his employment agreement. For Mr. Woodard, who is not a party to an employment agreement, the compensation committee determined his target bonus amount for 2008. For 2008, Mr. Clark's target percentage of his annual base salary was 70%, and for the other named executive officers, their target percentage of their annual base salary was 50%. The following table sets forth the threshold, target and maximum bonus amounts that our named executive officers were eligible to earn with respect to their fiscal 2008 annual cash bonuses:

Name 	 	Threshold ($)	 	Target ($)	 	Maximum ($)	 	
Andrew S. Clark	 	$	227,500	 	$	227,500	 	$	875,500	 	
Daniel J. Devine	 	$	110,000	 	$	110,000	 	$	325,000	 	
Christopher L. Spohn	 	$	113,500	 	$	113,500	 	$	323,500	 	
Rodney T. Sheng	 	$	113,500	 	$	113,500	 	$	323,500	 	
Ross L. Woodard(1)	 	$	108,000	 	$	108,000	 	$	291,000	 	

(1)
Mr. Woodard did not have a specific threshold or maximum amount for his fiscal 2008 annual cash bonus and the actual bonus amount could have been less than or greater than the target, depending on the degree of attainment of company performance criteria.
              For the fiscal 2008 annual cash bonuses, the compensation committee determined in November 2007 that the bonuses would be paid depending on the degree of attainment of company performance criteria. Specifically, the performance criteria was weighted as to 65% for achievement of applicable revenue targets and as to 35% of applicable EBITDA targets. For fiscal 2008, this equated to a revenue target of $165.0 million and an EBITDA target of $15.8 million. The compensation committee believes these measures provided an accurate and comprehensive picture of our annual performance that the executives, stockholders and other parties could clearly understand.
              In addition, the compensation committee decided in November 2007 to create further incentives for our named executive officers for fiscal 2008 by establishing a special overachievement bonus. The compensation committee determined that the special overachievement bonus would be based on a discretionary pool of $1.0 million for achievement of EBITDA at 150% of the target of $15.8 million and an additional discretionary bonus pool equal to $10,000 for every percentage point
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improvement of EBITDA above 150% of the target $15.8 million. The compensation committee later adjusted the fiscal 2008 EBITDA target to exclude the stock-based compensation expense of $1.6 million related to stock transferred from Warburg Pincus to Ryan Craig, a director, in payment for certain consulting and director services rendered to us from 2004-2008 pursuant to an agreement between Warburg Pincus and Mr. Craig, which expense (i) the compensation committee did not contemplate when determining the EBITDA performance target for fiscal 2008 and (ii) the compensation committee felt was appropriate to exclude from EBITDA for fiscal 2008 because the compensation related in large part to services rendered from 2004-2007. The compensation committee does not anticipate awarding special overachievement bonuses to management in the future.
              Following the completion of fiscal 2008, the compensation committee compared the actual performance of the Company to the previously established performance targets for the year to determine the bonuses payable to the named executive officers, if any. In making such comparisons and determinations, the compensation committee reviewed our financial results for fiscal 2008 to determine whether the financial performance goals had been met. Additionally, with respect to the discretionary bonus pool for the special overachievement bonuses, the compensation committee determined that our actual performance resulted in a bonus pool equal to $1.9 million. In order to determine the individual payouts from the discretionary bonus pool for the special overachievement bonuses, the compensation committee considered recommendations from Mr. Clark as to the portions of the discretionary bonus pool to allocate to the other named executive officers and members of senior management.
              The following table sets forth the actual amounts earned for 2008 by the named executive officers for both their fiscal 2008 annual cash bonuses and their portion of the discretionary bonus pool for the special overachievement bonuses:

Name 	 	Fiscal 2008
Annual
Cash Bonus	 	Special
Overachievement
Bonus	 	
Andrew S. Clark	 	$	227,500	 	$	648,000	 	
Daniel J. Devine	 	$	110,000	 	$	215,000	 	
Christopher L. Spohn	 	$	113,500	 	$	210,000	 	
Rodney T. Sheng	 	$	113,500	 	$	210,000	 	
Ross L. Woodard	 	$	108,000	 	$	183,000	 	
              In addition to the fiscal 2008 annual cash bonus and the special overachievement bonus, Mr. Spohn was also eligible for an additional bonus based on attainment of annual revenue. The compensation committee determined that Mr. Spohn did not earn any portion of this additional bonus opportunity for 2008.
              In November 2008, the compensation committee also approved increases in the named executive officers' salaries effective January 1, 2009, to reward them for their contributions to the many years of successful financial performance. In setting the 2009 salaries, the compensation committee also reviewed and considered the Mercer compensation survey report. The following table provides the salaries for each of the named executive officers for 2008 and 2009:

Name 	 	FY08 Salary	 	FY09 Salary	 	
Andrew S. Clark	 	$	325,000	 	$	375,000	 	
Daniel J. Devine	 	$	220,000	 	$	250,000	 	
Christopher L. Spohn	 	$	227,000	 	$	250,000	 	
Rodney T. Sheng	 	$	227,000	 	$	250,000	 	
Ross L. Woodard	 	$	216,000	 	$	230,000	 	
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2009 Compensation Decisions
              In February 2009, our board of directors unanimously approved an Executive Severance Plan and a Policy on Recoupment of Compensation. Additionally, for the four named executive officers who were previously a party to an employment agreement, our compensation committee approved new employment agreements for such four executives to replace their prior employment agreements that had been effective during 2008. See "Executive Employment Agreements." Mr. Woodard, the only named executive officer who is not a party to an employment agreement, will be offered the opportunity to participate in the Executive Severance Plan. In March 2009, our board of directors unanimously adopted, and our stockholders approved, the 2009 Plan and an Employee Stock Purchase Plan. Set forth below is information concerning these recently adopted plans and policies.
              In March 2009, our board of directors unanimously approved new stock option grants and the compensation committee approved a 2009 performance-based bonus compensation program for the named executive officers. The compensation committee also approved an amendment to outstanding stock options. Set forth below is information describing these new compensation arrangements and the stock option amendment.
2009 Stock Option Grants to Named Executive Officers
              In March 2009, the board of directors, with input from the independent compensation consultant, Mercer, LLC, unanimously decided to award stock options to our employees including the named executive officers. The board of directors wanted to provide further equity retention and incentive compensation for the named executive officers particularly since their outstanding equity awards were largely vested. These stock options were granted under the 2009 Plan to the named executive officers on April 14, 2009. The options have a per share exercise price equal to $10.50, the price at which shares were offered to the public in our initial public offering and contain time-based vesting conditions that are generally as described in footnote 4 to the "Outstanding Equity Awards at Fiscal Year End-2008" table and subject to acceleration of vesting as described below under "Executive Severance Plan" and the description of the 2009 employment agreements under "Executive Employment Agreements." The number of shares subject to these option grants is shown in the following table:

 	 	Number of Shares
Subject to Option	 	
Andrew S. Clark	 	 	666,666	 	
Daniel J. Devine	 	 	222,222	 	
Christopher L. Spohn	 	 	266,666	 	
Rodney T. Sheng	 	 	266,666	 	
Ross L. Woodard	 	 	222,222	 	
2009 Performance-Based Bonus Program
              In March 2009, the compensation committee, with input from its independent compensation consultant, Mercer, LLC, adopted an annual cash bonus compensation program for 2009 for our employees including the named executive officers. Bonuses for the named executive officers will be based on achievement of annual revenue goals in 2009, EBITDA goals in 2009 and quality/customer satisfaction goals, with revenue receiving 25% of the weighting, EBITDA receiving 50% of the weighting and quality/customer satisfaction receiving the remaining 25%. The bonus targets will require a significant increase in revenue and EBITDA over our performance in 2008. In order for a named executive officer to receive any bonus, we must achieve at least threshold performance as defined under the bonus program.
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              The threshold, target and maximum bonuses that can be earned by the named executive officers for 2009 under this performance-based program is shown in the following table:

 	 	Threshold	 	Target	 	Maximum	 	
Andrew S. Clark	 	$	187,500	 	$	375,000	 	$	750,000	 	
Daniel J. Devine	 	$	62,500	 	$	125,000	 	$	250,000	 	
Christopher L. Spohn	 	$	62,500	 	$	125,000	 	$	250,000	 	
Rodney T. Sheng	 	$	75,000	 	$	150,000	 	$	300,000	 	
Ross L. Woodard	 	$	57,500	 	$	115,000	 	$	230,000	 	
              The compensation committee may in its discretion award bonus amounts that fall in between the figures expressed in the table above for attainment of performance that falls in between the specified goals.
Stock Option Amendment
              In 2006 and 2007, stock options, portions of which included vesting conditions based upon qualifying change of control or liquidity event transactions, referred to as "exit options," were granted to the named executive officers. Under the original terms of the exit options, full vesting of all the exit options would not occur until our principal investor, Warburg Pincus, had completed the sale of all of its ownership in us. The primary purpose of the exit options was to provide an additional incentive to such individuals to build a successful business which would achieve an attractive return on the investment made by all stockholders. Our board of directors, including the Warburg Pincus representatives, determined that the purpose of the exit options had been achieved and that it was therefore appropriate to vest the outstanding exit options upon the closing of our initial public offering, rather than wait for full vesting to occur if and when Warburg Pincus sold its shares. Accordingly, in March 2009, the compensation committee approved an amendment to the exit options such that the exit options vested in full on April 20, 2009. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Acceleration of Exit Options." Further details on the exit options and their vesting criteria is provided below in footnote 7 to the "Outstanding Equity Awards at Fiscal Year End—2008" table.
Executive Severance Plan
              In February 2009, we established the Executive Severance Plan to provide severance pay and other benefits to certain eligible management or highly compensated employees. Our board of directors may amend or terminate the Executive Severance Plan. However, the Executive Severance Plan cannot be amended to reduce benefits, except as may be required by law, without providing 12 months advance written notice to the covered employees.
              The compensation committee determines which employees are eligible to participate in the Executive Severance Plan. Currently, Mr. Woodard is the only named executive officer eligible to participate in the Executive Severance Plan.
              If Mr. Woodard's employment is terminated by us without "cause" or by him for "good reason" (as defined in the Executive Severance Plan), he will be eligible to receive severance benefits under the Executive Severance Plan including (a) severance pay equal to six months of his base salary; and (b) company-paid medical insurance premiums after termination for up to six months. If Mr. Woodard's employment is terminated by us without "cause" or by Mr. Woodard for "good reason" within 24 months after a "change of control" (as defined in the Executive Severance Plan), then all of Mr. Woodard's unvested stock option awards will fully vest as of the termination date, in addition to receiving (a) and (b) described in the preceding sentence. We will condition the payment of such severance benefits upon Mr. Woodard providing us with a release of claims against us, our affiliates and related parties.
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Policy on Recoupment of Compensation
              In February 2009, our board of directors adopted a Policy on Recoupment of Compensation, which we refer to as the Recoupment Policy, pursuant to which certain members of management, including all of the named executive officers, may be directed to return to us performance-based compensation that the officer had previously received if either:
              (i)          there is a restatement of any of our financial statements, previously filed with the Securities and Exchange Commission (regardless of whether there was any misconduct committed by an executive), other than those due to changes in accounting policy, and the restated financial results would have resulted in a lesser amount of performance-based compensation being paid to the named executive officer; or
              (ii)         the named executive officer's intentional misconduct, gross negligence or failure to report intentional misconduct or gross negligence by one of our employees (or service providers) either: (x) was a contributing factor or partial factor to having to restate any of our financial statements previously filed with the Securities and Exchange Commission or (y) constituted fraud, bribery or any other unlawful act (or contributed to another person's fraud, bribery or other unlawful act) which in each case adversely impacted our finances, business and/or reputation.
              In the event of a restatement of our financial statements, the compensation committee will review performance-based compensation awarded or paid to the named executive officers that was attributable to performance during the applicable time periods. To the extent permitted by applicable law, the compensation committee will make a determination as to whether, and how much, compensation is to be recouped by us on an individual basis. If there has been no misconduct (as described in clause (ii) above), any recoupment of compensation will be limited to a three-year lookback period from the date the financial or accounting irregularity was discovered by us.
              Moreover, if the compensation committee determines that one of the named executive officers has engaged in misconduct, the compensation committee may take such actions with respect to such executive as it deems to be in our best interests and necessary to remedy the misconduct and prevent its recurrence. To the extent permitted by applicable law, such actions can include, among other things, recoupment of compensation (which would not be limited to the three-year lookback period) and/or disciplinary actions up to and including termination of employment. The compensation committee's power to determine the appropriate remedy is in addition to, and not in replacement of, remedies imposed by law enforcement agencies, regulators or other authorities.
2009 Stock Incentive Plan
              We adopted the 2009 Plan in connection with our initial public offering. The 2009 Plan replaced the 2005 Plan for all equity-based awards to the named executive officers. The board of directors adopted the 2009 Plan because it believed the new plan was appropriate to facilitate implementation of our future compensation programs as a public company. The 2009 Plan was approved by the board of directors with a view toward providing our compensation committee with maximum flexibility to structure an executive compensation program that provides a wider range of potential incentive awards to our named executive officers, and employees generally, on a going-forward basis.
              The 2009 Plan is administered by our compensation committee. The committee has the exclusive authority, among other things, to:
•
determine eligibility to receive awards; 

•
determine the types and number of shares of stock subject to awards;
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•
determine the price and terms of awards and the acceleration or waiver of any vesting; 

•
determine performance or forfeiture restrictions and other terms and conditions; and 

•
construe and interpret the terms of the plan, award agreements and other related documents.
              Any of our employees, directors, non-employee directors, and consultants, as determined by the compensation committee, may be selected to participate in the 2009 Plan. We may award these individuals with one or more of the following types of awards and all awards will be evidenced by an executed agreement between us and the grantee:
•
stock options; 

•
stock appreciation rights; 

•
stock awards; or 

•
stock units.
              Stock options may be granted under the 2009 Plan, including incentive stock options, as defined under Section 422 of the Code, and nonstatutory stock options. The exercise price of all stock options granted under the 2009 Plan will be determined by the compensation committee except that all options must have an exercise price that is not less than 100% of the fair market value of the underlying shares on the date of grant. The compensation committee may, in its discretion, subsequently reduce the exercise price of an option to the then-fair market value of the underlying shares as of the date of such price reduction. Stock options may be exercised as determined by the compensation committee, but in no event after the tenth anniversary of the date of grant.
              Stock appreciation rights entitle a participant to receive a payment equal in value to the difference between the fair market value of a share of stock on the date of exercise of the stock appreciation right over the exercise price of the stock appreciation rights. We may pay that amount in cash, in shares of our common stock, or in a combination of both. The exercise price of all stock appreciation rights granted under the 2009 Plan will be determined by the compensation committee except that all stock appreciation rights must have an exercise price that is not less than 100% of the fair market value of the underlying shares on the date of grant. The compensation committee may, in its discretion, subsequently reduce the exercise price of a stock appreciation right to the then-fair market value of the underlying shares as of the date of such price reduction.
              A stock award is the grant of shares of our common stock at a price determined by the compensation committee (including zero), and which may be subject to a substantial risk of forfeiture until specific conditions or goals are met. Conditions may be based on continuing employment or achieving performance goals. During the period of vesting, participants holding shares of restricted stock generally will have full voting and dividend rights with respect to such shares.
              A stock unit is a bookkeeping entry that represents the equivalent of a share of our common stock. A stock unit is similar to a restricted stock award except that participants holding stock units do not have any stockholder rights until the stock unit is settled with shares. Stock units represent an unfunded and unsecured obligation for us and a holder of a stock unit has no rights other than those of a general creditor.
              Subject to certain adjustments in the event of a change in capitalization or similar transaction, we may issue a maximum of 5,000,000 shares of our common stock under the 2009 Plan. Additionally, the maximum number of shares available for issuance under the 2009 Plan will automatically increase, without the need for further approval by our stockholders, on January 1, 2010 and on each subsequent January 1 through and including January 1, 2019, by a number of shares equal to the lesser of (i) 2% of the number of shares issued and outstanding on the immediately preceding December 31,
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(ii) 1,300,000 shares or (iii) an amount determined by our board of directors. Shares subject to awards that expire or are canceled will again become available for issuance under the 2009 Plan.
              To the extent that an award is intended to qualify as performance-based compensation under Code Section 162(m), then the maximum number of shares of common stock issuable in the form of each type of award under the 2009 Plan to any one participant during a fiscal year shall not exceed 750,000 shares, in each case with such limit increased to 1,500,000 shares for grants occurring in a participant's year of hire. Additionally, no participant shall receive in excess of the aggregate amount of 750,000 shares pursuant to all awards issued under the 2009 Plan during any fiscal year, with such aggregate limit increased to 1,500,000 shares for awards occurring in a participant's year of hire.
              The 2009 Plan provides that in the event there is a change of control and the applicable agreement of merger or reorganization provides for assumption or continuation of the awards, no acceleration of vesting shall occur. In the event that a change of control occurs with respect to us and there is no assumption or continuation of awards, all awards shall vest and become exercisable as of immediately before such change of control. The term "change of control" under the 2009 Plan is generally defined to include: (i) the acquisition of more than 50% of our voting securities by any person other than Warburg Pincus or its affiliates, (ii) the sale of all or substantially all of our assets or (iii) certain changes in the majority of the board members.
              The board of directors may terminate, amend or modify the 2009 Plan at any time; however, stockholder approval will be obtained for any amendment to the extent necessary to comply with any applicable law, regulation or stock exchange rule. Unless terminated earlier, the 2009 Plan will terminate on March 3, 2019.
Employee Stock Purchase Plan (ESPP)
              Under the ESPP, our employees will have an opportunity to acquire our common shares at a specified discount from the fair market value as permitted by Section 423 of the Code. The compensation committee will administer the ESPP and the board of directors may amend or terminate the ESPP subject to obtaining any required stockholder approval. The ESPP is intended to comply with the requirements of Section 423 of the Code.
              We have authorized and reserved a total of 1,000,000 shares of our common stock for issuance under the ESPP. Additionally, the maximum number of shares available for issuance under the ESPP will automatically increase, without the need for further approval by our stockholders, on January 1, 2010 and on each subsequent January 1 through and including January 1, 2019, by a number of shares equal to the lesser of (i) 1% of the number of shares issued and outstanding on the immediately preceding December 31, (ii) 400,000 shares or (iii) an amount determined by our board of directors. We will make appropriate adjustments to the number of authorized shares and to outstanding purchase rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the ESPP.
              The compensation committee has preliminarily decided that there will be three month offering periods with a 5% discount from the fair market value of a share on the date of purchase when the ESPP commences its offering of shares to eligible employees. Under the ESPP, the compensation committee and board of directors retain the ability to change the offering periods and purchase price. Our employees, and the employees of any future parent or subsidiary corporation or other affiliated entity, will be eligible to participate in the ESPP if they are employed by us. As required by Section 423 of the Code, participants in the ESPP will generally all have the same rights and privileges. However, we may exclude certain employees from being participants as permitted by Section 423 of the Code. In this regard, the compensation committee has determined that the named executive officers will not be participants in the ESPP when the ESPP commences its offering of shares to eligible
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employees. The compensation committee currently believes that the named executive officers should receive their equity compensation through the stock incentive plans which do not provide a discount from the option exercise price.
              The board of directors may terminate, amend or extend the ESPP at any time; however, stockholder approval will be obtained for any amendment to the extent necessary to comply with any applicable law, regulation or stock exchange rule. Unless terminated earlier, the ESPP will terminate on March 3, 2029.
Executive Compensation
              Our executive officers are appointed by, and serve at the discretion of, our board of directors.
              The following tables provide information on compensation for the services of the named executive officers for 2008.
Summary Compensation Table—2008

Name and Principal Position 	 	Year	 	Salary	 	Option
Awards(1)	 	Non-Equity
Incentive
Plan
Compensation(2)	 	All Other
Compensation(3)	 	Total	 	
 Andrew S. Clark,	 	 	2008	 	$	325,000	 	$	35,989	 	$	875,500	 	$	13,412	 	$	1,249,901	 	
 	 CEO and President	 	 	2007	 	$	227,936	 	$	44,901	 	$	227,000	 	$	5,255	 	$	505,092	 	
Daniel J. Devine,	 	 	2008	 	$	220,000	 	$	13,230	 	$	325,000	 	$	4,236	 	$	562,466	 	
 	Chief Financial Officer	 	 	2007	 	$	205,817	 	$	11,771	 	$	154,500	 	$	5,588	 	$	377,676	 	
 Christopher L. Spohn,	 	 	2008	 	$	227,000	 	$	13,230	 	$	323,500	 	$	11,785	 	$	575,515	 	
 Senior Vice President/Chief Admissions Officer	 	 	2007	 	$	200,403	 	$	11,771	 	$	170,000	 	$	5,528	 	$	387,702	 	
Rodney T. Sheng,	 	 	2008	 	$	227,000	 	$	13,230	 	$	323,500	 	$	6,358	 	$	570,088	 	
Senior Vice President/Chief Administrative Officer	 	 	2007	 	$	200,403	 	$	11,771	 	$	100,000	 	$	3,156	 	$	315,330	 	
 Ross L. Woodard,	 	 	2008	 	$	216,000	 	$	26,406	 	$	291,000	 	$	12,690	 	$	546,096	 	
 Senior Vice President/Chief Marketing Officer	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

(1)
Represents the expense recorded in our financial statements, excluding any assumed forfeitures, for the year ended December 31, 2008, according to SFAS 123R. Assumptions used to calculate these amounts are included in Note 11, "Stock-Based Compensation," to our annual consolidated financial statements for the year ended December 31, 2008, which are included elsewhere in this prospectus.

(2)
Represents the annual discretionary cash incentive bonus awards paid to each named executive officer as further described in the "Grants of Plan-Based Awards-2008" table. The table below shows the amounts earned for 2008 under the basic annual discretionary bonus opportunity and a special overachievement bonus, respectively.

 	2008 	 	Annual
Discretionary
Bonus	 	Special
Overachievement
Bonus	 	
 	Andrew S. Clark	 	$	227,500	 	$	648,000	 	
 	Daniel J. Devine	 	$	110,000	 	$	215,000	 	
 	Christopher L. Spohn	 	$	113,500	 	$	210,000	 	
 	Rodney T. Sheng	 	$	113,500	 	$	210,000	 	
 	Ross L. Woodard	 	$	108,000	 	$	183,000	 	
(3)
Represents our payments for the named executive officer's medical and health insurance.
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              The following table provides information on cash-based performance awards granted in 2008 to the named executive officers:
Grants of Plan-Based Awards—2008

 	 	 	 	Estimated future payouts under
Non-equity incentive plan awards	 	
 	 	Grant date			 	
Name 			 	Threshold	 	Target(1)	 	Maximum	 	
 Andrew S. Clark	 	 	(2)	 	$	227,500	 	$	227,500	 	$	875,500	 	
Daniel J. Devine	 	 	(2)	 	$	110,000	 	$	110,000	 	$	325,000	 	
 Christopher L. Spohn	 	 	(2)	 	$	113,500	 	$	113,500	 	$	323,500	 	
	 	 	(3)	 	$	170,250	 	$	170,250	 	$	340,500	 	
Rodney T. Sheng	 	 	(2)	 	$	113,500	 	$	113,500	 	$	323,500	 	
 Ross L. Woodard	 	 	(4)	 	$	108,000	 	$	108,000	 	$	291,000	 	

(1)
This column shows the target amount for the annual discretionary cash incentive bonus award set for each of the named executive officers for 2008 by the compensation committee. Such target bonus amount is determined as a percentage of annual salary with Mr. Clark's percentage set at 70% of salary and the other named executive officers set at 50% of salary.

(2)
Each of the named executive officers was eligible to earn a fiscal year performance-based cash bonus pursuant to his employment agreement, as discussed below. The actual annual bonus payment could have been less than or greater than the target, specified in footnote 1 to this table, depending upon the degree of attainment of company performance criteria, which were weighted as to 65% for achievement of applicable revenue targets and as to 35% of applicable EBITDA targets. For the fiscal 2008 annual cash bonus, these targets were a fiscal 2008 revenue target of $165.0 million and a fiscal 2008 EBITDA of $15.8 million. In addition, the named executive officers were eligible to earn a special overachievement bonus for fiscal 2008. The overachievement bonus amount was determined by having a discretionary bonus pool of $1.0 million for achievement of EBITDA of 150% of the target and an additional discretionary bonus pool equal to $10,000 for every percentage point improvement of EBITDA above 150% of the target prior to the adjustment to account for the expense related to Mr. Craig's stock award expense of $1.6 million. The total distribution bonus pool was $1.9 million. The compensation committee, after considering recommendations from the CEO and President, then allocated portions of the bonus pool to the named executive officers. The amount of actual bonuses that were paid to the named executive officers for 2008 are reported in footnote 2 to the Summary Compensation Table.

(3)
As described in the Executive Employment Agreements section below, Mr. Spohn was eligible for an additional bonus based on attainment of annual revenue. No portion of this additional bonus opportunity was earned for 2008.

(4)
Mr. Woodard was eligible to earn a fiscal year performance-based cash bonus. There was no specific threshold or maximum and the actual fiscal year performance-based cash payment could have been less than or greater than the target (specified in footnote 1 to this table) depending upon the degree of attainment of company performance criteria, which were weighted the same as for the other four named executive officers described in footnote 2 to this table. Additionally, Mr. Woodard was also eligible to earn a special overachievement bonus for 2008. The determination and allocation of the special overachievement bonus amount was the same as that for the other four named executive officers described in footnote 2 to this table. The amount of the actual bonuses paid to Mr. Woodard for 2008 is reported in footnote 2 to the Summary Compensation Table.
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Executive Employment Agreements
              We had previously entered into employment agreements with four of the five named executive officers which were effective during 2008. In March 2009, we entered into new employment agreements to replace the prior employment agreements. Each of these employment agreements are on substantially similar terms and conditions with certain differences reflected in the two tables below.
              Mr. Woodard was not a party to an employment agreement during 2008 and he is not a party to an employment agreement at this point in time. Mr. Woodard will instead be subject to, and may receive benefits from, our Executive Severance Plan, as described above.
              Andrew S. Clark, CEO and President.     We entered into an employment agreement with Mr. Clark in November 2003, which was later amended in January 2006. In February 2009, we adopted a new employment agreement to replace the prior employment agreement. The new agreement provides that Mr. Clark will serve as Chief Executive Officer. Additionally, we have agreed to nominate him for election to our board at each annual meeting of stockholders. The term of the agreement extends through March 4, 2013.
              Daniel J. Devine, Chief Financial Officer.     We entered into an employment agreement with Mr. Devine in December 2003, which was later amended in January 2006. In February 2009, we adopted a new employment agreement to replace the prior employment agreement. The new agreement provides that Mr. Devine will serve as Chief Financial Officer. The term of the new agreement extends through March 9, 2011.
              Christopher L. Spohn, Senior Vice President/Chief Admissions Officer.     We entered into an employment agreement with Mr. Spohn in December 2003, which was later amended in January 2006. In February 2009, we adopted a new employment agreement to replace the prior employment agreement. The new agreement provides that Mr. Spohn will serve as Senior Vice President/Chief Admissions Officer. The term of the new agreement extends through March 3, 2011.
              Rodney T. Sheng, Senior Vice President/Chief Administrative Officer.     We entered into an employment agreement with Mr. Sheng in December 2003, which was later amended in January 2006. In February 2009, we adopted a new employment agreement to replace the prior employment agreement. The new agreement provides that Mr. Sheng will serve as Senior Vice President/Chief Administrative Officer. The term of the new agreement extends through March 4, 2011.
              Each of the employment agreements that were effective during 2008 provided for time and performance-based stock options awards to the named executive officer in connection with their hire. Additionally, each of the employment agreements that was effective during 2008 provided that the named executive officer is entitled to participate in health, insurance, retirement and other benefits which are provided to our senior executives.
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              The following table highlights certain items contained in the employment agreements that were effective during 2008:

 	 	Initial Term of
Employment
Agreement	 	Base Salary(1);
Annual Target
Bonus(2)	 	Acceleration
of Vesting of
Stock Options
upon Death or "Disability"	 	Acceleration
of Vesting of
Stock Options
in connection with a Change in Control	 	Severance
Payments
upon
termination
without
"Cause"	 	Other	 	
Andrew S. Clark	 	4 years	 	$200,000; 50%	 	 	(3	)	 	(4	)	 	12 months	(5)	 	(6	)	
Daniel J. Devine	 	2 years	 	$185,000; 50%	 	 	(3	)	 	(4	)	 	6 months	(5)	 	(7	)	
Christopher L. Spohn	 	2 years	 	$175,000; 50%	 	 	(3	)	 	(4	)	 	6 months	(5)	 	(7	)	
Rodney T. Sheng	 	2 years	 	$175,000; 25%	 	 	(3	)	 	(4	)	 	5 months	(5)	 	(7	)	

(1)
Each employment agreement provided that the annual base salary will not be less than the amount listed in this column.

(2)
Each employment agreement provided that the named executive officer will be eligible for an annual discretionary incentive bonus based on attainment of company performance criteria. Each employment agreement provided for a target bonus amount as a percentage of annual salary with such target percentage reflected in this column. The actual bonus paid may be more or less than the target amount. For each named executive officer, the employment agreement provided that the annual bonus will be based on achievement of annual revenue and EBITDA goals with revenue receiving 65% of the weighting and EBITDA receiving the remaining 35%. In addition to being a participant in our regular annual discretionary bonus plan, Mr. Spohn's agreement provided that he will be eligible for an additional annual bonus which had a target bonus amount of 75% of his annual salary although the actual bonus paid may be less or more than the target amount up to a maximum of two times the target amount. Mr. Spohn's additional bonus opportunity was based on attaining annual revenue in excess of the budgeted target.

(3)
If the named executive officer's employment was terminated due to his death or disability then (i) his time-based stock options would vest as if his termination date had occurred 12 months later and (ii) the portion of his performance-based stock options that were scheduled to vest in the year of his termination would vest provided that the applicable performance criteria was satisfied for such year of termination of employment.

(4)
Due to the change of control of our company, the named executive officer's exit options vest to the extent Warburg Pincus received proceeds from the transaction that were equal to or greater than four times their aggregate purchase price paid for our equity securities. If the named executive officer were subject to an involuntary termination within 12 months after a change of control, then the named executive officer's time-vested options would fully vest and become exercisable on the date of the involuntary termination.

(5)
If we terminated the named executive officer's employment without cause (and in the case of Mr. Clark, if he is not re-elected to the board by stockholders), then the named executive officer would have received (a) continuation of base salary for the number of months reflected in this column and (b) company-paid COBRA health insurance benefits after termination for up to the number of months reflected in this column, as long as the named executive officer is eligible for and elects to continue his COBRA health insurance following the date of termination and (c) an acceleration of the vesting of his time-based options as if service terminated 12 months later. We were allowed to condition the payment of the severance benefits upon the named executive officer providing a release of claims against us, our affiliates and related parties. Additionally, Mr. Clark's employment agreement stated that he would have
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no obligation to mitigate any post-employment amounts that are owed to him nor will such amounts be subject to offset.
(6)
We were obligated to provide Mr. Clark with life insurance with a face amount of at least twice his annual base salary.

(7)
Each of the named executive officers was eligible to receive relocation expense reimbursements in connection with their hire. Mr. Sheng was provided with a reimbursement in connection with the early termination of his employment from his previous employer.
              The following table highlights certain items contained in the new employment agreements that were adopted in February 2009. Additionally, each of the new employment agreements provide that the named executive officer is entitled to participate in health, insurance, retirement and other benefits which are provided to our senior executives. The term of each of the new employment agreements will automatically extend for an additional year upon the end of the initial term and thereafter on each anniversary unless either party timely gives notice that such party does want to so extend the agreement.

 	 	Initial Term
of New
Employment
Agreement	 	Base Salary(1);
Annual Target
Bonus(2)	 	Severance
Payments
upon Death	 	Severance
Payments
upon
"Disability"	 	Severance
Payments
upon
termination
within the
Change in
Control
Period	 	Severance
Payments
upon
termination
without
"Cause" or
"Good
Reason"	 	Other	 	
Andrew S. Clark	 	4 years	 	$375,000; 100%	 	 	(3	)	 	(4	)	 	(5	)	 	(7	)	 	(9)(10)	 	
Daniel J. Devine	 	2 years	 	$250,000;   50%	 	 	(3	)	 	(4	)	 	(6	)	 	(8	)	 	(10)	 	
Christopher L. Spohn	 	2 years	 	$250,000;   50%	 	 	(3	)	 	(4	)	 	(6	)	 	(8	)	 	(10)	 	
Rodney T. Sheng	 	2 years	 	$250,000;   60%	 	 	(3	)	 	(4	)	 	(6	)	 	(8	)	 	(10)	 	

(1)
This column shows the annual base salary set forth in the respective employment agreements for the named executive officers, which salaries may be periodically reviewed and increased by our board of directors in its discretion.

(2)
Each employment agreement provides that the named executive officer will be eligible for an annual discretionary incentive bonus based on attainment of performance criteria. Each employment agreement provides for a target bonus amount as a percentage of annual salary with such target percentage reflected in this column. The actual bonus paid may be more or less than the target amount. In addition, upon any termination of Mr. Clark's employment other than for "cause" (as defined in the employment agreement), Mr. Clark will be eligible to be paid a pro-rata bonus for the fiscal year of termination based on the percentage of time he was employed in such fiscal year.

(3)
If a named executive officer's employment is terminated due to his death then (i) his outstanding unvested time-based stock options would vest as if his termination date had occurred 12 months later; (ii) 25% of his then outstanding unvested performance-based stock options would vest; (iii) his estate would receive an additional six months base salary; and (iv) his dependents will receive an additional six months of medical benefits. We will condition the payment of the severance benefits upon the estate of the named executive officer providing a release of claims against us, our affiliates and related parties.

(4)
If a named executive officer's employment is terminated due to his "disability" (as defined in the employment agreement) then (i) his outstanding unvested time-based stock options would vest as if his termination date had occurred 12 months later, and (ii) 25% of his then outstanding unvested performance-based stock options would vest. We will condition the
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payment of the severance benefits upon the named executive officer providing a release of claims against us, our affiliates and related parties.
(5)
If Mr. Clark's employment is terminated by us without "cause" or by Mr. Clark for "good reason" within 24 months after a "change of control," in each case as defined in the employment agreement, then Mr. Clark will receive: (a) cash payments equal in the aggregate to 24 months of his base salary; (b) cash payments equal to two times Mr. Clark's annual target bonus, irrespective of achievement of performance goals; (c) company-paid medical insurance premiums after termination for up to 24 months; (d) all unvested stock option awards will fully vest as of the termination date; (e) a pro-rata bonus for the fiscal year of termination based on the percentage of time he was employed in such fiscal year; and (f) his annual bonus for the completed fiscal year prior to the year of termination, if not already paid. We will condition the payment of the severance benefits upon Mr. Clark providing a release of claims against us, our affiliates and related parties.

(6)
If the named executive officer's employment is terminated by us without "cause" or by the named executive officer for "good reason" within 24 months after a "change of control," in each case as defined in the employment agreement, then the named executive officer will receive: (a) cash payments equal in the aggregate to 12 months of his base salary; (b) cash payments equal to the named executive officer's annual target bonus, irrespective of achievement of performance goals; (c) company-paid medical insurance premiums after termination for up to 12 months; (d) all unvested stock option awards will fully vest as of the termination date; and (e) his annual bonus for the completed fiscal year prior to the year of termination, if not already paid. We will condition the payment of the severance benefits upon the named executive officer providing a release of claims against us, our affiliates and related parties.

(7)
If Mr. Clark's employment is terminated by us without "cause" or by Mr. Clark for "good reason," in each case as defined in the employment agreement, then Mr. Clark will receive (a) cash payments equal in the aggregate to 24 months of his base salary; (b) cash payments equal to two times Mr. Clark's annual target bonus, irrespective of achievement of performance goals; (c) company-paid medical and life insurance premiums after termination for up to 24 months; (d) the vesting of time-based options will accelerate as if service had terminated 12 months later; (e) a pro-rata bonus for the fiscal year of termination based on the percentage of time he was employed in such fiscal year; and (f) his annual bonus for the completed fiscal year prior to the year of termination, if not already paid. We will condition the payment of the severance benefits upon Mr. Clark providing a release of claims against us, our affiliates and related parties.

(8)
If the named executive officer's employment is terminated by us without "cause" or by the named executive officer for "good reason," in each case as defined in the employment agreement, then the named executive officer will receive (a) cash payments equal in the aggregate to 12 months of his base salary; (b) cash payments equal to the named executive officer's annual target bonus, irrespective of achievement of performance goals; (c) company-paid medical and life insurance premiums after termination for up to 12 months; (d) the vesting of time-based options will accelerate as if service had terminated 12 months later; and (e) his annual bonus for the completed fiscal year prior to the year of termination, if not already paid. We will condition the payment of the severance benefits upon the named executive officer providing a release of claims against us, our affiliates and related parties.

(9)
We are obligated to provide Mr. Clark with life insurance with a face amount of at least twice his annual base salary. In addition, Mr. Clark is eligible to receive up to $15,000 in legal fees he incurs in connection with the execution of his new employment agreement.
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(10)
In the event the named executive officer has received payments that are subject to golden parachute excise taxes, then such payments will be reduced to a level that would not subject the named executive officer to golden parachute excise taxes unless, after comparing the value of the payments on an after-tax basis (including the golden parachute excise tax), the named executive officer would be in a better economic position by receiving all payments. In addition, upon the consummation of a "change of control," as defined in the employment agreements, 50% of the named executive officer's unvested time-based stock options and performance-based stock options will become additionally vested, and the remaining unvested portion of the named executive officer's stock options will continue to vest pursuant to the original vesting schedule but at 50% of the original rate of vesting over the vesting period.
Equity Awards
              The following table shows the number of shares of our common stock covered by options held by the named executive officers as of December 31, 2008. No named executive officer held any unvested restricted shares of our common stock or restricted stock units as of December 31, 2008.
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 Outstanding Equity Awards at Fiscal Year End—2008

Name 	 	Number of
securities
underlying
unexercised
options (#)
exercisable	 	Number of
securities
underlying
unexercised
options (#)
unexercisable	 	Option
exercise
price ($)	 	Option
expiration
date	 	
 Andrew S. Clark	 	 	864,409	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(4)	
	 	 	864,409	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(5)	
	 	 	—	 	 	1,252,586	 	 	0.32	 	 	4/1/2014	(1)(7)	
	 	 	19,499	 	 	52,723	 	 	0.59	 	 	11/27/2017	(2)(4)	
	 	 	18,055	 	 	54,167	 	 	0.59	 	 	11/27/2017	(2)(6)	
	 	 	—	 	 	144,444	 	 	0.59	 	 	11/27/2017	(2)(7)	
Daniel J. Devine	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(4)	
	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(5)	
	 	 	—	 	 	59,646	 	 	0.32	 	 	4/1/2014	(1)(7)	
	 	 	7,499	 	 	20,278	 	 	0.59	 	 	11/27/2017	(2)(4)	
	 	 	6,944	 	 	20,833	 	 	0.59	 	 	11/27/2017	(2)(6)	
	 	 	—	 	 	83,333	 	 	0.59	 	 	11/27/2017	(2)(7)	
 Christopher L. Spohn	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(4)	
	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(5)	
	 	 	—	 	 	149,117	 	 	0.32	 	 	4/1/2014	(1)(7)	
	 	 	7,499	 	 	20,278	 	 	0.59	 	 	11/27/2017	(2)(4)	
	 	 	6,944	 	 	20,833	 	 	0.59	 	 	11/27/2017	(2)(6)	
	 	 	—	 	 	83,333	 	 	0.59	 	 	11/27/2017	(2)(7)	
Rodney T. Sheng	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(4)	
	 	 	223,554	 	 	—	 	 	0.32	 	 	4/1/2014	(1)(5)	
	 	 	—	 	 	149,117	 	 	0.32	 	 	4/1/2014	(1)(7)	
	 	 	7,499	 	 	20,278	 	 	0.59	 	 	11/27/2017	(2)(4)	
	 	 	6,944	 	 	20,833	 	 	0.59	 	 	11/27/2017	(2)(6)	
	 	 	—	 	 	83,333	 	 	0.59	 	 	11/27/2017	(2)(7)	
 Ross L. Woodard	 	 	123,401	 	 	55,442	 	 	0.32	 	 	2/15/2016	(3)(4)	
	 	 	178,843	 	 	—	 	 	0.32	 	 	2/15/2016	(3)(5)	
	 	 	—	 	 	119,294	 	 	0.32	 	 	2/15/2016	(3)(7)	
	 	 	12,749	 	 	34,473	 	 	0.59	 	 	11/27/2017	(2)(4)	
	 	 	11,805	 	 	35,417	 	 	0.59	 	 	11/27/2017	(2)(6)	
	 	 	—	 	 	83,333	 	 	0.59	 	 	11/27/2017	(2)(7)	

(1)
These options were granted under the 2005 Plan on February 15, 2006, with an exercise price equal to the fair market value of one of our common shares on the date of grant. The vesting commencement date was April 1, 2004.

(2)
These options were granted under the 2005 Plan on November 27, 2007, with an exercise price equal to the fair market value of one of our common shares on the date of grant. The vesting commencement date was November 27, 2007.

(3)
These options were granted under the 2005 Plan on February 15, 2006, with an exercise price equal to the fair market value of one of our common shares on the date of grant. The vesting commencement date was February 15, 2006.

(4)
These time-based options vest as follows: (i) 25% of the option vests on the first anniversary of the vesting commencement date, (ii) an additional 2% of the option vests on each monthly anniversary of the vesting commencement date for the 33 months following the first
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anniversary of the vesting commencement date and (iii) an additional 3% of the option vests on each of the 46th, 47th and 48th monthly anniversaries of the vesting commencement date. In addition, upon termination of employment by us without "cause" as defined in the 2005 Plan or due to termination of employment because of death or disability, the vesting of the option will accelerate as if service had terminated 12 months later in time. In addition, upon a "change of control," as defined in the stock option agreement, 50% of the named executive officer's unvested time-based stock options will vest and the remaining unvested portion of the named executive officer's stock options will continue to vest pursuant to the original vesting schedule but at 50% of the original rate of vesting over the vesting period. Further, the outstanding unvested portion of the option will become fully vested upon an involuntary termination of the named executive officer's employment within the 12 month period following a "change of control," as defined in the stock option agreement. Further, in the event of a corporate reorganization, merger, liquidation, spinoff, or agreement for the sale of substantially all of our assets and property in which the named executive officer's options are not substituted or assumed, then the named executive officer's time-based options shall fully vest and become exercisable on the date that immediately proceeds the effective date of such event.
(5)
These performance-based options vest as follows: (i) beginning with fiscal year 2005 and ending with fiscal year 2008, 25% of the option vests for each fiscal year in which our performance targets (as defined in the stock option award) based on our annual revenue and annual EBITDA are achieved, (ii) for any fiscal year in which the annual performance targets are not achieved, such portion will vest if in any subsequent fiscal year the cumulative revenue and EBITDA targets are achieved (the cumulative targets are defined in the stock option award). In addition, upon termination of the named executive officer's employment because of death or disability, the portion of the option eligible to vest in the year of termination will vest to the extent the performance targets were achieved in the year in which termination occurs. In addition, upon a "change of control," as defined in the stock option agreement, 50% of the named executive officer's performance-based stock options will vest and the remaining unvested portion of the named executive officer's stock options will continue to vest pursuant to the original vesting schedule but at 50% of the original rate of vesting over the vesting period. Further, in the event of a corporate reorganization, merger, liquidation, spinoff, or agreement for the sale of substantially all of our assets and property in which the named executive officer's options are not substituted or assumed, then the named executive officer's the performance-based options will vest to the extent that the applicable performance targets have been satisfied. The targets for fiscal 2005 through fiscal 2008 were as shown in the below table:

 	 	Fiscal Year
2005	 	Fiscal Year
2006	 	Fiscal Year
2007	 	Fiscal Year
2008	 	
Annual EBITDA	 	$	(7,430,000
or greater	)	$	(238,000
or greater	)	$	3,920,000	 	$	5,880,000	 	
Annual Revenue	 	
$	
7,871,000	 	
$	
21,808,000	 	
$	
39,879,000	 	
$	
49,000,000	 	
Cumulative EBITDA	 	
$	
(7,430,000
or greater	
)	
$	
(7,668,000
or greater	
)	
$	
(3,748,000	
)	
$	
2,132,000	 	
Cumulative Revenue	 	
$	
7,871,000	 	
$	
29,679,000	 	
$	
69,558,000	 	
$	
118,558,000	 	
(6)
These performance-based options vest as follows: (i) beginning with fiscal year 2008 (shown in the following sentence) and ending with fiscal year 2011, 25% of the option vests for each fiscal year in which our performance targets (defined in the stock option award) based on our annual revenue and annual EBITDA are achieved, (ii) for any fiscal year in which the annual performance targets are not achieved, such portion will vest if in any subsequent fiscal year the cumulative revenue and EBITDA targets are achieved (the cumulative targets are defined in
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the stock option award). The target for fiscal year 2008 were: Annual EBITDA: $5,880,000; Annual Revenue: $49,000,000; Cumulative EBITDA: $5,880,000; and Cumulative Revenue: $49,000,000. The targets for fiscal year 2009 through fiscal year 2011 require significant yearly growth in revenue and EBITDA and will be challenging objectives for us to achieve. In addition, upon termination of the named executive officer's employment because of death or disability, the portion of the option eligible to vest in the year of termination will vest to the extent the performance targets were achieved in the year in which termination occurs. Further, in the event of a corporate reorganization, merger, liquidation, spinoff, or agreement for the sale of substantially all of our assets and property in which the named executive officer's options are not substituted or assumed, then the named executive officer's the performance-based options will vest to the extent that the applicable performance targets have been satisfied.
(7)
All exit options vested in full on April 20, 2009. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Acceleration of Exit Options."
              No stock options were exercised by the named executive officers in 2008 and none of the named executive officers had any restricted stock that vested in 2008.
Potential Payments Upon Termination or Change of Control
Payments made upon resignation or termination for cause
              If a named executive officer resigns his employment or is terminated by us for cause, the named executive officer will be entitled only to any accrued and unpaid salary and vested benefits and no severance.
Payments made upon involuntary termination by us without cause or by employee for good reason or due to death, disability, or change of control of company
              If a named executive officer's employment is involuntarily terminated either without cause by us (or by the employee due to a specified good reason), or due to death or disability, the named executive officer will generally be entitled to continuation of base salary and/or health benefits for a specified number of months and/or accelerated vesting of at least a portion of his unvested stock options as described above in the "Executive Employment Agreements" section. In the event of a change of control of the company, the exit options held by the named executive officers would vest depending on whether the applicable performance conditions were attained as described above in the "Outstanding Equity Awards at Fiscal Year End—2008" table. All exit options vested in full on April 20, 2009. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Acceleration of Exit Options."
              For purposes of these events, the following definitions are generally applicable:
" Change of Control ," as defined in the stock option agreements, means: (i) an acquisition of at least 50% of our voting securities by any person other than Warburg Pincus or its affiliates; or (ii) a transfer of all or substantially all of our total assets to a person who is not an affiliate of ours or Warburg Pincus.
" Cause ," as defined in the employment agreements, generally means any of the following acts committed by the executive:
•
failure, neglect or refusal to perform his duties under his employment agreement; 

•
willful or intentional act(s) that has the effect of materially injuring our reputation or business;
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•
public or consistent drunkenness or illegal use of narcotics which is or could be materially injurious to our reputation or business; 

•
arrest for the commission of a felony or a crime involving moral turpitude; 

•
commission of an act of fraud, embezzlement or other material dishonesty, or misappropriation of our funds or property; 

•
conviction of, or plea of guilty or nolo contendere to, any crime involving monies, property or regulations applicable to our business; 

•
material breach of a fiduciary duty to us or any provision of a confidentiality agreement with us; or 

•
aid to one of our competitors.
" Disability ," as defined in the employment agreements, means any physical or mental disability or infirmity that prevents the performance of the named executive officer's duties for a period of either (i) 90 consecutive days or (ii) 120 non-consecutive days during any 12 month period.
" Involuntary Termination by Employee for Good Reason ," as defined in the option agreements, means any of the following occurring without the employee's consent: (i) a material adverse change in the employee's title or responsibilities, (ii) a material reduction in salary or bonus opportunity or (iii) notice of relocation of workplace by more than 50 miles.
Hypothetical potential payment estimates
              The table below provides estimates for compensation payable to each named executive officer under hypothetical termination of employment and change of control scenarios under our compensatory arrangements other than nondiscriminatory arrangements generally available to salaried employees. The amounts shown in the table are estimates and assume the hypothetical involuntary termination, death or disability or change of control occurred on December 31, 2008, applying the provisions of the agreements that were in effect as of such date. Due to the number of factors and assumptions that can affect the nature and amount of any benefits provided upon the events discussed below, any amounts paid or distributed upon an actual event may differ.
              For purposes of the hypothetical payment estimates shown in the below table, some of the important assumptions were:
•
Officer's base salary for fiscal year 2008; 

•
Cash out of all stock options (whose vesting is accelerated) at their then intrinsic value; 

•
No acceleration of performance-based options applicable because fiscal 2008 performance targets are assumed to have already been achieved as of December 31, 2008; 

•
Cash severance and health insurance continuation as provided under the officer's employment agreement; 

•
Value for payment of health insurance continuation premiums, including dental, for 12 months assumed to be $18,000; 

•
Change of control of the company occurring on December 31, 2008, in which Warburg Pincus would have sold all of its ownership interest in us; 

•
Termination of officer's employment occurring on December 31, 2008; 

•
December 31, 2008 share price of $14.22; and
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•
The officers' employment agreements in effect as of December 31, 2008 were utilized.

 	 	Change of
Control of
Company	 	Involuntary
Termination by
Company
without Cause	 	Involuntary
Termination by
Company
without Cause
within
12 Months of
a Change of
Control of
Company	 	Involuntary
Termination by
Employee for
Good Reason
within
12 Months of
a Change of
Control of
Company	 	Death or
Disability	 	
Andrew S. Clark	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	—	 	$	325,000	 	$	325,000	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	—	 	$	18,000	 	$	18,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	—	 	$	236,340	 	$	718,868	 	$	718,868	 	$	236,340	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options(1)	 	$	19,386,718	 	$	—	 	$	19,386,718	 	$	19,386,718	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	19,386,718	 	$	579,340	 	$	20,448,586	 	$	20,105,586	 	$	236,340	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Daniel J. Devine	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	—	 	$	110,000	 	$	110,000	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	—	 	$	9,000	 	$	9,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	—	 	$	90,900	 	$	276,488	 	$	276,488	 	$	90,900	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options(1)	 	$	1,965,640	 	$	—	 	$	1,965,640	 	$	1,965,640	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,965,640	 	$	209,900	 	$	2,361,128	 	$	2,242,128	 	$	90,900	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Christopher L. Spohn	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	—	 	$	113,500	 	$	113,500	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	—	 	$	9,000	 	$	9,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	—	 	$	90,900	 	$	276,488	 	$	276,488	 	$	90,900	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options(1)	 	$	3,209,730	 	$	—	 	$	3,209,730	 	$	3,209,730	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	3,209,730	 	$	213,400	 	$	3,608,718	 	$	3,486,218	 	$	90,900	 	
 	 	 	 	 	 	 	 	 	 	 	 	
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 	 	Change of
Control of
Company	 	Involuntary
Termination by
Company
without Cause	 	Involuntary
Termination by
Company
without Cause
within
12 Months of
a Change of
Control of
Company	 	Involuntary
Termination by
Employee for
Good Reason
within
12 Months of
a Change of
Control of
Company	 	Death or
Disability	 	
Rodney T. Sheng	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	—	 	$	94,583	 	$	94,583	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	—	 	$	7,500	 	$	7,500	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	—	 	$	90,900	 	$	276,488	 	$	276,488	 	$	90,900	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options(1)	 	$	3,209,730	 	$	—	 	$	3,209,730	 	$	3,209,730	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	3,209,730	 	$	192,983	 	$	3,588,301	 	$	3,486,218	 	$	90,900	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Ross L. Woodard	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	—	 	$	776,234	 	$	1,240,940	 	$	1,240,940	 	$	776,234	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options(1)	 	$	2,795,033	 	$	—	 	$	2,795,033	 	$	2,795,033	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	2,795,033	 	$	776,234	 	$	4,035,973	 	$	4,035,973	 	$	776,234	 	

(1)
Based on an assumed change of control on December 31, 2008 with a price of $14.22 per share, Warburg Pincus would have received proceeds from such change of control that are equal to or greater than four times the aggregate purchase price it paid for our equity securities and the named executive officers' exit options would therefore have fully vested.
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 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
              The following is a description of transactions since January 1, 2006, to which we have been a party, in which the amount involved exceeds $120,000 in any year and in which any of our directors, executive officers or holders of more than five percent of our common stock, on an as-converted basis, or any member of the immediate family of any of the foregoing persons has had or will have a direct or indirect material interest. This description does not cover (i) compensation arising from our executive officers' employment relationships or transactions or compensation to directors (including consulting fees) which are described elsewhere in this prospectus under "Management—Compensation of Directors" and "Compensation Discussion and Analysis" or (ii) compensation approved by our compensation committee that is earned by executive officers that are not named executive officers.
              It is our policy that all related party transactions must be reviewed and approved by our audit committee. When evaluating such transactions, our audit committee focuses on whether the terms of such transactions are at least as favorable to us as terms we would receive on an arm's-length basis from an unaffiliated third party. The policies and procedures for approving related party transactions will be set forth in our audit committee charter.
Second Amended and Restated Registration Rights Agreement
              We are a party to a Second Amended and Restated Registration Rights Agreement with Warburg Pincus, Andrew S. Clark, Daniel J. Devine, Christopher L. Spohn, Jane McAuliffe, Rodney T. Sheng, Ross L. Woodard, Charlene Dackerman, Ryan Craig and certain other security holders. Under this agreement, security holders are entitled to registration rights with respect to their shares of common stock under certain circumstances (including shares of common stock issuable upon the exercise of certain options and warrants). For additional information, see "Description of Capital Stock—Registration Rights."
Indemnification Agreements
              Our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. Additionally, as permitted by Delaware law, we have entered into indemnification agreements with each of our directors and executive officers that require us to indemnify such persons, to the fullest extent authorized or permitted under Delaware law, against any and all costs and expenses (including attorneys', witness or other professional fees) actually and reasonably incurred by such persons in connection with the investigation, defense, settlement or appeal of any action, hearing, suit or other proceeding, whether pending, threatened or completed, to which any such person may be made a witness or a party by reason of (a) the fact that such person is or was a director, officer, employee or agent of our company or its subsidiaries, whether serving in such capacity or otherwise acting at the request of our company or its subsidiaries and (b) anything done or not done, or alleged to have been done or not done, by such person in that capacity. The indemnification agreements also require us to advance expenses incurred by directors and executive officers within 20 days after receipt of a written request, provided that such persons undertake to repay such amounts if it is ultimately determined that they are not entitled to indemnification. Additionally, the agreements set forth certain procedures that will apply in the event of a claim for indemnification thereunder, including a presumption that directors and executive officers are entitled to indemnification under the agreements and that we have the burden of proof to overcome that presumption in reaching any contrary determination. We are not required to provide indemnification under the agreements for certain matters, including: (1) indemnification beyond that permitted by Delaware law; (2) indemnification for liabilities for which the executive officer or director is reimbursed pursuant to such insurance as may exist for such person's benefit; (3) indemnification related to disgorgement of profits under Section 16(b) of the Securities Exchange Act of 1934; (4) in connection with certain proceedings initiated against us by the director or executive officer; or (5) indemnification for
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settlements the director or executive officer enters into without our written consent. The indemnification agreements require us to maintain directors' and executive officers' insurance in full force and effect while any director or executive officer continues to serve in such capacity and so long as any such person may incur costs and expenses related to indemnified legal proceedings.
Stockholders Agreement and Nominating Agreement
              In December 2003, we entered into a stockholders agreement with Warburg Pincus, Andrew S. Clark and all other holders of our common stock at that time. We subsequently added additional parties as they became holders of our common stock. The stockholders agreement, as amended, contained agreements among the parties with respect to the election of our directors and restrictions on the issuance or transfer of shares, including certain corporate governance provisions. Each of our current directors was appointed pursuant to the terms of the stockholders agreement. The stockholders agreement terminated upon the closing of our initial public offering.
              In February 2009, we entered into a nominating agreement with Warburg Pincus. Under the nominating agreement, as long as Warburg Pincus beneficially owns at least 15% of the outstanding shares of common stock after the closing of this offering, we agree, subject to our fiduciary obligations, to nominate and recommend to our stockholders that two individuals designated by Warburg Pincus be elected to the board. If at any time, Warburg Pincus beneficially owns less than 15% but more than 5% of the outstanding shares of common stock, we agree, subject to our fiduciary obligations, to nominate and recommend to our stockholders that one individual designated by Warburg Pincus be elected to the board.
Line of Credit with Warburg Pincus
              In March 2007, we entered into a line of credit with Warburg Pincus under which we could borrow up to $3.0 million in principal at any time prior to March 2008. Under the line of credit, interest accrued at the prime rate plus 1.50%. During 2007, we borrowed a total of $2.0 million under the line of credit. As of December 31, 2007, all amounts were repaid and the line of credit was cancelled. We paid a total of $0.1 million in interest under the line of credit before it was cancelled.
Warburg Pincus Guarantee
              In May 2004, Warburg Pincus entered into a guarantee in favor of a postsecondary college in the Connecticut state college system pursuant to which it agreed to guarantee our obligations to such college arising from an agreement we entered into with such college in May 2004. No amounts have been paid under the guarantee. The maximum amount payable under the guarantee was $1.0 million from May 2004 to June 2006 and $0.5 million from July 2006 to December 2006. Since January 2007, the maximum amount payable under the guarantee has been $0.1 million.
November 2003 Loan from Warburg Pincus to Andrew Clark
              In November 2003, Warburg Pincus loaned $75,000 to Andrew Clark to finance Mr. Clark's purchase of 75,000 shares of Series A Convertible Preferred Stock from us. In connection with such loan, Mr. Clark entered into a Secured Recourse Promissory Note and Pledge Agreement with Warburg Pincus which provided that the principal amount due under the note would accrue simple interest at a rate of 8% per year until November 26, 2005, the maturity date, after which time interest would accrue at a penalty rate of 16% per year, compounded monthly. The loan was secured by 75,000 shares of Series A Convertible Preferred Stock held by Mr. Clark. Mr. Clark repaid the loan in full on March 10, 2009, at which time the amount due under the note was $146,740 (including accrued interest of $71,740).
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 PRINCIPAL AND SELLING STOCKHOLDERS
              The following table sets forth information regarding the beneficial ownership of our common stock as of August 15, 2009, and as adjusted to reflect the sale of common stock being offered in this offering, for:
•
each person, or group of affiliated persons, known to us to own beneficially 5% or more of our outstanding common stock; 

•
each of our directors; 

•
each of our named executive officers; 

•
all of our directors and executive officers as a group; and 

•
each selling stockholder.
              The information in the following table has been presented in accordance with SEC rules. Under these rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any options, warrants or other rights. Shares subject to options, warrants or other rights are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated below and under applicable community property laws, we believe that the beneficial owners identified in this table have sole voting and investment power with respect to all shares shown.
              Unless otherwise indicated below, the address for each named director and executive officer is c/o Bridgepoint Education Inc., 13500 Evening Creek Drive North, Suite 600, San Diego California, 92128.
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 	 	Shares Beneficially
Owned Prior to
this Offering	 	Number of
Shares to
Be Sold in
this
Offering	 	Shares Beneficially
Owned After
this Offering	 	 	 	Shares Beneficially
Owned After
Overallotment	
 							 	Number of
Shares to Be
Sold in
Overallotment			
Name of Beneficial Owner 	 	Number	 	%			 	Number	 	%			 	Number	 	%	
Principal Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Warburg Pincus Private
Equity VIII, L.P.(1)
c/o Warburg Pincus LLC
450 Lexington Avenue
New York, NY 10017	 	 	 
34,589,220	 	 	 
64.9	
%	 	 	 	 	 	 	 	 	 	 	 	
Directors and Executive Officers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Andrew S. Clark(2)	 	 	3,121,237	 	 	5.5	%	 	 	 	 	 	 	 	 	 	 	 	
 	Ryan Craig	 	 	112,076	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
 	Daniel J. Devine(3)	 	 	701,770	 	 	1.3	%	 	 	 	 	 	 	 	 	 	 	 	
 	Patrick T. Hackett(4)
c/o Warburg Pincus LLC
450 Lexington Avenue
New York, NY 10017	 	 	34,589,220	 	 	64.9	%	 	 	 	 	 	 	 	 	 	 	 	
 	Robert Hartman(5)	 	 	39,192	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
 	Jane McAuliffe(6)	 	 	528,701	 	 	1.0	%	 	 	 	 	 	 	 	 	 	 	 	
 	Adarsh Sarma(7)
c/o Warburg Pincus LLC
450 Lexington Avenue
New York, NY 10017	 	 	34,589,220	 	 	64.9	%	 	 	 	 	 	 	 	 	 	 	 	
 	Rodney T. Sheng(8)	 	 	833,265	 	 	1.5	%	 	 	 	 	 	 	 	 	 	 	 	
 	Christopher L. Spohn(9)	 	 	776,177	 	 	1.4	%	 	 	 	 	 	 	 	 	 	 	 	
 	Ross Woodard(10)	 	 	556,146	 	 	1.0	%	 	 	 	 	 	 	 	 	 	 	 	
 	Charlene Dackerman(11)	 	 	155,508	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
 	Dale Crandall	 	 	11,400	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diane Thompson	 	 	—	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
 	Thomas Ashbrook	 	 	—	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	
All Directors and Executive Officers as a Group (14 Persons)	 	 	
41,424,692	 	 	
76.7	
%	 	 	 	 	 	 	 	 	 	 	 	
Additional Selling Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total :	 	 	 	 	 	 	 	11,000,000	 	 	 	 	 	1,650,000	 	 	 	 	

*
Represents beneficial ownership of less than 1%.

(1)
The stockholder is Warburg Pincus Private Equity VIII, L.P. ("WP VIII"). Warburg Pincus Partners, LLC ("WP Partners"), a direct subsidiary of Warburg Pincus & Co. ("WP"), is the sole general partner of WP VIII. WP is the managing member of WP Partners. WP VIII is managed by Warburg Pincus LLC ("WP LLC"). WP VIII, WP Partners, WP and WP LLC are collectively referred to as the "Warburg Pincus Entities." Charles R. Kaye and Joseph P. Landy are each Managing General Partners of WP and Managing Members and Co-Presidents of WP LLC and may be deemed to control the Warburg Pincus Entities. Each of the Warburg Pincus Entities, Mr. Kaye and Mr. Landy have shared voting and investment control of all of the shares of stock referenced above. Each of Mr. Kaye, Mr. Landy, WP VIII, WP Partners, WP and WP LLC disclaims beneficial ownership of the stock except to the extent of any
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indirect pecuniary interest therein. The address of the Warburg Pincus Entities, Mr. Kaye and Mr. Landy is 450 Lexington Avenue, New York, New York 10017.
(2)
Consists of (i) 100 shares of common stock and (ii) 3,121,137 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009. The sale of shares of common stock in this offering by Mr. Clark will result in short-swing trading liability under Section 16(b) of the Exchange Act with respect to the 100 shares that he bought for $10.50 per share at the time of our initial public offering in connection with a ceremony marking the commencement of trading of our shares on the New York Stock Exchange. At the closing of this offering, Mr. Clark intends to divest any profit that he obtains as a result of such short-swing transaction by paying to us the difference between the sale price of 100 shares sold in this offering, less the original purchase price for the 100 shares purchased at the time of our initial public offering.

(3)
Consists of (i) 92,238 shares of common stock and (ii) 609,532 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(4)
Mr. Hackett is a partner of WP and a Managing Director and member of WP LLC. All shares indicated as owned by Mr. Hackett are included because of his affiliation with the Warburg Pincus Entities. See footnote 1 above for more information. Mr. Hackett disclaims beneficial ownership of all shares owned by the Warburg Pincus Entities except to the extent of any indirect pecuniary interest therein.

(5)
Consists of (i) 11,400 shares of common stock and (ii) 27,792 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(6)
Consists of 528,701 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(7)
Mr. Sarma is a Managing Director and member of WP LLC. All shares indicated as owned by Mr. Sarma are included because of his affiliation with the Warburg Pincus Entities. See footnote 1 above for more information. Mr. Sarma disclaims beneficial ownership of all shares owned by the Warburg Pincus Entities except to the extent of any indirect pecuniary interest therein.

(8)
Consists of (i) 134,262 shares of common stock and (ii) 699,003 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(9)
Consists of (i) 77,174 shares of common stock and (ii) 699,003 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(10)
Consists of 556,146 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.

(11)
Consists of 155,508 shares of common stock underlying options that are exercisable within 60 days of August 15, 2009.
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 DESCRIPTION OF CAPITAL STOCK
General
              The following description of our capital stock summarizes certain provisions of our certificate of incorporation and our bylaws. As of the date of this prospectus, our authorized capital consists of 300,000,000 shares of common stock, $0.01 par value per share, and 20,000,000 shares of undesignated preferred stock, $0.01 par value per share.
              The following description of the material provisions of our capital stock and our certificate of incorporation, bylaws and other agreements with and among our stockholders is only a summary, does not purport to be complete and is qualified by applicable law and the full provisions of our certificate of incorporation, bylaws and other agreements. You should refer to our certificate of incorporation, bylaws and related agreements, which are included as exhibits to the registration statement of which this prospectus is a part.
Common Stock
              As of August 15, 2009, there were 53,333,361 shares of common stock outstanding, held of record by 31 stockholders.
Voting Rights
              Holders of common stock are entitled to one vote per share on any matter to be voted upon by stockholders. All shares of common stock rank equally as to voting and all other matters. The shares of common stock have no preemptive or conversion rights, no redemption or sinking fund provisions, are not liable for further call or assessment and are not entitled to cumulative voting rights.
Dividend Rights
              The holders of common stock are entitled to receive ratably any dividends when and as declared from time to time by the board of directors out of funds legally available for dividends. We have never declared or paid cash dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future.
Liquidation Rights
              Upon a liquidation or dissolution of our company, whether voluntary or involuntary, creditors with preferential liquidation rights will be paid before any distribution to holders of our common stock. After such distribution, holders of common stock are entitled to receive a pro rata distribution per share of any excess amount.
Undesignated Preferred Stock
              The board of directors has the authority to issue undesignated preferred stock without stockholder approval, subject to applicable law and listing exchange standards. The board of directors may also determine or alter for each class of preferred stock the voting powers, designations, preferences and special rights, qualifications, limitations or restrictions as permitted by law. The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock.
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Options and Warrants to Purchase Common Stock
              As of August 15, 2009, we had 11,374,418 shares of common stock subject to options we have issued to our directors, officers, employees and consultants. As of August 15, 2009, we also had 666,676 shares of common stock subject to outstanding warrants, all of which are immediately exercisable.
Registration Rights
              In November 2003, we entered into a registration rights agreement with Warburg Pincus, Andrew S. Clark and certain other security holders. The registration rights agreement was amended and restated in January 2009 and further amended in March and April 2009 primarily (i) to grant registration rights to certain additional security holders, including all holders of Series A Convertible Preferred Stock, (ii) to determine the registration rights of the members of our management team with respect to the initial public offering and (iii) to make certain other changes.
              In particular, the second amended and restated registration rights agreement provides that the shares of common stock to be sold in this offering will be allocated to Warburg Pincus and all other holders of common stock and warrants that are parties to the registration rights agreement (other than members of our management team), such that each such holder is allowed to sell the same proportion of such holder's registrable securities that Warburg Pincus may sell pursuant to the formula set forth in the agreement. Members of our management team will also be allowed to sell shares, in an amount not to exceed the amounts discussed below. In the event that the underwriters determine that fewer than 11.0 million shares will be included in this offering, then the number of shares to be sold shall be reduced for all holders in proportion to the number of shares that each holder has requested to sell. If any holder does not elect to include his, her or its full pro rata amount of shares in this offering, then those shares that the non-participating holder would have sold may be proportionally allocated to any participating non-management holders that wish to sell additional shares in this offering.
              Under the registration rights agreement, the holders of (i) 37,144,883 shares of common stock, and (ii) 591,017 shares of common stock issuable upon the exercise of certain warrants possess certain rights with respect to the registration of these shares under the Securities Act.
              Under the registration rights agreement, each of Andrew S. Clark, Daniel J. Devine, Christopher L. Spohn, Jane McAuliffe, Rodney T. Sheng, Ross Woodard, Charlene Dackerman and certain other members of our management team may request to sell in this offering a number of shares of common stock up to and equaling, but not exceeding, 10% of the sum of (i) the total number of shares of common stock subject to employee stock options held by such person that will be vested as of August 1, 2009 plus (ii) the total number of shares of common stock which such person holds.
Demand Registration Rights
              If we are eligible to file a registration statement, Warburg Pincus may request we effect such registration at any time, provided that anticipated aggregate public offering prices (before any underwriting discounts and commissions) will not be less than $7.5 million. Following this offering, we will only be required to effect one more such registration. We may postpone the filing of any such registration statement for up to 90 days once in any 12-month period. If during that 90 day period we file a registration statement and we are actively employing in good faith all reasonable efforts to cause such registration statement to become effective, then we may further postpone any demand registration until 180 days after the effective date of the currently filed registration statement. We may also postpone the filing of any such registration statement for up to 180 days once in any 12-month period if our board of directors determines in good faith that the filing would be seriously detrimental to our stockholders or us.
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Piggyback Registration Rights
              If we register any shares of common stock under the Securities Act in connection with a public offering, the stockholders with piggyback registration rights have the right to include in the registration shares of common stock held by them or which they can obtain upon the exercise or conversion of another security, subject to specified exceptions. The underwriters of any offering have the right to limit the number of shares registered by these stockholders due to marketing reasons. If the total amount of shares of common stock these stockholders wish to include exceeds the total amount of shares which the underwriters determine the stockholders may sell in the offering, the shares to be included in the registration will be subject to cutbacks as specified in the agreement.
Form S-3 Registration Rights
              If we are eligible to file a registration statement on Form S-3, Warburg Pincus may request that we register their shares of common stock for resale on a Form S-3 registration statement, provided that the total price of the shares to be offered is more than $5.0 million and that the request is not made within 180 days of the effective date of our most recent Form S-3 registration statement in which the securities held by the requesting stockholder could have been included for sale or distribution. We are also not obligated to file a Form S-3 registration statement in any jurisdiction where we would be required to execute a general consent to service of process in effecting the such registration, qualification or compliance, subject to certain restrictions. Warburg Pincus has the right to request an unlimited number of registrations on Form S-3.
Termination of Registration Rights
              Registration rights will be unavailable for any stockholder with respect to any registration if: (i) in the opinion of our counsel, all of the "registrable securities" then owned by such stockholder could be sold in any 90-day period pursuant to Rule 144 (without giving effect to the provisions of Rule 144(b)(1) for non-affiliates); or (ii) all of the "registrable securities" held by such stockholder have been sold in a registration pursuant to the Securities Act or pursuant to Rule 144.
Provisions of Delaware Law and our Certificate of Incorporation and Amended and Restated Bylaws with Anti-Takeover Implications
              Certain provisions of Delaware law, our certificate of incorporation and bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Section 203 of the Delaware General Corporation Law
              We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation's
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voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
•
before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; 

•
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or 

•
at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
              A Delaware corporation may opt out of this provision either with an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out, and do not currently intend to opt out, of this provision. The statute could prohibit or delay mergers or other takeover or change of control attempts and, accordingly, may discourage attempts to acquire us.
Certificate of Incorporation and Bylaw Provisions
              Our certificate of incorporation and bylaws contain some provisions that may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might deem to be in the stockholder's best interest. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:
              Board Composition and Filling Vacancies.     We have a classified board of directors. See "Management—Board Composition." It will take at least two annual meetings of stockholders to elect a majority of the board of directors given our classified board. As a result, it may discourage third-party proxy contests, tender offers or attempts to obtain control of us even if such changes would be beneficial to us and our stockholders.
              Our bylaws provide that, subject to the rights, if any, of holders of preferred stock, directors may be removed only for cause by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of common stock entitled to vote. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. We have also entered into a nominating agreement with Warburg Pincus regarding the election of directors. See "Certain Relationships and Related Transactions—Stockholders Agreement and Nominating Agreement."
              No Stockholder Action by Written Consent.     Our certificate of incorporation and bylaws provide that, subject to the rights of any holders of preferred stock to act by written consent instead of a meeting, stockholder action may be taken only at an annual meeting or special meeting of stockholders and may not be taken by written consent instead of a meeting, unless the action to be taken by written consent of stockholders and the taking of this action by written consent has been expressly approved in advance by the board of directors, except that if Warburg Pincus holds at least 50% of our outstanding capital stock on a fully diluted basis, whenever the vote of stockholders is required at a meeting for any corporate action, the meeting and vote of stockholders may be dispensed with, and the action taken
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without such meeting and vote, if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders. Notwithstanding the foregoing, we will hold an annual meeting of stockholders in accordance with NYSE rules, for so long as our shares are listed on the NYSE, and as otherwise required by the bylaws. Failure to satisfy any of the requirements for a stockholder meeting could delay, prevent or invalidate stockholder action.
              Meetings of Stockholders.     Our bylaws provide that only a majority of the members of our board of directors then in office or the Chief Executive Officer may call special meetings of the stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws will limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
              Advance Notice Requirements.     Our bylaws provide that stockholders must follow an advance notice procedure to make nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders. Any stockholder wishing to nominate persons for election as directors at, or bring other business before, an annual meeting must deliver to our secretary a written notice of the stockholder's intention to do so. To be timely, the stockholder's notice must be delivered to or mailed and received by us not later than the 60th day nor earlier than the 90th day prior to the anniversary date of the preceding annual meeting, except that if the annual meeting is changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, we must receive the notice not earlier than the 90th day prior to such annual meeting and not later than the 60th day prior to such annual meeting. If a public announcement of the date of such annual meeting is made fewer than 70 days prior to the date of such annual meeting, then notice must be received by us no later than the tenth day following the public announcement of the date of the meeting. The notice must include the following information:
•
the name and address of the stockholder who intends to make the nomination and the name and address of the person or persons to be nominated or the nature of the business to be proposed; 

•
a representation that the stockholder is a holder of record of our capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons or to introduce the business specified in the notice; 

•
if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons, naming such person or persons, pursuant to which the nomination is to be made by the stockholder; 

•
such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed under the SEC's proxy rules if the nominee had been nominated, or intended to be nominated, or the matter had been proposed, or intended to be proposed, by the board of directors; 

•
if applicable, the consent of each nominee to serve as a director if elected; and 

•
such other information that the board of directors may request in its discretion.
              Amendment to Bylaws and Certificate of Incorporation.     As required by Delaware law, any amendment to our certificate of incorporation must first be approved by a majority of our board of directors and, if required by law or our certificate of incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment. Our bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the bylaws, without further stockholder action.
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              Blank Check Preferred Stock.     The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. Issuing preferred stock provides flexibility in connection with possible acquisitions and other corporate purposes, but could also, among other things, have the effect of delaying, deferring or preventing a change of control of our company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock.
Limitations of Director Liability and Indemnification Directors, Officers and Employees
              As permitted by Delaware law, provisions in our certificate of incorporation and bylaws limit or eliminate the personal liability of our directors. Consequently, directors will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:
•
any breach of the director's duty of loyalty to us or our stockholders; 

•
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; 

•
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or 

•
any transaction from which the director derived an improper personal benefit.
              These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies, such as an injunction or rescission.
              Our certificate of incorporation and bylaws also require us to indemnify our directors and officers to the fullest extent permitted by Delaware law and, as described under "Certain Relationships and Related Transactions," we have entered into indemnification agreements with each of our directors and officers.
              These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.
              At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
New York Stock Exchange
              Our common stock is listed on the New York Stock Exchange under the symbol "BPI."
Transfer Agent and Registrar
              The transfer agent and registrar for our common stock is Wells Fargo Shareowner Services.
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 SHARES ELIGIBLE FOR FUTURE SALE
              Upon the closing of this offering we estimate that we will have                        shares of our common stock outstanding (including if the underwriters' overallotment option is exercised in full). Of these shares,                shares of our common stock will be freely tradable without restriction under the Securities Act, except for any shares of our common stock purchased by our "affiliates," as the term is defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below.
              As a result of the contractual restrictions described below and the provisions of Rule 144, the restricted shares will be available for sale in the public market as follows:
•
shares will be eligible for sale, without restriction, upon the closing of this offering; 

•
an additional                shares will be eligible for sale upon the expiration of the lock-up agreements that were executed in connection with our initial public offering, beginning on October 12, 2009, which is subject to extension in some circumstances; and 

•
an additional                shares will be eligible for sale upon the expiration of the lock-up agreements that are executed in connection with this offering, beginning 90 days after the date of this prospectus, which is subject to extension in some circumstances,                 shares of which may be sold without restriction and                shares of which are held by directors, executive officers and other affiliates and will be subject to volume and other limitations under Rule 144.
              In addition, upon the closing of this offering, we will have outstanding options to purchase an aggregate of                shares of common stock and outstanding warrants to purchase an aggregate of                shares of common stock.
Rule 144
              In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
              In general, under Rule 144 as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
•
1% of the number of shares of common stock then outstanding, which will equal approximately 533,000 shares immediately after this offering; or 

•
The average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
              Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
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Registration on Form S-8
              We filed a registration statement on Form S-8 under the Securities Act to register shares of common stock under our equity incentive plans on May 13, 2009. Accordingly, shares registered under such registration statement are available for resale in the public market, unless such shares are subject to vesting restrictions by us or are otherwise subject to the lock-up agreements or the manner of sale and notice requirements that apply to our affiliates under Rule 144.
Registration Rights
              For a description of registration rights with respect to our common stock, see "Description of Capital Stock—Registration Rights."
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 MATERIAL U.S. FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
              The following is a general discussion of the material U.S. federal income and estate tax consequences to non-U.S. Holders with respect to the acquisition, ownership and disposition of our common stock. In general, a "Non-U.S. Holder" is any holder of our common stock other than the following:
•
a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the "substantial presence" test under section 7701(b)(3) of the Internal Revenue Code; 

•
a corporation (or an entity treated as a corporation) created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia; 

•
a partnership; 

•
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or 

•
a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons can control all substantial decisions of the trust, or certain other trusts that have a valid election to be treated as a U.S. person pursuant to the applicable Treasury Regulations.
              This discussion is based on current provisions of the Internal Revenue Code, Treasury Regulations, judicial opinions, published positions of the Internal Revenue Service ("IRS"), and all other applicable administrative and judicial authorities, all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income and estate taxation or any aspects of state, local, or non-U.S. taxation, nor does it consider any specific facts or circumstances that may apply to particular Non-U.S. Holders that may be subject to special treatment under the U.S. federal income tax laws including, but not limited to, insurance companies, tax-exempt organizations, pass-through entities, financial institutions, brokers, dealers in securities and U.S. expatriates. If a partnership or other entity treated as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. This discussion assumes that the Non-U.S. Holder will hold our common stock as a capital asset, which generally is property held for investment.
               Prospective investors are urged to consult their tax advisors regarding the U.S. federal, state and local, and non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of common stock.
Dividends
              In general, dividends paid to a Non-U.S. Holder (to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles) will be subject to U.S. withholding tax at a rate equal to 30% of the gross amount of the dividend, or a lower rate prescribed by an applicable income tax treaty, unless the dividends are effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States. Any distribution not constituting a dividend will be treated first as reducing the Non-U.S. Holder's basis in its shares of common stock, and to the extent it exceeds the Non-U.S. Holders basis, as capital gain.
              Under applicable Treasury Regulations, a Non-U.S. Holder will be required to satisfy certain certification requirements, generally on IRS Form W-8BEN, directly or through an intermediary, in order to claim a reduced rate of withholding under an applicable income tax treaty. If tax is withheld in
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an amount in excess of the amount applicable under an income tax treaty, a refund of the excess amount may generally be obtained by filing an appropriate claim for refund with the IRS.
              Dividends that are effectively connected with such a U.S. trade or business generally will not be subject to U.S. withholding tax if the Non-U.S. Holder files the required forms, including IRS Form W-8ECI, or any successor form, with the payor of the dividend, but instead generally will be subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. Holder were a resident of the United States. A corporate Non-U.S. Holder that receives effectively connected dividends may be subject to an additional branch profits tax at a rate of 30%, or a lower rate prescribed by an applicable income tax treaty, on the repatriation from the United States of its "effectively connected earnings and profits," subject to adjustments.
Gain on Sale or Other Disposition of Common Stock
              In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of the Non-U.S. Holder's shares of common stock unless:
•
the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States (and, where an income tax treaty applies, is attributable to a U.S. permanent establishment of the Non-U.S. Holders), in which case such gain generally will be subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. Holder were a resident of the United States, and the branch profits tax may also apply if the Non-U.S. Holder is a corporation; 

•
the Non-U.S. Holder is an individual who holds shares of common stock as capital assets and is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or 

•
we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes and the Non-U.S. Holder holds or has held, directly or indirectly, at any time within the shorter of the five year period preceding the disposition or the Non-U.S. Holder's holding period, more than 5% of the common stock.
              We believe that we are not, and we do not anticipate that we will become, a U.S. real property holding corporation.
Information Reporting and Backup Withholding
              Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the recipient. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced by an applicable income tax treaty. Under income tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.
              Dividends paid to a Non-U.S. Holder that is not an exempt recipient generally will be subject to backup withholding, currently at a rate of 28% of the gross proceeds, unless a Non-U.S. Holder certifies as to its foreign status, which certification may be made on IRS Form W-8BEN.
              Proceeds from the sale or other disposition of common stock by a Non-U.S. Holder effected by or through a U.S. office of a broker will be subject to information reporting and backup withholding, currently at a rate of 28% of the gross proceeds, unless the Non-U.S. Holder certifies to the payor under penalties of perjury as to, among other things, its name, address and status as a Non-U.S. Holder or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding
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will not apply to a payment of disposition proceeds if the transaction is effected outside the United States by or through a non-U.S. office. However, if the broker is, for U.S. federal income tax purposes, a U.S. person, a controlled foreign corporation, a foreign person who derives 50% or more of its gross income for specified periods from the conduct of a U.S. trade or business, specified U.S. branches of foreign banks or foreign insurance companies or a foreign partnership with various connections to the United States, information reporting but not backup withholding will apply unless:
•
the broker has documentary evidence in its files that the holder is a Non-U.S. Holder and certain other conditions are met; or 

•
the holder otherwise establishes an exemption.
              Backup withholding is not an additional tax. Rather, the amount of tax withheld is generally applied as a credit to the U.S. federal income tax liability of persons subject to backup withholding. If backup withholding results in an overpayment of U.S. federal income taxes, a refund may be obtained, provided the required documents are timely filed with the IRS.
Estate Tax
              Our common stock owned or treated as owned by an individual who is not a citizen or resident of the United States (as specifically defined for U.S. federal estate tax purposes) at the time of death will be includible in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
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 UNDERWRITING
              Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a purchase agreement among us, the selling stockholders and the underwriters, the selling stockholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from the selling stockholders, the number of shares of common stock set forth opposite its name below.

 	 	Underwriter 	 	Number of
Shares	 	
 Merrill Lynch, Pierce, Fenner & Smith	 	 	 	 	
  	 	Incorporated	 	 	 	 	

J.P. Morgan Securities Inc. 	

 	

    	

 	

 	

 	

 	

    	

 	

 	

 	
 	
 Total	

11,000,000	

              Subject to the terms and conditions set forth in the purchase agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated.
              We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
              The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
              The representatives have advised us and the selling stockholders that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $            per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $            per share to other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
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              The following table shows the public offering price, underwriting discount and proceeds before expenses to the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.

 	 	Per Share	 	Without Option	 	With Option	 	
Public offering price	 	$	 	 	$	 	 	$	 	 	
Underwriting discount	 	$	 	 	$	 	 	$	 	 	
Proceeds, to the selling stockholders, before expenses	 	$	 	 	$	 	 	$	 	 	
              The expenses of the offering, not including the underwriting discount, are estimated at $1.0 million and are payable by us. The expenses of registering the shares under the Securities Act, including registration and filing fees, printing expenses, administrative expenses and our legal fees, are being paid by us. The selling stockholders will bear all discounts, commissions or other amounts payable to underwriters, brokers, dealers or agents.
Overallotment Option
              The selling stockholders have granted an option to the underwriters to purchase up to 1,650,000 additional shares at the public offering price, less the underwriting discount. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.
No Sales of Similar Securities
              We and the selling stockholders, our executive officers and directors have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 90 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
•
offer, pledge, sell or contract to sell any common stock, 

•
sell any option or contract to purchase any common stock, 

•
purchase any option or contract to sell any common stock, 

•
grant any option, right or warrant for the sale of any common stock, 

•
lend or otherwise dispose of or transfer any common stock, 

•
request or demand that we file a registration statement related to the common stock, or 

•
enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
              This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. In the event that either (i) during the last 17 days of lock-up period referred to above, we issue an earnings release or material news or a material event relating to our company occurs or (ii) prior to the expiration of the lock-up period, we
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announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the lock-up period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
New York Stock Exchange Listing
              The shares are listed on the New York Stock Exchange under the symbol "BPI."
Price Stabilization and Short Positions
              Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
              In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares in the offering. The underwriters may close out any covered short position by either exercising their overallotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. "Naked" short sales are sales in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
              Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or slowing a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.
              Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Offer, Sale and Distribution of Shares
              In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, each underwriter may facilitate Internet distribution for this offering to certain of its Internet subscription customers. Each underwriter may allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet web site maintained by each underwriter. Other than the prospectus in electronic format, the information on such underwriter's web site is not part of this prospectus.
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Other Relationships
              Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
Notice to Prospective Investors in the European Economic Area
              In relation to each Member State of the European Economic Area ("EEA") which has implemented the Prospectus Directive (each, a "Relevant Member State") an offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a)
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b)
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c)
by the underwriters to fewer than 100 natural or legal persons (other than "qualified investors" as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or

(d)
in any other circumstances falling within Article 3(2) of the Prospectus Directive;
provided that no such offer of shares shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive.
              Any person making or intending to make any offer of shares within the EEA should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce a prospectus for such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of shares through any financial intermediary, other than offers made by the underwriters which constitute the final offering of shares contemplated in this prospectus.
              For the purposes of this provision, and your representation below, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
              Each person in a Relevant Member State who receives any communication in respect of, or who acquires any shares under, the offer of shares contemplated by this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:
(a)
it is a "qualified investor" within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and

(b)
in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the shares acquired by it in the offering
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have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than "qualified investors" (as defined in the Prospectus Directive), or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons.
Notice to Prospective Investors in Switzerland
              This document, as well as any other material relating to the shares which are the subject of the offering contemplated by this prospectus, do not constitute an issue prospectus pursuant to Article 652a of the Swiss Code of Obligations. The shares will not be listed on the SWX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of SWX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SWX Swiss Exchange. The shares are being offered in Switzerland by way of a private placement, i.e.  to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by us from time to time. This document, as well as any other material relating to the shares, is personal and confidential and do not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with this offering and may neither directly nor indirectly be distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
              This document relates to an exempt offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with exempt offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The shares which are the subject of the offering contemplated by this prospectus may become illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this document you should consult an authorized financial adviser.

 LEGAL MATTERS
              The validity of the shares of common stock offered by this prospectus and other legal matters will be passed upon for us by Wilson Sonsini Goodrich & Rosati, PC, San Diego, California. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.

 EXPERTS
              The consolidated financial statements as of December 31, 2007 and 2008 and for each of the three years in the period ended December 31, 2008, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
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 WHERE YOU CAN FIND MORE INFORMATION
              We are subject to information and periodic reporting requirements of the Exchange Act and we file annual, quarterly and current reports, proxy statements and other information with the SEC. We have filed with the SEC a registration statement on Form S-1 (File No. 333-          ), which includes amendments and exhibits, under the Securities Act and the rules and regulations under the Securities Act for the registration of common stock being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information that is in the registration statement and its exhibits and schedules. Certain portions of the registration statement have been omitted as allowed by the rules and regulations of the SEC. Statements in this prospectus that summarize documents are not necessarily complete, and in each case you should refer to the copy of the document filed as an exhibit to the registration statement. You may read and copy the registration statement, including exhibits and schedules filed with it, and reports or other information we may file with the SEC at the public reference facilities of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, the registration statement and other public filings can be obtained from the SEC's Internet site at http://www.sec.gov.
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 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

BRIDGEPOINT EDUCATION, INC. AND SUBSIDIARIES

 	 	Page	
Annual Financial Statements:	 	 	
Report of Independent Registered Public Accounting Firm	 	F-2	
Consolidated Balance Sheets as of December 31, 2007 and 2008	 	F-3	
Consolidated Statements of Operations for the years ended December 31, 2006, 2007 and 2008	 	F-4	
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2006, 2007 and 2008	 	F-5	
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008	 	F-6	
Notes to Annual Consolidated Financial Statements	 	F-7	
Interim Condensed Financial Statements:	 	 	
Condensed Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009	 	F-38	
Condensed Consolidated Statements of Income for the six months ended June 30, 2008 and 2009	 	F-39	
Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity for the six months ended June 30, 2009	 	F-40	
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2009	 	F-41	
Notes to Interim Condensed Consolidated Financial Statements	 	F-42	
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 Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Bridgepoint Education, Inc.:
              In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Bridgepoint Education, Inc. and its subsidiaries (the "Company") at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Diego, California
March 19, 2009, except for Note 19, "Subsequent Events: Reverse Stock Split," which is as of March 31, 2009.
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Bridgepoint Education, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)

 	 	As of December 31,	 	
 	 	2007	 	2008	 	
ASSETS	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	7,351	 	$	56,483	 	
 	Restricted cash	 	 	—	 	 	666	 	
 	Accounts receivable, net of allowance for doubtful accounts of $6,016 and $18,246 at December 31, 2007 and 2008, respectively	 	 	14,630	 	 	28,946	 	
 	Inventories	 	 	194	 	 	288	 	
 	Loans receivable	 	 	277	 	 	—	 	
 	Current portion of deferred income taxes	 	 	—	 	 	2,734	 	
 	Prepaid expenses and other current assets	 	 	561	 	 	6,773	 	
 	 	 	 	 	 	
Total current assets	 	 	23,013	 	 	95,890	 	
Property and equipment, net	 	 	
13,240	 	 	
27,715	 	
Goodwill	 	 	76	 	 	76	 	
Intangibles	 	 	1,821	 	 	1,821	 	
Deferred income taxes	 	 	—	 	 	2,366	 	
Other long term assets	 	 	907	 	 	1,378	 	
 	 	 	 	 	 	
Total assets	 	$	39,057	 	$	129,246	 	
 	 	 	 	 	 	
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	
 	Accounts payable	 	$	2,721	 	$	4,705	 	
 	Accrued liabilities	 	 	6,036	 	 	16,543	 	
 	Deferred revenue and student deposits	 	 	16,817	 	 	67,425	 	
 	Other liabilities	 	 	75	 	 	40	 	
 	Current portion of leases payable	 	 	133	 	 	142	 	
 	Current maturities of notes payable	 	 	1,580	 	 	74	 	
 	U.S. Governmental refundable loan funds	 	 	221	 	 	—	 	
 	 	 	 	 	 	
Total current liabilities	 	 	27,583	 	 	88,929	 	
Leases payable, less current maturities	 	 	
415	 	 	
308	 	
Notes payable, less current portion	 	 	3,545	 	 	160	 	
Deferred tax liability	 	 	556	 	 	—	 	
Other long term liabilities	 	 	—	 	 	2,740	 	
Rent liability	 	 	2,045	 	 	3,938	 	
 	 	 	 	 	 	
Total liabilities	 	 	34,144	 	 	96,075	 	
 	 	 	 	 	 	
Commitments and contingencies (see Note 17)	 	 	 	 	 	 	 	
Redeemable convertible preferred stock:	 	 	 	 	 	 	 	
 	Series A convertible preferred stock, $0.01 par value:	 	 	 	 	 	 	 	
 	 	19,850,000 shares authorized, 19,778,333 shares issued and outstanding at December 31, 2007 and December 31, 2008	 	 	25,056	 	 	27,062	 	
Stockholders' equity (deficit):	 	 	 	 	 	 	 	
 	Common stock, $0.01 par value:	 	 	 	 	 	 	 	
 	 	300,000,000 shares authorized, 3,335,096 and 3,335,089 shares issued and outstanding at December 31, 2007 and 2008, respectively	 	 	33	 	 	33	 	
 	Additional paid-in capital	 	 	—	 	 	1,703	 	
 	Retained earnings (accumulated deficit)	 	 	(20,176	)	 	4,373	 	
 	 	 	 	 	 	
Total stockholders' equity (deficit)	 	 	(20,143	)	 	6,109	 	
 	 	 	 	 	 	
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)	 	$	39,057	 	$	129,246	 	
 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
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Bridgepoint Education, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Revenue	 	$	28,619	 	$	85,709	 	$	218,290	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	12,510	 	 	29,837	 	 	62,822	 	
 	Marketing and promotional	 	 	12,214	 	 	35,997	 	 	81,036	 	
 	General and administrative	 	 	8,704	 	 	15,892	 	 	41,012	 	
 	 	 	 	 	 	 	 	
Total costs and expenses	 	 	33,428	 	 	81,726	 	 	184,870	 	
Operating income (loss)	 	 	
(4,809	
)	 	
3,983	 	 	
33,420	 	
Interest income	 	 	(10	)	 	(12	)	 	(322	)	
Interest expense	 	 	351	 	 	544	 	 	240	 	
 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(5,150	)	 	3,451	 	 	33,502	 	
Income tax expense	 	 	—	 	 	164	 	 	7,071	 	
 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(5,150	)	 	3,287	 	 	26,431	 	
Accretion of preferred dividends	 	 	1,718	 	 	1,856	 	 	2,006	 	
 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(6,868	)	$	1,431	 	$	24,425	 	
 	 	 	 	 	 	 	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(2.15	)	$	0.01	 	$	0.38	 	
 	 	 	 	 	 	 	 	
 	Diluted	 	$	(2.15	)	$	0.01	 	$	0.16	 	
 	 	 	 	 	 	 	 	
Weighted average common shares outstanding used in computing earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	3,197	 	 	3,311	 	 	3,335	 	
 	 	 	 	 	 	 	 	
 	Diluted	 	 	3,197	 	 	4,446	 	 	7,757	 	
 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
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Bridgepoint Education, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)

(In thousands, except share data)

 	 	Series A Convertible Preferred Stock	 	 	 	 	 	 	 	 	 	 	 	
 			 	Common Stock	 	 	 	Retained
Earnings/
(Accumulated
Deficit)	 	 	 	
 					 	Additional
Paid-in
Capital			 	 	 	
 	 	Shares	 	Amount	 	Shares	 	Par Value					 	Total	 	
Balance at December 31, 2005	 	 	19,778,333	 	$	21,482	 	 	3,141,552	 	$	31	 	$	1,816	 	$	(17,044	)	$	(15,197	)	
Issuance of common stock	 	 	—	 	 	—	 	 	156,881	 	 	2	 	 	48	 	 	—	 	 	50	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	323	 	 	—	 	 	323	 	
Accretion of preferred dividends	 	 	—	 	 	1,718	 	 	—	 	 	—	 	 	(1,718	)	 	—	 	 	(1,718	)	
Net loss	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(5,150	)	 	(5,150	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2006	 	 	19,778,333	 	$	23,200	 	 	3,298,433	 	 	33	 	 	469	 	 	(22,194	)	 	(21,692	)	
Issuance of common stock	 	 	—	 	 	—	 	 	36,663	 	 	—	 	 	12	 	 	—	 	 	12	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	106	 	 	—	 	 	106	 	
Accretion of preferred dividends	 	 	—	 	 	1,856	 	 	—	 	 	—	 	 	(587	)	 	(1,269	)	 	(1,856	)	
Net income	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	3,287	 	 	3,287	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	 	19,778,333	 	$	25,056	 	 	3,335,096	 	 	33	 	 	—	 	 	(20,176	)	 	(20,143	)	
Adjustment for fractional shares from reverse stock split	 	 	—	 	 	—	 	 	(7	)	 	—	 	 	—	 	 	—	 	 	—	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1,827	 	 	—	 	 	1,827	 	
Accretion of preferred dividends	 	 	—	 	 	2,006	 	 	—	 	 	—	 	 	(124	)	 	(1,882	)	 	(2,006	)	
Net income	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	26,431	 	 	26,431	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2008	 	 	19,778,333	 	$	27,062	 	 	3,335,089	 	$	33	 	$	1,703	 	$	4,373	 	$	6,109	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
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Bridgepoint Education, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	(5,150	)	$	3,287	 	$	26,431	 	
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	 	 	
 	Provision for bad debts	 	 	960	 	 	4,082	 	 	13,431	 	
 	Depreciation and amortization	 	 	735	 	 	1,236	 	 	2,452	 	
 	Deferred income taxes	 	 	—	 	 	—	 	 	(3,264	)	
 	Stock-based compensation	 	 	323	 	 	106	 	 	1,827	 	
 	Gain on disposal of fixed assets	 	 	(3	)	 	—	 	 	—	 	
Changes in operating assets and liabilities, net of effects of acquisitions:	 	 	 	 	 	 	 	 	 	 	
 	Accounts receivable	 	 	(4,183	)	 	(13,563	)	 	(27,747	)	
 	Inventories	 	 	(88	)	 	16	 	 	(94	)	
 	Prepaid expenses and other current assets	 	 	(252	)	 	(203	)	 	(6,212	)	
 	Loans receivable	 	 	(5	)	 	—	 	 	277	 	
 	Other long-term assets	 	 	(147	)	 	(150	)	 	(471	)	
 	Accounts payable	 	 	484	 	 	1,389	 	 	1,019	 	
 	Accrued liabilities	 	 	2,063	 	 	3,018	 	 	10,506	 	
 	Deferred revenue and student deposits	 	 	3,893	 	 	11,270	 	 	50,608	 	
 	U.S. Governmental refundable loan funds	 	 	4	 	 	—	 	 	(221	)	
 	Other liabilities	 	 	284	 	 	(121	)	 	2,206	 	
 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	 	(1,082	)	 	10,367	 	 	70,748	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(1,381	)	 	(3,571	)	 	(15,884	)	
Proceeds from the sale of fixed assets	 	 	8	 	 	—	 	 	—	 	
Restricted cash	 	 	—	 	 	—	 	 	(666	)	
Acquisitions, net of cash acquired	 	 	—	 	 	635	 	 	—	 	
 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(1,373	)	 	(2,936	)	 	(16,550	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 	
Proceeds from the exercise of stock options	 	 	50	 	 	12	 	 	—	 	
Payments on leases payable	 	 	(160	)	 	(170	)	 	(175	)	
Net borrowings on line of credit	 	 	623	 	 	414	 	 	—	 	
Payments on notes payable	 	 	(167	)	 	(390	)	 	(4,891	)	
 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	 	 	346	 	 	(134	)	 	(5,066	)	
 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	(2,109	)	 	7,297	 	 	49,132	 	
Cash and cash equivalents at beginning of period	 	 	2,163	 	 	54	 	 	7,351	 	
 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	54	 	$	7,351	 	$	56,483	 	
 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information	 	 	 	 	 	 	 	 	 	 	
Cash paid during the period for:	 	 	 	 	 	 	 	 	 	 	
Interest	 	$	353	 	$	544	 	$	240	 	
 	 	 	 	 	 	 	 	
Income taxes	 	$	—	 	$	—	 	$	10,704	 	
 	 	 	 	 	 	 	 	
Supplemental disclosure of non-cash investing and financing activities:	 	 	 	 	 	 	 	 	 	 	
Purchase of property and equipment through capital lease obligations	 	$	119	 	$	1,580	 	$	77	 	
Non-cash purchases of property and equipment	 	$	201	 	$	361	 	$	965	 	
The accompanying notes are an integral part of these consolidated financial statements.
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Bridgepoint Education, Inc.

Notes to Annual Consolidated Financial Statements
1. Nature of Business
              Bridgepoint Education, Inc. (together with its subsidiaries, the "Company"), incorporated in 1999, is a regionally accredited provider of postsecondary education services. Its wholly-owned subsidiaries, Ashford University and the University of the Rockies, offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. The Company delivers programs online as well as at its traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado.
              In March 2005, the Company acquired the assets of The Franciscan University of the Prairies and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs.
              In September 2007, the Company acquired the assets of the Colorado School of Professional Psychology and renamed it the University of the Rockies. Founded as a non-profit organization in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology.
2. Summary of Significant Accounting Policies
Principles of Consolidation
              The consolidated financial statements include the accounts of Bridgepoint Education, Inc. and its wholly-owned subsidiaries. The results of operations for the years ended December 31, 2006, 2007 and 2008 include the results of operations of Ashford University and the results of operations of the University of the Rockies commencing on September 13, 2007. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
              The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
              The Company invests cash in excess of current operating requirements in short term certificates of deposit and money market accounts. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
              The Company has $0.7 million in cash restricted in relation to the letter of credit issued on behalf of the University of the Rockies.
Accounts Receivable and Allowance for Doubtful Accounts
              Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, technology fees and other fees from currently enrolled and former students. Students generally
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)

fund their education through grants and/or loans under various Title IV programs, tuition assistance from their military and corporate employers or personal funds. Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is estimated by management based on an assessment of individual accounts receivable over a specific aging and amount, and all other balances on a pooled basis based on historical collection experience, consideration of the nature of the receivable accounts and potential changes in the economic environment. The provision for bad debts is recorded within the instructional costs and services line in the consolidated statements of operations.
Inventory
              Inventory consists of text books and school supplies and is stated at the lower of cost or market with cost determined on a first-in, first-out (FIFO) basis.
Property and Equipment
              Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:

Buildings	 	39 years	
Furniture, office equipment and software	 	3 - 7 years	
Vehicles	 	5 years	
              Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Upon the retirement or disposition of property and equipment, the related costs and accumulated depreciation is removed and a gain or loss is recorded in the consolidated statements of operations. Repairs and maintenance costs are expensed in the period incurred.
Leases
              The Company accounts for its leases and subsequent amendments under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 13, Accounting for Leases , which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes. Leased property and equipment meeting certain criteria are capitalized, and the present value of the related lease payments are recognized as a liability on the consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.
              In connection with a lease of office space, the Company received tenant allowances from the lessor for certain improvements made to the leased property. In accordance with Financial Accounting Standards Board ("FASB") Technical Bulletin No. 88-1, these allowances were capitalized as leasehold improvements and a long-term liability was established. The leasehold improvements and the long-term liability are amortized on a straight-line basis over the corresponding lease term. In accordance with the FASB Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases , the Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a long-term liability.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)
Goodwill and Other Intangible Assets
              The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets . SFAS 142 requires that goodwill and other identifiable intangible assets with indefinite useful lives be tested for impairment at least annually. The Company tests goodwill and indefinite-lived intangible assets for impairment annually, in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant. There have been no impairment losses recorded by the Company to date.
              In evaluating the impairment of goodwill and indefinite-lived intangible assets, such assets are allocated to the carrying value of each of Ashford University and the University of the Rockies, which institutions are considered as separate reporting units. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Impairment of Long-Lived Assets
              The Company accounts for long-lived assets in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets . The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. There have been no impairment losses recognized by the Company to date.
Revenue and Deferred Revenue
              The Company's revenue consists of tuition, technology fees and other miscellaneous fees.
              Tuition revenue is deferred and recognized on a straight-line basis over the applicable period of instruction net of scholarships and expected refunds. The Company's online students generally enroll in a program that encompasses a series of five to six week courses which are taken consecutively over the length of the program, and the Company's ground students enroll in a program that encompasses a series of 16 week courses. Students are billed on a course-by-course basis when the student first attends a class, or at the beginning of each semester for ground students.
              If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that class. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. The Company's universities bill enrolled online students for tuition on a course by course basis as they
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)

initiate attendance in each course. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the student's attendance in the first or second course. Since the majority of disbursements cover more courses than have been billed, the amount received in excess of billings effectively represents a prepayment from the student for up to four courses. Cash received either directly from the student or from the student's source of funding that is in excess of amounts billed is recorded as a student deposit and applied to future classes and recognized as revenue when earned. The balance of accounts receivable that have been recognized for services that have not yet been provided and deferred revenue that has not yet been received in cash as of December 31, 2007 and 2008 was $2.1 million and $4.0 million, respectively. The balance of student deposits as of December 31, 2007 and 2008 was $10.6 million and $54.6 million, respectively.
              If a student withdraws from a program prior to a specified date, a portion of such student's tuition is refunded. The Company records a provision for expected refunds and reduces revenue to the amount that is not expected to be subsequently refunded. Provisions for expected refunds have not been material to any period presented.
              Technology fees are one-time start up fees charged to each new undergraduate online student. Technology fee revenue is recognized ratably over the average expected term of a student. Other miscellaneous fees include fees for textbooks and other services, such as commencements, and are recognized upon delivery of the goods or when the related service is performed.
Income Taxes
              The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates expected to be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.
              On January 1, 2008, the Company adopted FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes , which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken, or expected to be taken, in a tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The standard requires the Company to accrue for the estimated amount of taxes for uncertain tax positions if it is more likely than not that the Company would be required to pay such additional taxes. An uncertain tax position will not be recognized if it has a less than 50% likelihood of being sustained.
Stock-Based Compensation
              Effective January 1, 2006, the Company adopted the provisions of SFAS 123R ("SFAS 123R"), Share-Based Payment . SFAS 123R, which is a revision of SFAS 123, Accounting for Stock-Based Compensation , replaces the Company's previous accounting for share-based awards under Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees . The Company previously accounted for stock-based compensation using the intrinsic value method as defined in
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)

APB 25. Prior to January 1, 2006, no stock-based employee compensation cost was recorded under APB 25.
              The Company adopted SFAS 123R using the prospective method. Under this transition method, compensation expense recorded includes the cost for all stock options granted or modified after January 1, 2006. The expense for all stock-based awards granted subsequent to January 1, 2006 represents the grant-date fair value that was estimated, in accordance with the provisions of SFAS 123R. The cost for all share-based awards granted prior to January 1, 2006 and modified after January 1, 2006 was calculated based upon the increase in fair value of the options from the original grant date to the modification date. Outstanding stock options at January 1, 2006 that were measured at intrinsic value under APB 25 and that have not been modified shall continue to be measured at intrinsic value, until they are settled or modified. Compensation expense for options is recorded in the consolidated statement of operations, net of estimated forfeitures, using the graded vesting method over the requisite service period. Stock-based compensation expense totaled $323,000, $106,000 and $1.8 million for the years ended December 31, 2006, 2007 and 2008, respectively.
Comprehensive Income (Loss)
              There are no comprehensive income (loss) items other than net income (loss). Comprehensive income equals net income (loss) for all of the periods presented.
Instructional Costs and Services
              Instructional costs and services consist primarily of costs related to the administration and delivery of the Company's educational programs. This expense category includes compensation for faculty and administrative personnel, costs associated with online faculty, curriculum and new program development costs, bad debt expense, financial aid processing costs, technology license costs and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of facility and depreciation costs.
Marketing and Promotional
              Marketing and promotional expenses include compensation of personnel engaged in marketing and recruitment, as well as costs associated with purchasing leads and producing marketing materials. The Company's marketing and promotional expenses are generally affected by the cost of advertising media and leads, the efficiency of its marketing and recruiting efforts, compensation for its enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Marketing and promotional expenses also include an allocation of facility and depreciation costs.
              Advertising costs are expensed as incurred. Advertising costs, which include marketing leads, events and promotional materials for the years ended December 31, 2006, 2007 and 2008 were $5.0 million, $15.1 million and $26.9 million, respectively.
General and Administrative
              General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, information technology, compliance and other corporate
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)

functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of facility and depreciation costs.
Earnings Per Share
              In accordance with SFAS No. 128, Computation of Earnings Per Share ("SFAS 128"), and EITF Issue 03-06, Participating Securities and the Two-Class Method under FASB Statement No. 128 , basic earnings (loss) per common share is calculated by dividing net income available (loss attributable) to common stockholders by the weighted average number of common shares outstanding for the period using the two-class method. Under the two-class method, net income is allocated between common shares and other participating securities based on their participating rights. Diluted earnings (loss) per common share is calculated by dividing net income available (loss attributable) to common stockholders by the weighted average number of common and potential dilutive securities outstanding during the period if the effect is dilutive. The numerator of diluted earnings per share is calculated by starting with income allocated to common shares under the two-class method and adding back income attributable to preferred shares to the extent they are dilutive. Potential common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and warrants and upon conversion of preferred stock.
Segment Information
              The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both its ground and online students regardless of geography. The Company's chief operating decision maker, its CEO and President, manages the Company's operations as a whole, and no revenue, expense or operating income information is evaluated by the chief operating decision maker on any component level.
Recent Accounting Pronouncements
              In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Pronouncements that Address Fair Value Measurements for Purpose of Lease Classification or Measurement under Statement 13 , which amends SFAS 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13, Accounting for Leases . In February 2008, the FASB also issued FSP FAS 157-2 Effective Date of FASB Statement No. 157 , which delays the effective date of SFAS 157 until the first quarter of 2009 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. The Company adopted SFAS 157 for financial assets and liabilities on January 1, 2008, and such adoption did not have a material impact on its consolidated financial statements. The Company does not expect the adoption of SFAS 157 for non-financial assets and liabilities to have a material impact on its consolidated financial statements.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
2. Summary of Significant Accounting Policies—(Continued)
              In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 ("SFAS 159"). SFAS 159 expands the use of fair value in accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. If elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008, and such adoption did not have a material impact on its consolidated financial statements.
              In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its consolidated financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company does not believe the adoption of SFAS 141R will have a material impact on its consolidated financial statements.
              In June 2008, the FASB ratified EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock ("EITF 07-5"). Paragraph 11(a) of SFAS No. 133 ("SFAS 133"), Accounting for Derivatives and Hedging Activities , specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to such company's own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. EITF 07-5 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. The Company does not believe the adoption of EITF 07-5 will have a material impact on its consolidated financial statements.
              In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). FSP EITF 03-6-1 clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common stockholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company does not expect FSP EITF 03-6-1 to have a significant impact on its historical grants of share-based payment awards as such awards do not participate in undistributed earnings with common stockholders. The Company is currently assessing the impact of FSP EITF 03-6-1 on future grants on its earnings per share.
3. Business Combinations
Colorado School of Professional Psychology
              On September 13, 2007, the Company acquired all of the assets and assumed certain liabilities of the Colorado School of Professional Psychology for approximately $0.9 million and subsequently renamed it the University of the Rockies. The acquisition was accounted for as a purchase and, accordingly, the results of operations are included in the consolidated financial statements beginning
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
3. Business Combinations—(Continued)

September 13, 2007, the effective date of the acquisition. The acquisition was funded by the issuance of a note payable to the seller.
              The purchase agreement allowed for an adjustment to the purchase price based on any cash shortfall experienced by the Company as a result of the operations of the University of the Rockies from the date of purchase through December 31, 2007. A cash shortfall of $0.6 million was experienced and the purchase price was adjusted to $0.3 million.
              The purchase price was allocated to the acquired assets and assumed liabilities on the basis of their estimated fair values as of the date of acquisition, as summarized below (in thousands):

Cash	 	$	636	 	
Accounts receivable, net	 	 	60	 	
Prepaid expenses and other current assets	 	 	48	 	
Property and equipment	 	 	287	 	
Security deposits and other assets	 	 	32	 	
Intangible assets—accreditation and Title IV program participation rights	 	 	419	 	
Goodwill	 	 	76	 	
 	 	 	 	
 	Total assets acquired	 	 	1,558	 	
 	 	 	 	
Other current liabilities	 	 	(391	)	
Current leases payable	 	 	(55	)	
Debt assumed	 	 	(791	)	
 	 	 	 	
 	Total liabilities assumed	 	 	(1,237	)	
 	 	 	 	
Purchase price (note payable to seller)	 	$	321	 	
 	 	 	 	
              Pro forma results of operations for the acquisition have not been presented because the effects of the acquisition were not material to our consolidated financial statements.
Goodwill and Intangible Assets
              As a result of the purchase of the University of the Rockies, the Company recognized $76,000 in goodwill. Intangible assets acquired in the purchase of the University of the Rockies in 2007 consist of accreditation and Title IV program participation rights ("accreditation") and are considered to have indefinite useful lives. These assets were determined to have indefinite useful lives in accordance with SFAS 142 because the accreditation may be renewed indefinitely at little cost to the Company and the Company intends to renew the accreditation indefinitely. Intangible assets totaled $1.4 million, $1.8 million and $1.8 million at December 31, 2006, 2007 and 2008, respectively. The $1.8 million at December 31, 2007 and 2008 is comprised of $1.4 million relating to Ashford University and $0.4 million relating to the University of the Rockies.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
4. Prepaid and Other Current Assets
              Prepaid and other current assets, consist of the following (in thousands):

 	 	As of December 31,	 	
 	 	2007	 	2008	 	
Prepaid expenses	 	$	261	 	$	3,407	 	
Prepaid licenses	 	 	153	 	 	1,798	 	
Income tax receivable	 	 	—	 	 	1,118	 	
Prepaid insurance	 	 	12	 	 	73	 	
Other current assets	 	 	135	 	 	377	 	
 	 	 	 	 	 	
 	Total prepaid and other current assets	 	$	561	 	$	6,773	 	
 	 	 	 	 	 	
              Included in prepaid expenses as of December 31, 2008 are capitalizable expenses relating to the Company's potential initial public offering. Included in prepaid licenses are the license fee and annual software maintenance costs relating to Blackboard and CampusVue software. Other current assets include certain short term rent deposits and employee advances.
5. Property and Equipment
              Property and equipment, net, consist of the following (in thousands):

 	 	As of December 31,	 	
 	 	2007	 	2008	 	
Land	 	$	327	 	$	327	 	
Buildings	 	 	6,109	 	 	6,109	 	
Furniture, office equipment and software	 	 	6,768	 	 	17,420	 	
Leasehold improvements	 	 	2,543	 	 	8,819	 	
Vehicles	 	 	43	 	 	43	 	
 	 	 	 	 	 	
 	Total depreciable property and equipment	 	 	15,790	 	 	32,718	 	
 	Less accumulated depreciation and amortization	 	 	(2,550	)	 	(5,003	)	
 	 	 	 	 	 	
 	Property and equipment, net	 	$	13,240	 	$	27,715	 	
 	 	 	 	 	 	
              Depreciation and amortization expense associated with property and equipment, including assets under capital lease, totaled $0.7 million, $1.2 million and $2.5 million for the years ended December 31, 2006, 2007 and 2008, respectively.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
6. Accrued Liabilities
              Accrued liabilities consist of the following (in thousands):

 	 	As of December 31,	 	
 	 	2007	 	2008	 	
Accrued salaries and wages	 	$	2,097	 	$	6,995	 	
Accrued vacation	 	 	585	 	 	1,342	 	
Accrued expenses	 	 	3,190	 	 	8,206	 	
Accrued income taxes payable	 	 	164	 	 	—	 	
 	 	 	 	 	 	
 	Total accrued liabilities	 	$	6,036	 	$	16,543	 	
 	 	 	 	 	 	
7. Notes Payable and Long-Term Debt
              In April 2004, the Company entered into a credit agreement ("Credit Agreement") with Comerica Bank that provides for a revolving credit facility ("Revolving Credit Facility") of $6.0 million, which includes a letter of credit sub-limit ("LC Sub-limit") of $3.7 million. The Credit Agreement also provides for an equipment line of credit ("Equipment Line") not to exceed $200,000 and allows the Company to borrow up to $3.0 million from the Company's majority stockholder.
              In March 2005, pursuant to the terms of the Credit Agreement, the Company obtained a term loan ("Term Loan") of $3.5 million with a maturity date of March 9, 2008. Borrowings under the Term Loan require 36 monthly principal installments of $14,000, with the balance due at maturity. The Term Loan bears interest, payable monthly, at a rate equal to 1.00% above the prime rate.
              In March 2008, the Credit Agreement was amended to (i) reduce the maximum available borrowing capacity under the Revolving Credit Facility from $6.0 million to $5.0 million and reduce the LC Sub-limit from $3.7 million to $2.1 million, (ii) extend the maturity date for the Revolving Credit Facility from March 9, 2008 to March 1, 2011 and (iii) require principal payments on outstanding borrowings under the Term Loan as of the date of the amendment to be made in 36 monthly installments based on a ten-year amortization schedule, with the balance due at maturity.
              In June 2008, the Credit Agreement was further amended to (i) increase the LC Sub-limit from $2.1 million to $5.0 million and (ii) extend the maturity date of the LC Sub-limit from June 12, 2008 to June 12, 2010.
              In October 2008, the Credit Agreement was further amended to (i) increase the maximum available borrowing capacity under the Revolving Credit Facility from $5.0 million to $15.0 million, (ii) increase the LC Sub-limit from $5.0 million to $14.2 million and (iii) modify the maturity date of the LC Sub-limit from June 12, 2010 to October 31, 2009. The Company obtained a letter of credit from a separate bank in the amount of $0.7 million, which is secured by a cash deposit included in the restricted cash balance at December 31, 2008.
              As of December 31, 2007 and 2008, the Company had borrowings outstanding under the Revolving Credit Facility of $1.0 million and $0, respectively. The Company caused its banks to issue letters of credit aggregating to $14.9 million as of December 31, 2008. As of December 31, 2007 and 2008, the Company had borrowings outstanding under the Equipment Line of $114,000 and $0, respectively.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
7. Notes Payable and Long-Term Debt—(Continued)
              The Company had outstanding borrowings under the Term Loan of $3.1 million as of December 31, 2007. As of December 31, 2008, the Company had repaid the Term Loan in full.
              Under the Credit Agreement, the Company is subject to certain limitations including limitations on its ability to incur additional debt, make certain investments or acquisitions and enter into certain merger and consolidation transactions, among other restrictions. The Credit Agreement also contains a material adverse change clause, and we are required to maintain compliance with a minimum tangible net worth financial covenant. As of December 31, 2007 and 2008, the Company was in compliance with all financial covenants in its Credit Agreement. If we fail to comply with any of the covenants or experience a material adverse change, the lenders could elect to prevent us from borrowing or issuing letters of credit and declare the indebtedness to be immediately due and payable.
              As security for the letter of credit facility under the Credit Agreement, the Company is obligated to maintain an amount equal to the aggregate face amount of all issued and outstanding letters of credit in compensating balances in deposit with the counterparty which amounted to $14.2 million at December 31, 2008. Because the compensating balance is not restricted as to withdrawal, it is not classified as restricted cash in our consolidated balance sheets. If the cash amount maintained with the counterparty drops below the aggregate amount of all issued and outstanding letters of credit, the difference will be treated as a borrowing under our line of credit with assessed interest.
              On September 13, 2007, in connection with the acquisition of the Colorado School of Professional Psychology, the Company entered into a non-interest bearing note payable agreement. The agreement provided for a note payable to the sellers in a principal amount of $0.9 million. In addition, the agreement allowed for an adjustment to the consideration paid based upon a projected cash flow shortfall on a dollar for dollar basis from the date of purchase through December 31, 2007. A cash shortfall was experienced of $0.6 million and the purchase price and resulting note were adjusted to $0.3 million. The note is to be paid monthly in equal installments over a 4-year term. The outstanding balances as of December 31, 2007 and 2008 were $321,000 and $234,000, respectively. At December 31, 2008 there is no material difference between the fair value and the carrying amount of the Company's note payable and long-term debt.
              As of December 31, 2008, future annual principal payments of outstanding debt obligations are as follows (in thousands):

 	 	Year Ending
December 31,	 	
2009	 	$	74	 	
2010	 	 	80	 	
2011	 	 	80	 	
 	 	 	 	
	 	 	234	 	
Less: current portion	 	 	(74	)	
 	 	 	 	
	 	$	160	 	
 	 	 	 	
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
8. Lease Obligations
              The Company leases certain office facilities and office equipment under non-cancelable operating lease arrangements that expire at various dates through July 2018. The office leases contain certain renewal options. Rent expense under non-cancelable operating lease arrangements is accounted for on a straight-line basis and totaled $0.9 million, $3.0 million and $6.1 million for the years ended December 31, 2006, 2007 and 2008, respectively.
              The following table summarizes the appropriate future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2008 (in thousands):

 	 	Year Ending
December 31,	 	
2009	 	$	13,450	 	
2010	 	 	20,142	 	
2011	 	 	21,667	 	
2012	 	 	23,395	 	
2013	 	 	25,146	 	
Thereafter	 	 	142,376	 	
 	 	 	 	
Total minimum payments	 	$	246,176	 	
 	 	 	 	
              The Company has also financed office equipment under capital leases expiring in various years through September 2018. The assets are included in property and equipment and totaled $0.9 million and $0.6 million as of December 31, 2007 and 2008, respectively. Accumulated depreciation on these assets totaled $0.4 million and $0.2 million at December 31, 2007 and 2008, respectively.
              Future minimum lease payments under capital leases at December 31, 2008 are as follows (in thousands):

 	 	Year Ending
December 31,	 	
2009	 	$	179	 	
2010	 	 	137	 	
2011	 	 	99	 	
2012	 	 	69	 	
2013	 	 	2	 	
Thereafter	 	 	—	 	
 	 	 	 	
Total minimum payments	 	$	486	 	
Less: Amount representing interest	 	 	(36	)	
 	 	 	 	
Present value of minimum lease payments	 	$	450	 	
 	 	 	 	
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
9. Earnings Per Share
              The following table sets forth the computation of the basic and diluted earnings per share for the periods indicated (in thousands, except share and per share data):

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Numerator:	 	 	 	 	 	 	 	 	 	 	
 	Net income (loss)	 	$	(5,150	)	$	3,287	 	$	26,431	 	
 	Effect of accretion of preferred dividends	 	 	(1,718	)	 	(1,856	)	 	(2,006	)	
 	 	 	 	 	 	 	 	
 	Net income available (loss attributable) to common stockholders	 	$	(6,868	)	$	1,431	 	$	24,425	 	
Denominator:	 	 	 	 	 	 	 	 	 	 	
 	Weighted average common shares outstanding	 	 	3,197	 	 	3,311	 	 	3,335	 	
 	Effect of dilutive options	 	 	—	 	 	1,135	 	 	3,283	 	
 	Effect of dilutive warrants	 	 	—	 	 	—	 	 	1,139	 	
 	 	 	 	 	 	 	 	
 	Diluted weighted average common shares outstanding	 	 	3,197	 	 	4,446	 	 	7,757	 	
Earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(2.15	)	$	0.01	 	$	0.38	 	
 	Diluted	 	$	(2.15	)	$	0.01	 	$	0.16	 	
              Diluted earnings per share and diluted shares outstanding previously reported for 2008 of $0.13 and 10,005, respectively, have been corrected above as a result of an immaterial clerical error.
              The computation of dilutive shares outstanding excludes the following securities:
              (a)     Redeemable convertible preferred stock:     The computation of dilutive shares outstanding excludes the equivalent common shares that would be related to both the accreted value and the optional conversion feature of the redeemable convertible preferred stock for the periods indicated as the Company was in a period of loss or the effect of applying the two-class method was anti-dilutive.

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Redeemable convertible preferred stock	 	 	113,002	 	 	98,272	 	 	60,446	 	
              (b)     Options and warrants:     The computation of dilutive shares outstanding excludes stock options and warrants to purchase shares of common stock for the periods indicated as the Company was either in a period of loss or as the exercise prices were greater than the average market price of our common stock and therefore the effect would be anti-dilutive.

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Options	 	 	3,530	 	 	—	 	 	—	 	
Warrants	 	 	1,578	 	 	1,578	 	 	39	 	
              The Company calculated earnings per share using the two-class method under the guidelines of FAS 128 to reflect the participation rights of each class and series of stock. Under FAS 128, basic net income is computed for common stock outstanding during the period by dividing net income allocated
F-19

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
9. Earnings Per Share—(Continued)

to the participation rights of each class by the weighted average number of common shares outstanding during the period.
              The following presents the net income allocated to each class of common stock in the calculation of basic earnings per share for the years ended December 31, 2007 and 2008:

 	 	December 31,	 	
 	 	2007	 	2008	 	
Net income attributable to common stock	 	$	1,431	 	$	24,425	 	
Income allocated to redeemable convertible preferred stock	 	 	1,856	 	 	2,006	 	
 	 	 	 	 	 	
Net income	 	$	3,287	 	$	26,431	 	

								
 	 	December 31, 2007	 	
 	 	Weighted Avg
Shares	 	Income
Allocation	 	
Common stock	 	 	3,311	 	$	47	 	
Redeemable convertible preferred stock	 	 	98,272	 	 	1,384	 	
 	 	 	 	 	 	 	
Total	 	 	 	 	$	1,431	 	

								
 	 	December 31, 2008	 	
 	 	Weighted Avg
Shares	 	Income
Allocation	 	
Common stock	 	 	3,335	 	$	1,276	 	
Redeemable convertible preferred stock	 	 	60,446	 	 	23,149	 	
 	 	 	 	 	 	 	
Total	 	 	 	 	$	24,425	 	
 	 	 	 	 	 	 	
              The numerator of diluted earnings per share is computed by starting with the numerator of basic earnings per share and adding back income attributable to the participation rights of redeemable convertible preferred stock to the extent such shares are dilutive.
              The denominator of diluted earnings per share includes the incremental potential common shares issuable upon the following events to the extent their effect is dilutive:
                       (i)  Exercise of stock options and warrants;
                      (ii)  Optional conversion of all outstanding shares of Series A Convertible Preferred Stock with each share of Series A Convertible Preferred Stock being converted into 2.265380093 shares of Common Stock; and
                    (iii)  Issuance of shares of common stock at fair value in payment of the accreted value of $27.1 million of the redeemable convertible preferred stock to the holders of Series A Convertible Preferred Stock.
              There was no difference between income allocated to the participation rights of the various classes in computing basic and diluted earnings per share as all potential common shares of redeemable convertible preferred stock were anti-dilutive.
F-20

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
10. Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)
              The Company's certificate of incorporation, which includes the terms of the redeemable convertible preferred stock, was last amended July 29, 2005. The discussion below reflects the terms of redeemable convertible preferred stock set forth in the most recent amendment.
Ranking
              The redeemable convertible preferred stock ranks senior to all common stock and any other future class of junior preferred stock.
Dividends
              The holders of redeemable convertible preferred stock shall not be entitled to any dividends except in the event that the Company shall declare, set aside or pay any dividend on the common stock (other than dividends payable solely in additional shares of common stock), in which case holders of the redeemable convertible preferred stock will participate in any such dividends on a per share as-converted basis.
              Such dividends are payable when and as declared by the Company's board of directors. No preferred stock dividends have been declared by the Company's board of directors at December 31, 2006, 2007 or 2008. See "Preferred Dividends" below for payments upon liquidation, dissolution or winding up of the Company and payments upon optional conversion.
Voting Rights
              Each issued and outstanding share of redeemable convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which each such share of redeemable convertible preferred stock is convertible with respect to matters presented to the stockholders of the Company for their action or consideration.
Optional Conversion Feature
              Each share of redeemable convertible preferred stock is convertible, at the option of the holder, at any time into shares of common stock at a conversion rate of 2.265380093 shares of common stock per share of redeemable convertible preferred stock. The applicable conversion rate is subject to adjustment from time to time. As of December 31, 2007 and 2008, 44,805,437 shares of common stock would be issued upon optional conversion of all outstanding shares of redeemable convertible preferred stock.
              Upon an optional conversion, the holder is entitled to receive shares of common stock as discussed above in addition to the payments discussed below under "Preferred Dividends—(b) Payments upon optional conversion." The right of the holders of redeemable convertible preferred stock to elect to receive both shares of common stock and the accreted value under the optional conversion feature resulted in fair value in excess of the invested amount, which resulted in a beneficial conversion feature to such preferred stockholders. This beneficial conversion feature was recorded as a deemed dividend on the date of the issuance of the redeemable convertible preferred stock because there is no stated redemption date (maturity date) and the optional conversion feature is immediately exercisable. The beneficial conversion feature is recognized on the consolidated balance sheet as an increase in additional paid-in capital to allocate a portion of the proceeds from the issuance to the
F-21

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
10. Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)—(Continued)

beneficial conversion feature and a decrease to additional paid-in capital for the deemed dividend. This beneficial conversion feature was measured as the excess of the fair value of the common shares into which the preferred shares are convertible over the accounting conversion price as determined in accordance with EITF Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments . The Company has not issued redeemable convertible preferred stock since 2005. As of December 31, 2008, the Company had recorded $14.1 million of deemed dividends related to the beneficial conversion feature associated with redeemable convertible preferred stock issued prior to 2006.
Preferred Dividends
(a)          Payments upon liquidation, dissolution or winding up of the Company:
              Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of redeemable convertible preferred stock are entitled to receive an amount equal to the sum of (i) the "accreted value" (as defined below) of the shares of redeemable convertible preferred stock plus (ii) any dividends declared but unpaid on the shares of redeemable convertible preferred stock. The term "accreted value" means an amount equal to the sum of (i) the "stated value" (as defined below) for a share of redeemable convertible preferred stock plus (ii) 8% per year of the stated value, compounding annually and commencing on the date of issuance of such share. The term "stated value" means $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to the redeemable convertible preferred stock. The amount by which the accreted value exceeds the stated value for any share of redeemable convertible preferred stock is referred to as the "accreted dividend" for such share. At the option of the holder, the accreted value may be paid in cash or shares of common stock valued at current fair market value.
              With respect to the payment of amounts described in the preceding paragraph, each of the following events is deemed to be a "liquidation, dissolution or winding up" of the Company: (i) the consolidation with or into another corporation in which the stockholders of record of the Company own less than 50% or the voting securities of the surviving corporation; (ii) the sale of substantially all the assets of the Company; (iii) the sale of securities of the Company representing more than 50% of the voting securities (other than a qualified public offering); and (iv) a sale to Warburg Pincus, the majority stockholder of the Company, or its successors or assigns.
(b)          Payments upon optional conversion:
              Upon an optional conversion of shares of redeemable convertible preferred stock, the holder of such shares is entitled to receive (in addition to the common stock acquirable upon conversion of such shares) an amount equal to (i) the accreted value of such shares plus (ii) any dividends declared but unpaid on such shares. At the option of the holder, the accreted value may be paid in cash or shares of common stock valued at current fair market value.
              The Company has recorded preferred dividends of $1.7 million, $1.9 million and $2.0 million for the years ended 2006, 2007 and 2008, respectively. At December 31, 2007 and 2008, the amount of the accreted dividends was $5.3 million and $7.3 million, respectively. At December 31, 2007 and 2008, the accreted value (carrying value) of the redeemable convertible preferred stock was $25.0 million and $27.1 million, respectively.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
10. Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)—(Continued)
Mandatory Conversion
              If not earlier converted pursuant to the optional conversion feature, each share of the redeemable convertible preferred stock will automatically convert into shares of common stock at its then effective conversion rate (2.265380093 shares of common stock per share of redeemable convertible preferred stock at December 31, 2007 and 2008), upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 in which the net proceeds to the Company are not less than $25.0 million and the shares of common stock are designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange, or at any time upon the vote to so convert of the holders of at least a majority of the redeemable convertible preferred stock.
Redemption
              If, after seven years of the initial issuance of the redeemable convertible preferred stock, the Company has not consummated a liquidity event or a qualified public offering and the optional conversion feature has not been exercised, the holders of a majority of the redeemable convertible preferred stock will have the right to require the Company to redeem any or all of their redeemable convertible preferred stock at a price in cash equal to the accreted value, plus any declared, but unpaid dividends.
11. Stock-Based Compensation
              In January 2006, the Company adopted its 2005 Stock Incentive Plan ("2005 Plan") pursuant to which it may award stock options and other stock-based awards. The board of directors of the Company determines eligibility, vesting schedules and exercise prices for options granted under the 2005 Plan. The exercise price of options granted under the 2005 Plan is equal to the fair market value of the Company's common stock as of the date of grant or modification. Options are typically exercisable for a period of ten years after the date of grant, subject to continuing service to the Company.
              With respect to vesting:
•
Stock options issued to founders of the Company ("founders' options") become exercisable ratably over a two-year period from the date of grant. 

•
Time vested options become exercisable as follows: 25% on the first anniversary of the grant date, 2% on each monthly anniversary from months 13 through 45, and 3% on each monthly anniversary from months 46 through 48. 

•
Performance vested options become exercisable 25% in each year over a four year period if certain performance targets are met by the Company. 

•
Exit vested options become exercisable only if an "exit event" or "change of control", as defined by the option agreements, occurs.
              All options granted in 2006 and 2007 were pursuant to the 2005 Plan, except for options to purchase an aggregate of 65,566 shares of common stock granted to certain members of management in February 2006. There were no options granted during 2008.
F-23

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
11. Stock-Based Compensation—(Continued)
              The Company has recorded $323,000, $106,000 and $1.8 million of compensation expense related to stock options and the modification of a stock-based award for the years ended December 31, 2006, 2007 and 2008, respectively, in accordance with SFAS 123R. As of December 31, 2007 and 2008, there was $146,000 and $57,000, respectively, of unrecognized compensation costs related to time vested options. As of December 31, 2007 and 2008, there was $252,000 and $98,000, respectively, of unrecognized compensation costs related to performance vested options. As of December 31, 2007 and 2008, there was $365,000 and $365,000, respectively, of unrecognized compensation costs related to exit vested options. Unearned stock-based compensation is being amortized over the vesting term using an accelerated graded method in accordance with FASB Interpretation No. 28 (FIN 28). These costs are expected to be recognized over a weighted average period of 2.90 and 2.82 years, at December 31, 2007 and 2008, respectively.
              Stock option activity is summarized as follows:

 	 	Options
Outstanding	 	Weighted-
Average
Exercise
Price	 	Weighted-
Average
Remaining
Contractual
Term
(in years)	 	Aggregate
Intrinsic Value	 	
Balance at December 31, 2006	 	 	6,928,514	 	$	0.31	 	 	 	 	 	 	 	
 	Granted	 	 	1,995,226	 	$	0.59	 	 	 	 	 	 	 	
 	Exercised	 	 	(36,663	)	$	0.32	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(52,759	)	$	0.32	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	 	8,834,318	 	$	0.37	 	 	7.34	 	$	1,453,351	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Granted	 	 	—	 	$	—	 	 	 	 	 	 	 	
 	Exercised	 	 	—	 	$	—	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(6,667	)	$	0.59	 	 	 	 	 	 	 	
 	Fractional shares due to reverse stock split	 	 	(66	)	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2008	 	 	8,827,585	 	$	0.37	 	 	6.33	 	$	122,219,518	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Vested and expected to vest at December 31, 2007	 	 	
8,675,028	 	
$	
0.36	 	 	
5.21	 	
$	
1,433,503	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at December 31, 2007	 	 	3,524,653	 	$	0.32	 	 	6.51	 	$	791,737	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Vested and expected to vest at December 31, 2008	 	 	
8,701,205	 	
$	
0.37	 	 	
6.04	 	
$	
120,474,683	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at December 31, 2008	 	 	4,612,783	 	$	0.33	 	 	5.78	 	$	64,058,353	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
              The fair value of the options vested at December 31, 2007 and 2008 is $1.9 million and $65.6 million, respectively.
              The weighted average grant-date estimated fair value of options granted during the year ended December 31, 2006 and 2007 was $0.18 and $0.23 per share, respectively. No options were granted during the year ended December 31, 2008. As of December 31, 2008 no options issued under the plan have expired.
              During 2006 and 2007, 118,430 and 25,485 time vested options and 38,451 and 11,178 performance vested options, respectively, were exercised. These options had a total intrinsic value at
F-24

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
11. Stock-Based Compensation—(Continued)

the time of exercise of $14,000 and $8,000 in 2006 and 2007, respectively. The Company received $12,000 in cash from the exercise of options as of December 31, 2007. No options were exercised in the year ended December 31, 2008. During 2007 and 2008, respectively, 52,759 and 6,667, time and performance vested options were forfeited.
              The Company has reserved 9,862,965 shares of common stock for the exercise of existing stock options and stock options available for grant as of both December 31, 2007 and 2008.
              The fair value of each option award granted during the years ended December 31, 2006 and 2007 was estimated on the date of grant using the Black-Scholes option pricing model. The Company's determination of the fair value of share-based awards is affected by the Company's common stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected life of the awards and actual and projected employee stock option exercise behavior with the following weighted average assumptions:

 	 	2006	 	2007	 	
Risk-free interest rate	 	 	4.65	%	 	3.55	%	
Expected dividend yield	 	 	—	 	 	—	 	
Expected volatility	 	 	48.14	%	 	40.72	%	
Expected life (in years)	 	 	6.1	 	 	6.1	 	
              The risk-free interest rate is based on the currently available rate on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option converted into a continuously compounded rate. The expected volatility of stock options is based on an average of expected option terms disclosed by a peer group of publicly traded companies comparable to the Company. In evaluating comparability, the Company considered factors such as industry, stage of life cycle and size. The expected life of the Company's options is based on management's estimate. The dividend yield reflects the fact that the Company has never declared or paid any cash dividends and does not currently anticipate paying cash dividends in the future.
              During 2006, the Company modified certain option awards granted in previous years to 15 individuals by reducing the exercise price from $1.13 to $0.32. No other terms of the awards were modified. The fair value of each option award modified during the year ended December 31, 2006 was estimated on the date of modification based upon the increase in fair value from the original grant date, as calculated using the Black-Scholes option pricing model. The total incremental compensation cost recorded as a result of the modification was $228,000 and $52,000 for the years ended December 31, 2006 and 2007, respectively.
Award Modification
              As discussed in Note 15, "Related Party Transactions," Ryan Craig, a director of the Company, entered into an agreement with Warburg Pincus in August 2004 to serve on the Company's board of directors and to serve as a consultant in 2004 to the Company on behalf of Warburg Pincus. Under this agreement, Mr. Craig was to receive a portion of the proceeds from Warburg Pincus upon a liquidity event in an amount to be determined based on proceeds to Warburg Pincus from their holdings of the Company's common and preferred stock. This agreement was superseded by a new arrangement in
F-25

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
11. Stock-Based Compensation—(Continued)

December 2008 under which Mr. Craig received 112,076 shares of the Company's common stock from Warburg Pincus in January 2009. Under the new arrangement, Mr. Craig will receive no further cash payment upon a liquidity event. Because the consideration to be received by Mr. Craig is based on the fair value of the Company's stock and was earned by providing services to the Company, the Company has recognized the transaction as stock-based compensation expense and a capital contribution from Warburg Pincus. The new arrangement in December 2008 was accounted for as an improbable-to-probable modification of vesting conditions in accordance with SFAS 123R. The incremental stock-based compensation expense resulting from the modification, based on the fair value of the Company's common stock at December 31, 2008, was $1.6 million. As the award was for past services, the stock-based compensation expense was recorded at the time of the modification in December 2008.
Common Stock Valuations
              The exercise prices of stock options granted prior to January 2008 were determined by the Company's board of directors based on the estimated fair value of the underlying common stock. The common stock valuations were based on the combination of an income approach and a market value approach, which were used to estimate the total value of the company. The income approach is an estimate of the present value of the future monetary benefits expected to flow to the owners of a business. It requires a projection of the cash flows that the business is expected to generate. These cash flows are converted to a present value, using a rate of return that accounts for the time value of money after factoring in certain risks inherent in the business. Under the market approach, the value of the Company is estimated by comparing our business to similar businesses whose securities are actively traded in public markets. Valuation multiples are derived from the prices at which the securities trade in public markets and the companies' underlying financial metrics. The valuation multiples are then applied to the equivalent financial metrics of our business. Valuation multiples may be adjusted to account for differences between our company and similar companies for such factors as company size, growth prospects or diversification of operations. The Company then used that enterprise value to estimate the fair value of its common stock in the context of the capital structure as of each valuation date. The valuations were based on estimates and assumptions. If different estimates and assumptions had been used, the valuations could have been different.
              During 2006 and 2007, the Company granted options to purchase the Company's common stock on dates that generally fell on or near the dates of the valuations.
12. Warrants
              From time to time, the Company has issued warrants to purchase common stock to various consultants, licensors and lenders. Each warrant represents the right to purchase one share of common stock. No warrants were granted during the years ended December 31, 2006, 2007 or 2008.
F-26

Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
12. Warrants—(Continued)
              The following table summarizes information with respect to all warrants outstanding as of December 31, 2007 and 2008:

Exercise Price 	 	Warrants
outstanding	 	Expiration
Date	 	
$1.125	 	 	738,819	 	 	2013 - 2015	 	
$2.250	 	 	289,452	 	 	2013	 	
$2.835	 	 	305,554	 	 	2013	 	
$2.925	 	 	38,888	 	 	2013	 	
$4.500	 	 	166,666	 	 	2013	 	
$9.000	 	 	38,511	 	 	2013	 	
              As of December 31, 2007 and 2008, all 1,577,890 outstanding warrants were exercisable.
13. Income Taxes
              Under SFAS No. 109, Accounting for Income Taxes , the asset and liability method is used in accounting for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in tax and deductions in future years.
              The components of income tax expense are as follows (in thousands):

 	 	Year Ended December 31,	 	
 	 	2006	 	2007	 	2008	 	
Current:	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	—	 	$	123	 	$	9,837	 	
 	State	 	 	—	 	 	41	 	 	2,892	 	
 	 	 	 	 	 	 	 	
	 	 	—	 	$	164	 	$	12,729	 	
 	 	 	 	 	 	 	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	—	 	$	—	 	$	(4,292	)	
 	State	 	 	—	 	 	—	 	 	(1,366	)	
 	 	 	 	 	 	 	 	
	 	 	—	 	 	—	 	$	(5,658	)	
 	 	 	 	 	 	 	 	
Total	 	 	—	 	$	164	 	$	7,071	 	
 	 	 	 	 	 	 	 	
              There were no deferred items in income tax expense for the year ended December 31, 2007. No current or deferred provision was recorded for the year ended December 31, 2006 due to the net operating loss in that year.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
13. Income Taxes—(Continued)
              Deferred tax assets and liabilities are comprised of the following (in thousands):

 	 	As of December 31,	 	
 	 	2006	 	2007	 	2008	 	
Deferred tax assets:	 	 	 	 	 	 	 	 	 	 	
 	Net operating loss	 	$	7,495	 	$	5,072	 	$	838	 	
 	Fixed assets	 	 	371	 	 	225	 	 	—	 	
 	Bad debt	 	 	377	 	 	616	 	 	2,943	 	
 	Vacation accrual	 	 	70	 	 	230	 	 	527	 	
 	Stock-based compensation	 	 	125	 	 	172	 	 	879	 	
 	Deferred rent	 	 	151	 	 	804	 	 	1,263	 	
 	State tax	 	 	—	 	 	—	 	 	904	 	
 	Tax credits	 	 	—	 	 	150	 	 	8	 	
 	Contribution carry forward	 	 	12	 	 	—	 	 	—	 	
 	Other	 	 	3	 	 	14	 	 	3	 	
 	 	 	 	 	 	 	 	
 	Total deferred tax assets	 	 	8,604	 	 	7,283	 	 	7,365	 	
 	Valuation allowance	 	 	(8,604	)	 	(7,283	)	 	—	 	
 	Net deferred tax assets	 	 	—	 	 	—	 	 	7,365	 	
 	 	 	 	 	 	 	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	 	 	
 	Fixed assets and intangibles	 	 	(543	)	 	(556	)	 	(2,265	)	
 	 	 	 	 	 	 	 	
 	Total net deferred tax assets	 	$	(543	)	$	(556	)	$	5,100	 	
 	 	 	 	 	 	 	 	
              The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. At December 31, 2007, principally because of the lack of consistent earnings history, the Company had concluded that it was more-likely-than-not that its net deferred tax assets would not be realized. However, based upon the earnings results at March 31, 2008, as well as the projected income for the remainder of 2008 and 2009, the Company concluded that it is more-likely-than-not that its net deferred tax assets will be realized. Accordingly, the total valuation allowance of $7.3 million at December 31, 2007 was fully reversed by December 31, 2008, primarily as a reduction to income tax expense.
              At December 31, 2008, the Company had federal net operating loss carry forwards of $1.0 million and state net operating loss carry forwards of $8.5 million, which are available to offset future taxable income. The federal net operating loss carry forwards will begin to expire in 2020. The state net operating loss carry forwards will begin to expire in 2016. During 2008, the State of California enacted legislation which limits the use of operating loss and tax credit carryforwards to offset income for years 2008 and 2009.
              Pursuant to Internal Code Section 382, use of our net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. We have performed a Section 382 analysis through December 31, 2008 and have determined that there is no material effect on our net operating loss carryforwards.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
13. Income Taxes—(Continued)
              A reconciliation of the income tax (benefit) expense computed using the U.S. federal statutory tax rate (34%, 34% and 35% for the years ended December 31, 2006, 2007 and 2008) and the Company's provision for income taxes follows (in thousands):

 	 	As of December 31,	 	
 	 	2006	 	2007	 	2008	 	
Computed expected federal tax (benefit) expense	 	$	(1,751	)	$	1,174	 	$	11,725	 	
State taxes, net of federal benefit	 	 	(244	)	 	184	 	 	1,803	 	
Permanent differences	 	 	50	 	 	149	 	 	121	 	
Other	 	 	39	 	 	(24	)	 	150	 	
Valuation allowance	 	 	1,906	 	 	(1,319	)	 	(6,728	)	
 	 	 	 	 	 	 	 	
	 	$	—	 	$	164	 	$	7,071	 	
 	 	 	 	 	 	 	 	
              In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.
              The accrual for uncertain tax positions can result in a difference between the estimated benefit recorded in the Company's financial statements and the benefit taken or expected to be taken in the Company's income tax returns. This difference is generally referred to as an "unrecognized tax benefit."
              The Company is subject to the provisions of FIN 48 as of January 1, 2008, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Upon adoption, the Company had no material additions to its accrual for uncertain tax positions as a result of the implementation of FIN 48.
              A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Unrecognized tax benefits at January 1, 2008	 	$	—	 	
 	Gross increases—tax positions in prior period	 	 	—	 	
 	Gross decreases—tax positions in prior period	 	 	—	 	
 	Gross increases—current period tax positions	 	 	2,743	 	
 	Settlements	 	 	—	 	
 	Lapse of statute of limitations	 	 	—	 	
 	 	 	 	
Unrecognized tax benefits balance at December 31, 2008	 	$	2,743	 	
 	 	 	 	
              Included in the amount of unrecognized tax benefits at December 31, 2008 is $0.3 million of tax benefits that, if recognized, would affect the Company's effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2008 is $2.4 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets. These amounts represent positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred income tax
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
13. Income Taxes—(Continued)

accounting, other than for interest, the disallowance of the shorter deductibility period would not affect the effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
              The Company recognizes interest related to uncertain tax positions in income tax expense. As of January 1, 2008 and December 31, 2008, the Company had approximately $0 and $0.2 million of accrued interest, before any tax benefit, related to uncertain tax positions, respectively.
              The tax years 2003-2008 remains open to examination by major taxing jurisdictions to which the Company is subject. The Company expects that as much as $2.2 million of the unrecognized tax benefits for uncertain positions taken in previous years may decrease within the next twelve months. However, this decrease is not expected to impact the effective tax rate.
              The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
14. Regulatory
              The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act and the regulations promulgated thereunder by the Department of Education subject the Company to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act.
              To participate in Title IV programs, an institution must be authorized to offer its programs of instruction by the relevant agency of the state in which it is located, accredited by an accrediting agency recognized by the Department of Education and certified as eligible by the Department of Education. The Department of Education will certify an institution to participate in Title IV programs only after the institution has demonstrated compliance with the Higher Education Act and the Department of Education's extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to the Department of Education on an ongoing basis. As of December 31, 2007 and 2008, management believes the Company is in compliance with the applicable regulations in all material respects.
              The Higher Education Act requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.
              For each federal fiscal year, the Department of Education calculates a rate of student defaults for each educational institution which is known as a "cohort default rate." An institution may lose its eligibility to participate in some or all Title IV programs if, for each of the three most recent federal fiscal years, 25% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its cohort default rate exceeds 40% in the most recent federal fiscal year for which default rates have been calculated by the Department of Education. Ashford University's cohort default rates for the 2004, 2005 and 2006
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
14. Regulatory—(Continued)

federal fiscal years, the three most recent years for which information is available, were 2.4%, 4.1% and 4.1%, respectively. The cohort default rates for the University of the Rockies for the 2004, 2005 and 2006 federal fiscal years, the three most recent years for which information is available, were 5.5%, 0.0% and 0.0%, respectively.
              The Department of Education calculates the institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the Department of Education's minimum composite score may demonstrate its financial responsibility by posting a letter of credit in favor of the Department of Education and possibly accepting other conditions on its participation in the Title IV programs.
              As of and for the year ended December 31, 2007, Ashford University did not meet the composite score standard prescribed by the Department of Education and was required to post a letter of credit in favor of the Department of Education equal to 10% of total Title IV funds received in 2007, to accept provisional certification to participate in Title IV programs and to conform to the requirements of the heightened cash monitoring level one method of payment. Under the heightened cash monitoring level one method of payment, the Company may not draw down Title IV funds until they are disbursed to students. Ashford University has posted the required letter of credit in the amount of $12.1 million, which will remain in effect through September 30, 2009.
              For the fiscal year ended July 31, 2007, the University of the Rockies did not meet the composite score standard prescribed by the Department of Education and was required to post a letter of credit in favor of the Department of Education equal to 30% of total Title IV funds received in the fiscal year ending July 31, 2007, to accept provisional certification to participate in Title IV programs and to conform to the regulations of heightened cash monitoring level one method of payment. The University of the Rockies has posted the required letter of credit in the amount of $0.7 million, which will remain in effect through June 30, 2009.
              Pursuant to a provision of the Higher Education Act, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues form Title IV program funds. In 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV programs.
              An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under Department of Education regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit can result in an institution having to post a letter of credit in an amount equal to 25% of its prior year Title IV returns. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
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Table of Contents

Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
14. Regulatory—(Continued)
              For the year ended December 31, 2007, Ashford University exceeded the threshold of 5% for late refunds sampled due to human error. As a result, the Company is required to post a letter of credit in favor of the Department of Education equal to 25% of the total refunds in 2007. Ashford University notified the Department of Education of its intention to post this letter of credit, but was advised by the Department of Education that such posting was unnecessary because the letter of credit in place due to our composite score noted above was in excess of the amount required for late refunds.
              Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action. While there can be no assurance that regulatory agencies or third parties will not undertake investigations or make claims against the Company, or that such claims, if made, will not have a material adverse effect on the Company's business, results of operations or financial condition, management believes it has materially complied with all regulatory requirements.
15. Related Party Transactions
Director Agreement
              As discussed further under Award Modification in Note 11, "Stock-Based Compensation," Ryan Craig, a director of the Company, entered into an agreement with Warburg Pincus in August 2004 to serve on the Company's board of directors and to serve as a consultant in 2004 to the Company on behalf of Warburg Pincus. Under this agreement, Warburg Pincus agreed to compensate Mr. Craig from its equity ownership in the Company upon a liquidity event, which was deemed not to be probable. This agreement was amended in December 2008. For his director services from August 2004 to August 2008, Mr. Craig earned the right to receive 44,114 shares of the Company's common stock from Warburg Pincus. In his role as a consultant to the Company in 2004, Mr. Craig earned the right to receive 67,962 shares of the Company's common stock from Warburg Pincus. Mr. Craig received an aggregate amount of 112,076 shares of the Company's common stock in January 2009 from Warburg Pincus. Based on the fair value of the Company's common stock on December 31, 2008, the Company recorded stock-based compensation expense of $1.6 million for the fair value of these shares.
November 2003 Loan from Warburg Pincus to the Company's CEO and President
              In November 2003, Warburg Pincus loaned $75,000 to Andrew Clark the Company's CEO and President to finance Mr. Clark's purchase of 75,000 shares of redeemable convertible preferred stock from the Company. In connection with such loan, Mr. Clark entered into a Secured Recourse Promissory Note and Pledge Agreement with Warburg Pincus which provided that the principal amount due under the note would accrue simple interest at a rate of 8% per year until November 26, 2005, the maturity date, after which time interest would accrue at a penalty rate of 16% per year, compounded monthly. The loan was secured by 75,000 shares of Series A Convertible Preferred Stock held by Mr. Clark. Mr. Clark repaid the loan in full on March 10, 2009, at which time the amount due under the note was $146,740 (including accrued interest of $71,740).
Line of Credit with Warburg Pincus
              In March 2007, the Company entered into a line of credit with Warburg Pincus under which we could borrow and repay up to $3.0 million in principal at any time prior to March 2008. Under the line
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
15. Related Party Transactions—(Continued)

of credit, interest accrued at the prime rate plus 1.50% per annum. During 2007, the Company borrowed a total of $2.0 million under the line of credit. As of December 31, 2007, all amounts were repaid and the line of credit was cancelled. The Company paid a total of $98,000 in interest under the line of credit before it was cancelled.
Warburg Pincus Guarantee
              In May 2004, Warburg Pincus entered into a guarantee in favor of a postsecondary college in the Connecticut state college system pursuant to which it agreed to guarantee the Company's obligations to such college arising from an agreement the Company entered into with such college in May 2004. No amounts have been paid under the guarantee. The maximum amount payable under the guarantee was $1.0 million from May 2004 to June 2006 and $500,000 from June 2006 to December 2006. Since January 2007, the maximum amount payable under the guarantee is $100,000. The Company has not recognized a liability for this guarantee as of December 31, 2007 or 2008.
Indemnification Agreements
              The Company's certificate of incorporation and bylaws require the Company to indemnify its directors and executive officers to the fullest extent permitted by Delaware law. The Company has entered into indemnification agreements with each of its directors and executive officers.
16. Qualified Retirement Plan
              The Company maintains an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the savings plan, participating employees may contribute a portion of their pre-tax earnings up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the savings plan at its sole discretion. The Company's total contributions to the 401(k) plan were $110,000, $119,000 and $23,000 for the years ended December 31, 2006, 2007 and 2008, respectively.
17. Commitments and Contingencies
              From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. As of December 31, 2008, the Company is not a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
18. Concentration of Risk
Concentration of Credit Risk
              In 2008, Ashford University derived 86.8% and the University of the Rockies derived 80.8% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV programs. Title IV programs are subject to political and budgetary considerations and are subject to extensive and complex regulations. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potentially adverse actions including a suspension, limitation, or termination proceeding, which could have a material adverse effect on the Company's enrollments, revenues and results of operations.
              Students obtain access to federal student financial aid through a Department of Education prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their predetermined expected length of study. Students typically apply the funds received from the federal financial aid programs first to pay their tuition and fees. Any remaining funds are distributed directly to the student.
              The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company performs ongoing evaluations of these institutions to limit its concentrations risk exposure.
Concentration of Sources of Supply
              The Company is dependent on a third party provider for its online platform, which includes a learning management system, which stores, manages and delivers course content, enables assignment uploading, provides interactive communication between students and faculty and supplies online assessment tools. The partial or complete loss of this source may have a material adverse effect on the Company's consolidated financial statements.
19. Subsequent Events
Stockholder Dispute
              Two holders of the Company's common stock asserted in February 2009 that the Company took various actions in violation of their legal rights which resulted in an unfair dilution of their interests as holders of shares of common stock. The Company is engaged in discussions with the stockholders, through counsel, in an effort to resolve the concerns of the stockholders without litigation. While the Company believes the claims of the stockholders are without merit and intends to defend vigorously any litigation that is commenced, no assurance can be given that this matter will not have a material adverse effect on the Company's financial condition, results of operation or cash flows. The Company currently believes that a loss contingency from the purported stockholder action is neither remote nor probable and the amount of potential loss cannot be reliably estimated at this time. Therefore the Company has not recorded any related loss contingency amounts as of December 31, 2008.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
19. Subsequent Events—(Continued)
Reverse Stock Split
              On March 31, 2009, the Company's board of directors approved a 1-for-4.5 reverse stock split of the Company's common stock, par value $0.01 per share, which was effective as of that date. As a result of the reverse stock split, every 4.5 shares of the Company's common stock were combined into one share of common stock and any fractional shares created by the reverse stock split were rounded down to the nearest whole share. The Company did not reduce the number of shares it is authorized to issue or change the par value of the common stock. The reverse stock split affected all of the Company's common stock, options and warrants to purchase common stock, outstanding immediately prior to the effective date of the reverse stock split. Common stock, additional paid-in capital, retained earnings (accumulated deficit) and share and per share data for prior periods have been retroactively restated to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
20. Subsequent Events (Unaudited)
Acceleration of Exit Options
              Certain members of the Company's management team have been awarded "exit options" to purchase an aggregate of 2,637,938 shares of common stock. Under their original terms, the exit options are scheduled to vest upon (i) a change of control of the Company (as defined in the option agreement) or (ii) a "liquidity event" (as defined in the option agreement), subject in each case to the optionee's continued service through the date of the change of control or liquidity event. Additionally, for vesting to occur, Warburg Pincus must receive proceeds from such change of control or liquidity event that are equal to or greater than, as of the date of the transaction, four times the aggregate purchase price that Warburg Pincus paid for the equity securities being sold. Under the original terms of the options, the portion of the exit options scheduled to vest upon a liquidity event is determined by multiplying the number of shares underlying the exit option by the relative percentage of our equity securities that Warburg Pincus sells in connection with the liquidity event.
              On March 28, 2009, the Company's board of directors amended the exit options to add an additional vesting condition so that the number of shares underlying the options that would not have vested upon the closing of the Company's initial public offering, under the original terms of the options, vest in full upon the closing of such offering. This additional vesting condition constitutes a modification under SFAS 123R. To the extent the exit option vested under the original vesting conditions, the original grant date fair value was recorded on the vesting date; and to the extent the exit option vests under the additional vesting condition, the modification date fair value was recorded on the vesting date.
              The compensation expense that has been recorded for the exit options upon completion of the initial public offering is $30.4 million in the aggregate ($0.1 million related to the portion of the exit options vesting under the original vesting conditions and $30.3 million related to the portion of the exit options vesting under the additional vesting condition), reflecting the sale by Warburg Pincus of 20.8% of its ownership of the Company's common stock (as-converted) in the Company's initial public offering. Such compensation expense has been allocated to the expense category in which the optionee's regular compensation is recorded.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
20. Subsequent Events (Unaudited)—(Continued)
Settlement of Stockholder Dispute
              As discussed in Note 19, "Subsequent Events—Stockholder Dispute," in February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against the Company, its directors and officers and Warburg Pincus based primarily on allegations of breach of fiduciary duty and violations of corporate governance requirements involving amendments to the Company's certificate of incorporation made in connection with financings in 2005 and by certain stock options granted by the Company to its employees. On March 29, 2009, the Company reached a settlement with the claimants regarding these claims. The terms of the settlement were approved by the Company's board of directors upon the recommendation of a special committee comprised of independent directors not affiliated with Warburg Pincus.
              In exchange for a general release of claims against the Company, its directors and officers and Warburg Pincus, the Company and Warburg Pincus signed settlement agreements with the claimants pursuant to which the Company agreed:
•
to issue an aggregate of 710,097 shares of common stock to the holders of common stock as of July 27, 2005, of which the claimants held approximately 90%; 

•
to make a cash payment to holders of warrants to purchase common stock as of July 27, 2005 (other than holders who have been the Company's employees, or related to the Company's employees) in an amount equal to $0.63 per share of common stock underlying each such warrant, resulting in a total cash payment of $433,000, of which the claimants would receive approximately 59%; 

•
to amend the Amended and Restated Registration Rights Agreement dated January 9, 2009 (Registration Rights Agreement), among the Company, Warburg Pincus and certain other security holders, to provide that the shares of common stock to be sold in the Company's initial public offering would be allocated (i) first, to the Company, (ii) second, to members of the Company's management team (in an amount not to exceed 10% of each member's vested holdings as of April 30, 2009, assuming the vesting in full of all exit options held by such members as of that date), (iii) third, to all holders of common stock and warrants that are parties to the Registration Rights Agreement except Warburg Pincus (in an amount not to exceed 50% of the "Registrable Securities" held by such holders) and (iv) fourth, to Warburg Pincus; and 

•
to pay the reasonable fees and expenses of counsel to the security holders, not to exceed $50,000.
              The settlement did not constitute an admission of guilt or liability on the Company's part or on the part of Warburg Pincus or any of the Company's officers or directors.
              The Company recorded a total expense of $11.1 million in the first quarter of 2009 related to the stockholder dispute. The amount recorded included a non-cash expense of approximately $10.6 million related to the issuance of 710,097 shares of common stock (638,093 shares to claimants that have signed settlement agreements and 72,004 shares to the remaining common stockholders of record or their transferees as of July 27, 2005) based on the estimated fair value of the Company's common stock on the date of settlement.
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Bridgepoint Education, Inc.
Notes to Annual Consolidated Financial Statements—(Continued)
20. Subsequent Events (Unaudited)—(Continued)
              After settling with the claimants, we notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, we reached settlement with all of the remaining holders of the common stock and of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time we ceased to be a potential obligor related to the claims asserted by these security holders. No additional expense was recorded in connection with this further settlement.
2009 Stock Incentive Plan and Employee Stock Purchase Plan
              In March 2009, the Company's board of directors approved a 2009 Stock Incentive Plan ("2009 Plan") and an Employee Stock Purchase Plan ("ESPP"). The Company may issue a maximum of 5,000,000 shares of common stock under the 2009 Plan. The maximum number of shares available for issuance under the 2009 Plan will automatically increase in future years in accordance with the terms of such plan. Under the ESPP, 1,000,000 shares of common stock have been authorized and reserved for issuance. The maximum number of shares available for issuance under the ESPP will automatically increase in future years in accordance with the terms of such plan.
              In March 2009, the Company's board of directors awarded stock options to be granted from the 2009 Plan, the number of which are contingent upon the Company's initial public offering.
              In March 2009, the Company's board of directors adopted an annual cash bonus compensation program for 2009 for its employees based upon various targets.
Initial Public Offering
              On April 20, 2009, the Company closed its initial public offering of common stock, in which 15.5 million shares of common stock were sold to the public at an offering price of $10.50 per share. The offering included 3.5 million shares sold by the Company and 12.0 million shares sold by selling stockholders. The net proceeds to the Company from the offering were $28.8 million, after deducting underwriting discounts and commissions and offering expenses. The Company used the proceeds from the offering primarily to pay the accreted value of the redeemable convertible preferred stock ($27.7 million) upon the optional conversion of all outstanding shares of redeemable convertible preferred stock into 44.7 million shares of common stock at the closing of the offering.
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BRIDGEPOINT EDUCATION, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value)

 	 	As of
December 31,
2008	 	As of
June 30,
2009	 	
ASSETS	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	56,483	 	$	111,864	 	
 	Restricted cash	 	 	666	 	 	691	 	
 	Marketable securities	 	 	—	 	 	10,000	 	
 	Accounts receivable, net of allowance of $18,246 at December 31, 2008 and $27,336 at June 30, 2009	 	 	28,946	 	 	42,400	 	
 	Inventories	 	 	288	 	 	350	 	
 	Current portion of deferred income taxes	 	 	2,734	 	 	2,734	 	
 	Prepaid expenses and other current assets	 	 	6,773	 	 	5,611	 	
 	 	 	 	 	 	
Total current assets	 	 	95,890	 	 	173,650	 	
Property and equipment, net	 	 	27,715	 	 	38,110	 	
Goodwill and intangibles	 	 	1,897	 	 	3,361	 	
Deferred income taxes	 	 	2,366	 	 	14,255	 	
Other long term assets	 	 	1,378	 	 	1,331	 	
 	 	 	 	 	 	
Total assets	 	$	129,246	 	$	230,707	 	
 	 	 	 	 	 	
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	
 	Accounts payable	 	$	4,705	 	$	4,843	 	
 	Accrued liabilities	 	 	16,543	 	 	21,736	 	
 	Deferred revenue and student deposits	 	 	67,425	 	 	110,104	 	
 	Current portion of leases payable	 	 	142	 	 	150	 	
 	Current maturities of notes payable	 	 	74	 	 	74	 	
 	Other liabilities	 	 	40	 	 	34	 	
 	 	 	 	 	 	
Total current liabilities	 	 	88,929	 	 	136,941	 	
Leases payable, less current portion	 	 	308	 	 	226	 	
Notes payable, less current maturities	 	 	160	 	 	134	 	
Other long term liabilities	 	 	2,740	 	 	3,222	 	
Rent liability	 	 	3,938	 	 	6,772	 	
 	 	 	 	 	 	
Total liabilities	 	 	96,075	 	 	147,295	 	
Commitments and contingencies (see Note 12)	 	 	—	 	 	—	 	
Redeemable convertible preferred stock: $0.01 par value: Authorized shares—19,850 at December 31, 2008 and 20,000 at June 30, 2009; Issued and outstanding shares—19,778 at December 31, 2008 and zero at June 30, 2009	 	 	27,062	 	 	—	 	
Stockholders' equity:	 	 	 	 	 	 	 	
 	Common stock, $0.01 par value: Authorized shares—300,000 at December 31, 2008 and June 30, 2009; Issued and outstanding shares—3,335 at December 31, 2008 and 53,141 at June 30, 2009	 	 	33	 	 	531	 	
 	Additional paid-in capital	 	 	1,703	 	 	74,006	 	
 	Retained earnings	 	 	4,373	 	 	8,875	 	
 	 	 	 	 	 	
Total stockholders' equity	 	 	6,109	 	 	83,412	 	
 	 	 	 	 	 	
Total liabilities, redeemable convertible preferred stock and stockholders' equity	 	$	129,246	 	$	230,707	 	
 	 	 	 	 	 	
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BRIDGEPOINT EDUCATION, INC.

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 	 	Six Months Ended
June 30,	 	
 	 	2008	 	2009	 	
Revenue	 	$	88,890	 	$	195,183	 	
Costs and expenses:	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	25,682	 	 	50,491	 	
 	Marketing and promotional	 	 	33,432	 	 	68,760	 	
 	General and administrative	 	 	15,135	 	 	66,976	 	
 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	74,249	 	 	186,227	 	
 	 	 	 	 	 	
Operating income	 	 	14,641	 	 	8,956	 	
Other income (expense), net	 	 	(92	)	 	116	 	
 	 	 	 	 	 	
Income before income taxes	 	 	14,549	 	 	9,072	 	
Income tax expense	 	 	2,522	 	 	3,925	 	
 	 	 	 	 	 	
Net income	 	 	12,027	 	 	5,147	 	
Accretion of preferred dividends	 	 	1,002	 	 	645	 	
 	 	 	 	 	 	
Net income available to common stockholders	 	$	11,025	 	$	4,502	 	
 	 	 	 	 	 	
Earnings per common share:	 	 	 	 	 	 	 	
 	 	Basic	 	$	0.17	 	$	0.08	 	
 	 	 	 	 	 	
 	 	Diluted	 	$	0.08	 	$	0.07	 	
 	 	 	 	 	 	
Weighted average common shares outstanding used in computing earnings per common share:	 	 	 	 	 	 	 	
 	 	Basic	 	 	3,335	 	 	24,938	 	
 	 	 	 	 	 	
 	 	Diluted	 	 	7,403	 	 	30,280	 	
 	 	 	 	 	 	
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BRIDGEPOINT EDUCATION, INC.

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock
and Stockholders' Equity

(Unaudited)

(In thousands)

 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Series A Convertible
Preferred Stock	 	 	 	 	 	 	 	 	 	 	 	
 			 	Common Stock	 	 	 	 	 	 	 	
 					 	Additional
Paid-in
Capital	 	Retained
Earnings	 	 	 	
 	 	Shares	 	Amount	 	Shares	 	Par Value					 	Total	 	
Balance at December 31, 2008	 	 	19,778	 	$	27,062	 	 	3,335	 	$	33	 	$	1,703	 	$	4,373	 	$	6,109	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	32,007	 	 	—	 	 	32,007	 	
Accretion of preferred dividends	 	 	—	 	 	645	 	 	—	 	 	—	 	 	—	 	 	(645	)	 	(645	)	
Stockholder settlement	 	 	—	 	 	—	 	 	710	 	 	7	 	 	10,570	 	 	—	 	 	10,577	 	
Preferred stock conversion	 	 	(19,778	)	 	(27,707	)	 	44,805	 	 	448	 	 	(448	)	 	—	 	 	—	 	
Exercise of options	 	 	—	 	 	—	 	 	104	 	 	1	 	 	37	 	 	—	 	 	38	 	
Excess tax benefit of option exercises	 	 	—	 	 	—	 	 	—	 	 	—	 	 	429	 	 	—	 	 	429	 	
Exercise of warrants	 	 	—	 	 	—	 	 	687	 	 	7	 	 	966	 	 	—	 	 	973	 	
Stock issued in initial public offering, net of issuance costs of $8.0 million	 	 	—	 	 	—	 	 	3,500	 	 	35	 	 	28,742	 	 	—	 	 	28,777	 	
Net income	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	5,147	 	 	5,147	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2009	 	 	—	 	$	—	 	 	53,141	 	$	531	 	$	74,006	 	$	8,875	 	$	83,412	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BRIDGEPOINT EDUCATION, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 	 	Six Months Ended
June 30,	 	
 	 	2008	 	2009	 	
Cash flows from operating activities	 	 	 	 	 	 	 	
Net income	 	$	12,027	 	$	5,147	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	
 	Provision for bad debts	 	 	5,294	 	 	9,097	 	
Depreciation and amortization	 	 	975	 	 	2,467	 	
Deferred income taxes	 	 	(3,943	)	 	(11,889	)	
Stock-based compensation	 	 	84	 	 	32,007	 	
Stockholder settlement	 	 	—	 	 	10,577	 	
Loss on disposal of fixed assets	 	 	—	 	 	42	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	
 	 	Accounts receivable	 	 	(12,850	)	 	(22,551	)	
 	 	Inventories	 	 	(122	)	 	(62	)	
 	 	Prepaid expenses and other current assets	 	 	(1,286	)	 	1,162	 	
 	 	Other long term assets	 	 	484	 	 	47	 	
 	 	Accounts payable and accrued liabilities	 	 	9,807	 	 	4,478	 	
 	 	Deferred revenue and student deposits	 	 	12,940	 	 	42,679	 	
 	 	Other liabilities	 	 	(189	)	 	3,310	 	
 	 	 	 	 	 	
Net cash provided by operating activities	 	 	23,221	 	 	76,511	 	
 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	
Capital expenditures	 	 	(1,849	)	 	(12,015	)	
Purchase of marketable securities	 	 	—	 	 	(10,000	)	
Business acquisition	 	 	—	 	 	(1,500	)	
Restricted cash	 	 	(666	)	 	(25	)	
 	 	 	 	 	 	
Net cash used in investing activities	 	 	(2,515	)	 	(23,540	)	
 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	
Proceeds from the issuance of common stock, net of issuance costs of $8.0 million	 	 	—	 	 	28,777	 	
Proceeds from exercise of stock options	 	 	—	 	 	38	 	
Excess tax benefit of option exercises	 	 	—	 	 	429	 	
Proceeds from exercise of warrants	 	 	—	 	 	973	 	
Payments of notes payable	 	 	(2,884	)	 	(26	)	
Payments on conversion of preferred stock	 	 	—	 	 	(27,707	)	
Payments of capital lease obligations	 	 	(75	)	 	(74	)	
 	 	 	 	 	 	
Net cash provided by (used in) financing activities	 	 	(2,959	)	 	2,410	 	
 	 	 	 	 	 	
Net increase in cash and cash equivalents	 	 	17,747	 	 	55,381	 	
Cash and cash equivalents at beginning of period	 	 	7,351	 	 	56,483	 	
 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	25,098	 	$	111,864	 	
 	 	 	 	 	 	
Supplemental disclosure of non-cash transactions:	 	 	 	 	 	 	 	
 	Purchase of equipment included in accounts payable and accrued liabilities	 	$	330	 	$	853	 	
 	 	 	 	 	 	
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-41

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Bridgepoint Education, Inc.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)
1. Nature of Business
              Bridgepoint Education, Inc. (together with its subsidiaries, the "Company"), incorporated in 1999, is a regionally accredited provider of postsecondary education services. Its wholly-owned subsidiaries, Ashford University and the University of the Rockies, offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. The Company delivers programs online as well as at its traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado.
              In March 2005, the Company acquired the assets of The Franciscan University of the Prairies and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs.
              In September 2007, the Company acquired the assets of the Colorado School of Professional Psychology and renamed it the University of the Rockies. Founded as a non-profit organization in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology.
2. Summary of Significant Accounting Policies
Principles of Consolidation
              The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions.
Unaudited Interim Financial Information
              The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the annual consolidated financial statements included in this prospectus. In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company's condensed consolidated balance sheets as of December 31, 2008 and June 30, 2009, the condensed consolidated statements of income for the six months ended June 30, 2008 and 2009, the condensed consolidated statement of redeemable convertible preferred stock and stockholders' equity for the six months ended June 30, 2009, and the condensed consolidated statements of cash flows for the six months ended June 30, 2008 and 2009.
              Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP for complete financial statements.
              The Company initially evaluated subsequent events through August 11, 2009, the date on which the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 was filed with the Securities and Exchange Commission and subsequently through August 26, 2009, the date on which the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies—(Continued)
Use of Estimates
              The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.
Restricted Cash
              The Company had $0.7 million in restricted cash as of December 31, 2008 and June 30, 2009, primarily related to the letter of credit issued on behalf of the University of the Rockies.
Marketable Securities
              As of June 30, 2009, the Company maintained $10.0 million in marketable securities which primarily consisted of various corporate obligations. These securities are stated at fair market value using recently quoted market prices. The Company's investments are denominated in U.S. dollars, are investment grade and highly liquid. The Company's portfolio is invested solely in short-term securities, with maturities of less than one year.
              The Company has classified its portfolio as available-for-sale and considers as current assets those investments which will mature or are likely to be sold in less than one year. At June 30, 2009, the cost approximated the fair value of the investments.
              The Company regularly monitors and evaluates the realizable value of its marketable securities. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income (expense), net, in the consolidated statements of income.
Stock-Based Compensation
              The Company accounts for stock-based compensation under the provisions of Statement of Financial Accounting Standards ("SFAS") 123R, Share-Based Payment ("SFAS 123R"). The expense for all stock-based awards granted represents the grant-date fair value that was estimated, in accordance with the provisions of SFAS 123R. Compensation expense for options is recorded in the condensed consolidated statement of income, net of estimated forfeitures, using the graded vesting method over the requisite service period. Stock-based compensation expense totaled $84,000 and $32.0 million for the six months ended June 30, 2008 and 2009, respectively.
Comprehensive Income
              There are no comprehensive income items other than net income. Comprehensive income equals net income for all of the periods presented.
Marketing and Promotional
              Advertising costs are expensed as incurred. Advertising costs, which include marketing leads, events and promotional materials, for the six months ended June 30, 2008 and 2009 were $11.8 million and $18.3 million, respectively.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies—(Continued)
Segment Information
              The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both its ground and online students regardless of geography. The Company's chief operating decision maker, the CEO and President, manages its operations as a whole, and no expense or operating income information is evaluated by its chief operating decision maker on any component level.
Reverse Stock Split
              On March 31, 2009, the Company's board of directors approved a 1-for-4.5 reverse stock split of the Company's common stock, par value $0.01 per share, which was effective as of that date. As a result of the reverse stock split, every 4.5 shares of the Company's common stock were combined into one share of common stock and any fractional shares created by the reverse stock split were rounded down to the nearest whole share. The Company did not reduce the number of shares of common stock it is authorized to issue or change the par value of the common stock. The reverse stock split affected all of the common stock and options and warrants to purchase common stock that were outstanding on the effective date of the reverse stock split. Common stock, additional paid-in capital, retained earnings and share and per share data for prior periods have been retroactively restated to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
Recent Accounting Pronouncements
              In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Pronouncements that Address Fair Value Measurements for Purpose of Lease Classification or Measurement under Statement 13 , which amends SFAS 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13, Accounting for Leases . In February 2008, the FASB also issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 , which delays the effective date of SFAS 157 until the first quarter of 2009 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis (at least annually). SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In April 2009, the FASB further issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP FAS 157-4"). FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The Company adopted SFAS 157 and related Staff Positions and such adoption did not have a material impact on its consolidated financial statements.
              In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common stockholders. Awards of this nature are
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies—(Continued)

considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. The Company adopted FSP EITF 03-6-1 and such adoption did not have a material impact on its consolidated financial statements.
              In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments ("FSP FAS 115-2 and FAS 124-2"), which change existing guidance for determining whether an impairment is other-than-temporary to debt securities. This guidance also requires an entity to present the total other-than-temporary impairment in the statement of earnings with an offset for the amount recognized in other comprehensive income. When adopting FSP FAS 115-2 and FAS 124-2, an entity is required to record a cumulative- effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The Company adopted FSP FAS 115-2 or FAS 124-2 and such adoption did not have a material impact on its consolidated financial statements.
              In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments ("FSP FAS 107-1 and APB 28-1"). This staff position also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under this staff position, a publicly-traded company is required to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, an entity is required to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. FSP FAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009, with early adoption permitted. The Company adopted FSP FAS 107-1 and APB 28-1 and such adoption did not have a material impact on its consolidated financial statements.
              In April 2009, the Securities and Exchange Commission's ("SEC") Office of the Chief Accountant and Division of Corporation Finance issued SEC Staff Accounting Bulletin ("SAB") 111 ("SAB 111"). SAB 111 amends and replaces SAB Topic 5M, Miscellaneous Accounting—Other Than Temporary Impairment of Certain Investments in Equity Securities, to reflect FSP FAS 115-2 and FAS 124-2. This FSP provides guidance for assessing whether an impairment of a debt security is other than temporary, as well as how such impairments are presented and disclosed in the financial statements. The amended SAB Topic 5M maintains the prior staff views related to equity securities but has been amended to exclude debt securities from its scope. SAB 111 is effective upon the adoption of FSP FAS 115-2 and FAS 124-2. The Company adopted SAB 111 and such adoption did not have a material impact on its consolidated financial statements.
              In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS 165"). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies—(Continued)

for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted SFAS 165 and such adoption did not have a material impact on its consolidated financial statements.
              In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets ("SFAS 166"). SFAS 166 is a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for annual periods beginning after November 15, 2009. The Company does not believe the adoption of SFAS 166 will have a material impact on its consolidated financial statements.
              In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167"). SFAS 167 is a revision to FASB Interpretation No. ("FIN") 46 (Revised December 2003), Consolidation of Variable Interest Entities , and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. SFAS 167 is effective for annual periods beginning after November 15, 2009. The Company does not believe the adoption of SFAS 167 will have a material impact on its consolidated financial statements.
              In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—A Replacement of FASB Statement No. 162 ("SFAS 168"). The FASB Accounting Standards Codification ("Codification") will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all non-SEC accounting and reporting standards in effect at that time. Accordingly, all accounting literature that is not included in the Codification, other than certain grandfathered accounting literature and SEC rules and interpretative releases, will cease to be authoritative on the effective date of SFAS 168. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not believe the adoption of SFAS 168 will have a material impact on the preparation of its consolidated financial statements.
              In June 2009, the SEC Staff issued SAB No. 112 ("SAB 112"). SAB 112 amends or rescinds portions of the SEC Staff's interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with SFAS 141-R and SFAS 160. The Company does not believe that the adoption of SAB 112 will have a material impact on its consolidated financial statements.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
3. Earnings Per Common Share
              In accordance with SFAS No. 128, Computation of Earnings Per Share ("SFAS 128"), and Emerging Issues Task Force ("EITF") Issue 03-06, Participating Securities and the Two-Class Method under FASB Statement No. 128 , basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period using the two-class method. Under the two-class method, net income is allocated between common shares and other participating securities based on their participating rights.
              Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common and potentially dilutive securities outstanding during the period if the effect is dilutive (the dilutive effects of options, warrants and redeemable convertible preferred stock). The numerator of diluted earnings per common share is calculated by starting with income allocated to common shares under the two-class method and adding back income attributable to preferred shares to the extent such an adjustment would be dilutive. Potentially dilutive common shares for the six months ended June 30, 2008 and 2009 consisted of incremental shares of common stock issuable upon the exercise of options and warrants and upon the conversion of preferred stock.
              The following table sets forth the computation of the basic and diluted earnings per common share for the periods indicated (in thousands, except per share data):

 	 	Six Months
Ended
June 30,	 	
 	 	2008	 	2009	 	
Numerator:	 	 	 	 	 	 	 	
 	Net income	 	$	12,027	 	$	5,147	 	
 	Accretion of preferred dividends	 	 	(1,002	)	 	(645	)	
 	 	 	 	 	 	
 	Net income available to common stockholders	 	$	11,025	 	$	4,502	 	
 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	
 	Weighted average shares outstanding	 	 	3,335	 	 	24,938	 	
 	Effect of dilutive options	 	 	3,189	 	 	4,348	 	
 	Effect of dilutive warrants	 	 	879	 	 	994	 	
 	 	 	 	 	 	
Diluted weighted average common shares outstanding	 	 	7,403	 	 	30,280	 	
 	 	 	 	 	 	
Basic earnings per common share	 	$	0.17	 	$	0.08	 	
 	 	 	 	 	 	
Diluted earnings per common share	 	$	0.08	 	$	0.07	 	
 	 	 	 	 	 	
              The computation of dilutive common shares outstanding excludes the following securities:
(a)
Redeemable convertible preferred stock:
              The computation of dilutive common shares outstanding excludes the equivalent common shares that would be related to both the accreted value and the optional conversion feature of the
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
3. Earnings Per Common Share—(Continued)
redeemable convertible preferred stock for the periods indicated because the effect of applying the if-converted method would be anti-dilutive.

 	 	Six Months
Ended
June 30,	 	
 	 	2008	 	2009	 	
Redeemable convertible preferred stock	 	 	60,446	 	 	29,066	 	
(b)
Options and warrants:
              The computation of dilutive common shares outstanding excludes certain stock options and warrants to purchase shares of common stock for the periods indicated because the exercise prices exceeded the average market price of the Company's common stock during such periods or the sum of assumed proceeds exceeded the average market price, and therefore the effect would be anti-dilutive.

 	 	Six Months
Ended
June 30,	 	
 	 	2008	 	2009	 	
Options	 	 	—	 	 	1,183	 	
Warrants	 	 	39	 	 	—	 	
              The Company calculated basic earnings per common share using the two-class method under the guidelines of SFAS 128 to reflect the participation rights of each class and series of stock. Under SFAS 128, basic net income is computed for common stock outstanding during the period by dividing net income allocated to the participation rights of each class by the weighted average number of common shares outstanding during the period.
              The following presents the net income allocated to each class of common stock in the calculation of basic earnings per common share for the six months ended June 30, 2008 and 2009:

 	 	Six Months
Ended
June 30,	 	
 	 	2008	 	2009	 	
Net income available to common stockholders	 	$	11,025	 	$	4,502	 	
Net income allocated to redeemable convertible preferred stock	 	 	1,002	 	 	645	 	
 	 	 	 	 	 	
Net income	 	$	12,027	 	$	5,147	 	
 	 	 	 	 	 	
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
3. Earnings Per Common Share—(Continued)

								
 	 	Six Months Ended
June 30, 2008	 	
 	 	Weighted
Avg Shares	 	Income
Allocation	 	
Common stock	 	 	3,335	 	$	576	 	
Redeemable convertible preferred stock	 	 	60,446	 	 	11,451	 	
 	 	 	 	 	 	 	
Total	 	 	 	 	$	12,027	 	

								
 	 	Six Months Ended
June 30, 2009	 	
 	 	Weighted
Avg Shares	 	Income
Allocation	 	
Common stock	 	 	24,938	 	$	2,080	 	
Redeemable convertible preferred stock	 	 	29,066	 	 	3,067	 	
 	 	 	 	 	 	 	
Total	 	 	 	 	$	5,147	 	
 	 	 	 	 	 	 	
              The numerator of diluted earnings per common share is computed by starting with the numerator of basic earnings per common share and adding back income attributable to the participation rights of redeemable convertible preferred stock, to the extent such an adjustment would be dilutive.
              The denominator of diluted earnings per common share includes the incremental potential common shares issuable upon the following events, to the extent their effect is dilutive:
(i)
Exercise of stock options and warrants;

(ii)
Optional conversion of all outstanding shares of redeemable convertible preferred stock with each share of redeemable convertible preferred stock being converted into 2.265380093 shares of Common Stock; and

(iii)
Issuance of shares of common stock at fair value in payment of the accreted value of the redeemable convertible preferred stock to the holders of redeemable convertible preferred stock.
              The numerator for diluted earnings per share was not adjusted from the basic earnings per share calculation for the impact of redeemable convertible preferred stock because all potential common shares of redeemable convertible preferred stock were anti-dilutive.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
4. Significant Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
              Prepaid expense and other current assets consist of the following (in thousands):

 	 	As of
December 31,
2008	 	As of
June 30,
2009	 	
Prepaid expenses	 	$	3,407	 	$	1,329	 	
Prepaid licenses	 	 	1,798	 	 	2,826	 	
Income tax receivable	 	 	1,118	 	 	—	 	
Prepaid insurance	 	 	73	 	 	668	 	
Other current assets	 	 	377	 	 	788	 	
 	 	 	 	 	 	
	 	$	6,773	 	$	5,611	 	
 	 	 	 	 	 	
Property and Equipment, Net
              Property and equipment, net consist of the following (in thousands):

 	 	As of
December 31,
2008	 	As of
June 30,
2009	 	
Land	 	$	327	 	$	368	 	
Buildings	 	 	6,109	 	 	7,494	 	
Furniture, office equipment and software	 	 	17,420	 	 	27,363	 	
Leasehold improvements	 	 	8,819	 	 	9,856	 	
Vehicles	 	 	43	 	 	67	 	
 	 	 	 	 	 	
Total property and equipment	 	 	32,718	 	 	45,148	 	
Less accumulated depreciation and amortization	 	 	(5,003	)	 	(7,038	)	
 	 	 	 	 	 	
Property and equipment, net	 	$	27,715	 	$	38,110	 	
 	 	 	 	 	 	
Accrued Liabilities
              Accrued liabilities consist of the following (in thousands):

 	 	As of
December 31,
2008	 	As of
June 30,
2009	 	
Accrued salaries and wages	 	$	3,813	 	$	6,089	 	
Accrued bonus	 	 	3,182	 	 	2,250	 	
Accrued vacation	 	 	1,342	 	 	1,633	 	
Income tax payable	 	 	—	 	 	3,289	 	
Accrued expenses	 	 	8,206	 	 	8,475	 	
 	 	 	 	 	 	
	 	$	16,543	 	$	21,736	 	
 	 	 	 	 	 	
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
5. Fair Value Measurements
              The Company accounts for marketable securities under the provisions of SFAS 157. SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
              Marketable securities at June 30, 2009, measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157, consisted only of certificates of deposit in the amount of $10.0 million, and are valued based on third-party quotations of similar assets in active markets. The certificates of deposits were classified as Level 2 instruments.
6. Notes Payable and Long-Term Debt
              In April 2004, the Company entered into a senior secured credit agreement ("Credit Agreement") with Comerica Bank (the "Bank"). The Credit Agreement provides for a revolving credit facility ("Revolving Credit Facility") which includes a letter of credit sub-limit ("LC Sub-limit"). The Credit Agreement also provides for an equipment line of credit ("Equipment Line") and a term loan facility ("Term Loan"), and also allows the Company to borrow subordinated debt from the Company's majority stockholder.
              In October 2008, the Credit Agreement was amended to (i) increase the maximum available borrowing capacity to $15.0 million, (ii) increase the maximum available borrowing capacity under the Revolving Credit Facility to $15.0 million, (iii) increase the LC Sub-limit to $14.2 million and (iv) extend the maturity date to October 31, 2009. In May 2009, the Credit Agreement was amended again to increase the LC Sub-limit to $15.0 million, retroactively to January 1, 2009.
              As of June 30, 2009, the Company had no borrowings outstanding under the Revolving Credit Facility. The Company used the availability under its Revolving Credit Facility to issue letters of credit aggregating $14.3 million as of June 30, 2009.
              As of June 30, 2009, the Company had no borrowings outstanding under the Equipment Line or the Term Loan.
              As part of the Credit Agreement, the Company is subject to certain limitations, including limitations on its ability to incur additional debt, make certain investments or acquisitions and enter into certain merger and consolidation transactions, among other restrictions. The Credit Agreement also contains a material adverse change clause, and the Company is required to maintain compliance with minimum profitability and minimum liquidity ratios. As of June 30, 2009, the Company was in compliance with all financial covenants in the Credit Agreement.
              Under the Credit Agreement, the Company is required to maintain an amount equal to the aggregate face amount of all issued and outstanding letters of credit in compensating balances in deposit with the Bank, which amounted to $14.3 million at June 30, 2009. Because the compensating balance is not restricted as to withdrawal, it is not classified as restricted cash in the accompanying condensed consolidated balance sheets. If the cash amount maintained with the Bank drops below the
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
6. Notes Payable and Long-Term Debt—(Continued)

aggregate amount of all issued and outstanding letters of credit, the difference would be treated as a borrowing under its Revolving Credit Facility with assessed interest.
              The Company has a letter of credit from a credit union in the amount of $0.7 million, which is secured by a cash deposit. This amount is included in the restricted cash balance at June 30, 2009.
              As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. In that regard, in May 2009, the Company entered into a surety bond facility with an insurance company to provide such bonds when applicable. As of June 30, 2009, the total available surety bond facility was $1.5 million and the Company had issued surety bonds totaling $45,000.
              In connection with the acquisition of the Colorado School of Professional Psychology in 2007, the Company entered into a non-interest bearing note payable agreement. The outstanding balance as of June 30, 2009 was $208,000. The outstanding balance of the note is to be paid monthly in equal installments. At June 30, 2009 there is no material difference between the fair value and the carrying amount of the Company's note payable and long-term debt.
7. Redeemable Convertible Preferred Stock
              The following discussion reflects the terms of the redeemable convertible preferred stock (Series A Convertible Preferred Stock) set forth in the Company's Fourth Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on July 29, 2005. All shares of redeemable convertible preferred stock were optionally converted into common stock immediately prior to the closing of the Company's initial public offering on April 20, 2009. (See Note 13, "Initial Public Offering").
              The redeemable convertible preferred stock ranked senior to all common stock.
              The holders of redeemable convertible preferred stock were not entitled to any dividends except in the event that the Company declared, set aside or paid any dividend on the common stock (other than dividends payable solely in additional shares of common stock), in which case holders of the redeemable convertible preferred stock could participate in any such dividends on a per share as-converted basis. Such dividends were payable when and as declared by the Company's board of directors. No preferred stock dividends were declared during the six months ended June 30, 2009. See "Preferred Dividends" below for payments upon liquidation, dissolution or winding up of the Company and payments upon optional conversion.
              Each issued and outstanding share of redeemable convertible preferred stock was entitled to the number of votes equal to the number of shares of common stock into which each such share of redeemable convertible preferred stock was convertible with respect to matters presented to the stockholders of the Company for their action or consideration.
Optional Conversion Feature
              Each share of redeemable convertible preferred stock was convertible, at the option of the holder, at any time into shares of common stock at a conversion rate of 2.265380093 shares of common stock per share. As of June 30, 2009, there were no outstanding shares of redeemable convertible
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
7. Redeemable Convertible Preferred Stock—(Continued)

preferred stock. At December 31, 2008 there were 44.8 million shares of common stock that would be issued upon optional conversion of all outstanding shares of redeemable convertible preferred stock.
              Upon an optional conversion, the holder was entitled to receive shares of common stock as discussed above, in addition to the payments discussed below under "Payments upon optional conversion." The right of the holders of redeemable convertible preferred stock to elect to receive both shares of common stock and the accreted value under the optional conversion feature resulted in fair value in excess of the invested amount, which resulted in a beneficial conversion feature to such preferred stockholders. This beneficial conversion feature was recorded as a deemed dividend on the date of the issuance of the redeemable convertible preferred stock because there was no stated redemption date (maturity date) and the optional conversion feature was immediately exercisable. The beneficial conversion feature is recognized on the condensed consolidated balance sheet as an increase in additional paid-in capital to allocate a portion of the proceeds from the issuance to the beneficial conversion feature and a decrease to additional paid-in capital for the deemed dividend. This beneficial conversion feature was measured as the excess of the fair value of the common shares into which the preferred shares are convertible over the accounting conversion price as determined in accordance with EITF Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios , and EITF Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments . The Company has not issued redeemable convertible preferred stock since 2005. As of December 31, 2008 and June 30, 2009, the Company had recorded $14.1 million of deemed dividends related to the beneficial conversion feature associated with redeemable convertible preferred stock issued prior to 2006.
Preferred Dividends
(a)
Payments upon liquidation, dissolution or winding up of the Company:
              Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of redeemable convertible preferred stock were entitled to receive an amount equal to the sum of (i) the "accreted value" (as defined below) of the shares of redeemable convertible preferred stock plus (ii) any dividends declared but unpaid on the shares of redeemable convertible preferred stock. The term "accreted value" was defined as an amount equal to the sum of (i) the "stated value" (as defined below) for a share of redeemable convertible preferred stock plus (ii) 8% per year of the stated value, compounding annually and commencing on the date of issuance of such share. The term "stated value" was defined as $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to the redeemable convertible preferred stock. The amount by which the accreted value exceeded the stated value for any share of redeemable convertible preferred stock was referred to as the "accreted dividend" for such share. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
              With respect to the payment of amounts described in the preceding paragraph, each of the following events was deemed to be a "liquidation, dissolution or winding up" of the Company: (i) the consolidation with or into another corporation in which the stockholders of record of the Company owned less than 50% or the voting securities of the surviving corporation; (ii) the sale of substantially all the assets of the Company; (iii) the sale of securities of the Company representing more than 50%
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
7. Redeemable Convertible Preferred Stock—(Continued)

of the voting securities (other than a qualified public offering); and (iv) a sale to Warburg Pincus, the majority stockholder of the Company, or its successors or assigns.
(b)
Payments upon optional conversion:
              Upon an optional conversion of shares of redeemable convertible preferred stock, the holder of such shares was entitled to receive (in addition to the common stock acquirable upon conversion of such shares) an amount equal to (i) the accreted value of such shares plus (ii) any dividends declared but unpaid on such shares. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
              During the six months ended June 30, 2009, the Company used the proceeds from its initial public offering to pay the accreted value (carrying value) of the redeemable convertible preferred stock. The accreted value at the time of payment (April 20, 2009) was $27.7 million, of which $7.9 million was accreted dividends. At December 31, 2008, the accreted value was $27.1 million, of which $7.3 million was accreted dividends.
Mandatory Conversion
              If not earlier converted pursuant to the optional conversion feature, each share of the redeemable convertible preferred stock would have automatically converted into shares of common stock at its then effective conversion rate (2.265380093 shares of common stock per share of redeemable convertible preferred stock) (i) upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 in which the net proceeds to the Company were not less than $25.0 million and the shares of common stock were designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange, or (ii) at any time upon the vote to so convert of the holders of at least a majority of the redeemable convertible preferred stock.
Redemption
              If, after seven years of the initial issuance of the redeemable convertible preferred stock, the Company had not consummated a liquidity event or a qualified public offering and the optional conversion feature had not been exercised, the holders of a majority of the redeemable convertible preferred stock would have had the right to require the Company to redeem any or all of their redeemable convertible preferred stock at a price in cash equal to the accreted value, plus any declared, but unpaid dividends.
8. Stock-Based Compensation
              In March 2009, the Company adopted its 2009 Stock Incentive Plan ("2009 Plan") pursuant to which it may award stock options and other stock-based awards. The compensation committee of the board of directors of the Company determines eligibility, vesting schedules and exercise prices for options granted. Subject to certain adjustments in the event of a change in capitalization or similar transaction, the Company may initially issue a maximum of 5,000,000 shares of its common stock under the 2009 Plan. Unless terminated earlier, the 2009 Plan will terminate on March 3, 2019. All options granted in 2009 are pursuant to the 2009 Plan.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
8. Stock-Based Compensation—(Continued)
              Before the adoption of the 2009 Plan, the Company awarded options pursuant to the Company's Amended and Restated 2005 Stock Incentive Plan ("2005 Plan"). Effective upon the closing of the Company's initial public offering, the Company was no longer able to make grants under the 2005 Plan. The Company has also awarded options outside of the 2005 Plan and the 2009 Plan from time to time.

 	 	Options
Outstanding	 	Weighted-
Average
Exercise
Price	 	Weighted-
Average
Remaining
Contractual
Term
(in years)	 	Aggregate
Intrinsic Value	 	
Balance at December 31, 2008	 	 	8,827,585	 	$	0.37	 	 	6.33	 	$	122,219,518	 	
 	Granted	 	 	2,765,822	 	$	10.50	 	 	 	 	 	 	 	
 	Exercised	 	 	(103,559	)	$	0.36	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(107,678	)	$	3.44	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2009	 	 	11,382,170	 	$	2.81	 	 	8.03	 	$	161,553,660	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Vested and expected to vest at June 30, 2009	 	 	
11,192,845	 	
$	
2.70	 	 	
8.01	 	
$	
160,013,542	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at June 30, 2009	 	 	7,826,247	 	$	0.35	 	 	7.40	 	$	130,270,646	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
              The Company recorded $84,000 and $32.0 million of compensation expense related to options for the six months ended June 30, 2008 and 2009, respectively, in accordance with SFAS 123R. The related income tax benefit was $33,000 and $12.4 million for the six months ended June 30, 2008 and 2009, respectively.
              As of June 30, 2009, there was $12.2 million of unrecognized compensation costs related to time-vested options and $74,000 of unrecognized compensation costs related to performance-vested options.
              The Company amortizes unearned stock-based compensation over the vesting term using an accelerated graded method in accordance with FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (An Interpretation of APB Opinions No. 15 and 25) ("FIN 28"). These costs are expected to be recognized over a weighted average period of 1.9 years at June 30, 2009.
              The Company granted options to purchase 2.8 million shares of common stock during the six months ended June 30, 2009 in connection with the Company's initial public offering. These options vest over a four-year period, commencing the date of grant, and have an exercise price of $10.50 per share, which is equal to the price at which shares were sold to the public in the Company's initial public offering. The aggregate grant date fair value of these options was $14.1 million.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
8. Stock-Based Compensation—(Continued)
              The following assumptions were used to estimate the fair value of the options granted during the six months ended June 30, 2009 using the Black-Scholes model:

Risk free interest rate	 	 	1.9	%	
Expected dividend yield	 	 	—	 	
Expected volatility	 	 	48.0	%	
Expected life (in years)	 	 	6.25	 	
              No options expired during the six months ended June 30, 2009. There were options to purchase 103,559 shares of common stock exercised during the six months ended June 30, 2009. The intrinsic value of the options exercised during the six months ended June 30, 2009 was $1.1 million. The Company received cash of $38,000 from exercised options during the six months ended June 30, 2009. The actual tax benefit related to exercised options was $0.4 million.
              The Company reserved 9.9 million and 14.8 million shares of common stock for the exercise of existing stock options and stock options available for grant as of December 31, 2008 and June 30, 2009, respectively.
Acceleration of Exit Options
              On March 28, 2009, the Company's board of directors amended the exit options for certain members of the Company's management team (10 individuals) to add an additional vesting condition so that the number of shares underlying the options that would not have vested upon the closing of the Company's initial public offering, under the original terms of the options, would vest in full upon the closing of such offering. This additional vesting condition constituted a modification under SFAS 123R. Accordingly, to the extent the exit option vested under the original vesting conditions, the original grant date fair value was recorded on the vesting date; and to the extent each exit option vested under the additional vesting condition, the modification date fair value would be recorded on the vesting date.
              The compensation expense that was recorded for the exit options during the six months ended 2009 was $30.4 million in the aggregate ($0.1 million related to the portion of the exit options vesting under the original vesting conditions and $30.3 million related to the portion of the exit options vesting under the additional vesting condition), which was based upon the sale by Warburg Pincus of 20.8% of its ownership of the Company's common stock (as-converted) in the Company's initial public offering. The incremental compensation cost resulting from the modification was $30.0 million. The compensation expense was calculated using the Black Scholes model, including a fair value of common stock of $14.91, an exercise price of either $0.07 or $0.13 based on the respective options, an estimated life of three years, a zero dividend yield, volatility of 65% and a risk free interest rate of 1.28%. This compensation expense was recorded in accordance with where the related optionee's regular compensation is recorded.
9. Warrants
              From time to time, the Company has issued warrants to purchase common stock to various consultants, licensors and lenders. Each warrant represents the right to purchase one share of common stock. No warrants were issued during the six month period ended June 30, 2009.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
9. Warrants—(Continued)
              The following table summarizes information with respect to all warrants outstanding as of December 31, 2008 and June 30, 2009. During the six months ended June 30, 2009, 711,215 warrants were exercised. As of December 31, 2008 and June 30, 2009, all outstanding warrants were exercisable.

Exercise Price 	 	December 31,
2008	 	June 30,
2009	 	Expiration
Date	 	
$1.125	 	 	738,819	 	 	329,435	 	 	2013-2015	 	
$2.250	 	 	289,452	 	 	140,286	 	 	2013	 	
$2.835	 	 	305,554	 	 	172,222	 	 	2013	 	
$2.925	 	 	38,888	 	 	19,555	 	 	2013	 	
$4.500	 	 	166,666	 	 	166,666	 	 	2013	 	
$9.000	 	 	38,511	 	 	38,511	 	 	2013	 	
10. Income Taxes
              The Company's current estimated annual effective income tax rate that has been applied to normal, recurring operations for the six months ended June 30, 2009 was 43.7%. The Company's effective income tax expense rate was 43.3% for the six months ended June 30, 2009. The effective tax rate for the six months ended June 30, 2009 differed from the Company's estimated annual effective tax rate due to the impact of discrete items on the Company's income before the provision for income taxes. These discrete items related to interest accrued on unrecognized tax benefits discussed below.
              On January 1, 2008, the Company adopted FASB Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). As a result of the implementation of FIN 48, the Company had no material additions to reserves for uncertain tax positions. At December 31, 2008 and June 30, 2009, the Company had $2.7 million and $3.2 million of gross unrecognized tax benefits respectively, of which $0.3 million and $0.8 million, respectively, would impact its effective income tax rate if recognized.
              The Company expects an increase in the FIN 48 liability for unrecognized tax benefits in the next 12 months of approximately $2.3 million, the majority of which will affect its operating results. The Company is subject to U.S. federal income tax and multiple state tax jurisdictions. The 2003 through 2008 tax years remain open to examination by major taxing jurisdictions to which the Company is subject.
              The Company's continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions as of December 31, 2008 and June 30, 2009 was $0.2 million and $0.2 million, respectively.
11. Regulatory
              The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act and the regulations promulgated thereunder by the U.S. Department of Education subject the Company to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act.
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
11. Regulatory—(Continued)
              To participate in Title IV programs, an institution must be authorized to offer its programs of instruction by the relevant agency of the state in which it is located, accredited by an accrediting agency recognized by the U.S. Department of Education and certified as eligible by the U.S. Department of Education. The U.S. Department of Education will certify an institution to participate in Title IV programs only after the institution has demonstrated compliance with the Higher Education Act and the U.S. Department of Education's extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to the U.S. Department of Education on an ongoing basis. As of December 31, 2008 and June 30, 2009, management believes the Company is in compliance with the applicable regulations in all material respects.
              The Higher Education Act requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.
Student Default Rate
              For each federal fiscal year, the U.S. Department of Education calculates a rate of student defaults for each educational institution which is known as a "cohort default rate." An institution may lose its eligibility to participate in some or all Title IV programs if, for each of the three most recent federal fiscal years, 25% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its cohort default rate exceeds 40% in the most recent federal fiscal year for which default rates have been calculated by the U.S. Department of Education. Ashford University's cohort default rates for the 2005 and 2006 federal fiscal years, the two most recent years for which information is available, were 4.1% and 4.1%, respectively. The cohort default rates for the University of the Rockies for the 2005 and 2006 federal fiscal years, the two most recent years for which information is available, were 0.0% and 0.0%, respectively.
              The August 2008 reauthorization of the Higher Education Act includes significant revisions to the requirements concerning cohort default rates. Under the revised law, the period for which students' defaults on their loans are included in the calculation of an institution's cohort default rate has been extended by one additional year, which is expected to increase the cohort default rates for most institutions. That change will be effective with the calculation of institutions' cohort default rates for the federal fiscal year ending September 30, 2009, which rates are expected to be calculated and issued by the U.S. Department of Education in 2012. The U.S. Department of Education will not impose sanctions based on rates calculated under this new methodology until three consecutive years of rates have been calculated, which is expected to occur in 2014. Until that time, the U.S. Department of Education will continue to calculate rates under the old calculation method and impose sanctions based on those rates. The revised law also increases the threshold for ending an institution's participation in the relevant Title IV programs from 25% to 30%, effective in the federal fiscal year 2012. Ineligibility
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
11. Regulatory—(Continued)

to participate in Title IV programs would have a material adverse effect on the Company's enrollments, revenue and results of operations.
Financial Responsibility
              The U.S. Department of Education calculates an institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the U.S. Department of Education's minimum composite score may demonstrate its financial responsibility by posting a letter of credit in favor of the U.S. Department of Education and possibly accepting other conditions on its participation in the Title IV programs.
              As of and for the year ended December 31, 2007, Ashford University did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 10% of total Title IV funds received in 2007, to accept provisional certification to participate in Title IV programs and to conform to the requirements of the heightened cash monitoring level one method of payment. Under the heightened cash monitoring level one method of payment, the Company may not draw down Title IV funds until they are disbursed to students. Ashford University has posted the required letter of credit in the amount of $12.1 million, which will remain in effect through September 30, 2009.
              For the fiscal year ended July 31, 2007, the University of the Rockies did not meet the composite score standard prescribed by the U.S. Department of Education and was required to post a letter of credit in favor of the U.S. Department of Education equal to 30% of total Title IV funds received in the fiscal year ending July 31, 2007, to accept provisional certification to participate in Title IV programs and to conform to the regulations of heightened cash monitoring level one method of payment. The University of the Rockies has posted the required letter of credit in the amount of $0.7 million, which will remain in effect through October 1, 2009.
              In July 2009, the U.S. Department of Education notified the Company that the University of the Rockies received a composite score of 1.7 for the fiscal year ended December 31, 2008, which satisfied the composite score requirement of the financial responsibility test under Title IV for such year. Accordingly, the University of the Rockies was released from the requirement to post a letter of credit in favor of the U.S. Department of Education and the requirement to conform to the regulations of the heightened cash monitoring level one method of payment.
The "90/10 rule"
              Pursuant to a provision of the Higher Education Act, as reauthorized in August 2008, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenue (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds for two consecutive fiscal years, commencing with the institution's first fiscal year that ends after the new law's effective date of August 14, 2008. This rule is commonly referred to as the "90/10 rule." Any institution that violates the 90/10 rule
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
11. Regulatory—(Continued)

becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single year will be placed on provisional certification and may be subject to other enforcement measures. The Company is currently assessing what impact, if any, the U.S. Department of Education's revised formula and other changes in federal law will have on its 90/10 calculation.
              In May 2008, the Ensuring Continued Access to Student Loans Act increased the annual loan limits on federal unsubsidized student loans by $2,000 for the majority of the Company's students enrolled in associates and bachelors degree programs, and also increased the aggregate loan limits (over the course of a student's education) on total federal student loans for certain students. This increase in student loan limits, together with increases in Pell grants, has increased the amount of Title IV program funds used by students to satisfy tuition, fees and other costs, which has increased the proportion of the Company's revenue deemed to be from Title IV programs. The Higher Education Opportunity Act provides temporary relief from the impact of these loan limit increases by allowing any amounts received between July 1, 2008 and July 1, 2011 that are attributable to the increased annual loan limits to be excluded from the 90/10 rule calculation. The implementing regulations for this temporary relief and other aspects of the 90/10 rule are being developed by the U.S. Department of Education and are expected to be published in final form by November 1, 2009. There remains uncertainty about the manner in which the temporary relief will be implemented. The Company continues to monitor the rulemaking process, as the resolution of interpretive issues will impact the benefit it derives from the temporary relief.
              In 2007 and 2008, Ashford University derived 83.9% and 86.8%, respectively, and the University of the Rockies derived 61.9% and 80.8%, respectively, of their respective revenue (calculated on a cash basis in accordance with applicable U.S. Department of Education regulations) from Title IV funds. In connection with the change by the University of the Rockies to a December 31 fiscal year end date, the U.S. Department of Education required the University of the Rockies to calculate its compliance with the 90/10 rule for the fiscal year ending July 31, 2008 and for the 5-month period ending December 31, 2008, and those percentages were 74.3% and 80.8%, respectively.
Return of Title IV Funds
              An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under U.S. Department of Education regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit can result in an institution having to post a letter of credit in an amount equal to 25% of its prior year returns of Title IV program funds. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
              For the year ended December 31, 2007, Ashford University exceeded the 5% threshold for late refunds sampled, due to human error. As a result, the Company is subject to the requirement to post a letter of credit in favor of the U.S. Department of Education equal to 25% of the total refunds in
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
11. Regulatory—(Continued)

2007. Ashford University notified the U.S. Department of Education of its intention to post this letter of credit, but was advised by the U.S. Department of Education that such posting was unnecessary because the Company had already posted a letter of credit due to its failure to meet the composite score standard for the year ended December 31, 2007, which letter of credit was in excess of the amount required for late refunds. Although the Company has taken steps to reduce late refunds, it cannot ensure that such steps will be sufficient to address this issue.
              Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action. While there can be no assurance that regulatory agencies or third parties will not undertake investigations or make claims against the Company, or that such claims, if made, will not have a material adverse effect on the Company's business, results of operations or financial condition, management believes it has materially complied with all regulatory requirements.
12. Commitments and Contingencies
              In the ordinary conduct of business, the Company is also subject to various lawsuits and claims covering a wide range of matters, including, but not limited to, claims involving students or graduates and routine employment matters. The Company does not believe that the outcome of any pending claims will have a material adverse impact on its consolidated financial position or results of operations or cash flows.
Settlement of Stockholder Dispute
              In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against the Company, its directors and officers and Warburg Pincus regarding amendments to the Company's certificate of incorporation made in connection with financings in 2005 and certain stock options granted by the Company to its employees. The claimants represented 90% of the holders of common stock and 59% of the shares of common stock subject to warrants outstanding, in each case as of July 27, 2005. In March 2009, the Company reached a settlement with the claimants regarding these claims and recorded a total expense of $11.1 million related to the settlement during the six months ended June 30, 2009, of which $10.6 million was a non-cash expense. After settling with the claimants, the Company notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, the Company reached settlement with the holders of 100% of the common stock and 100% of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time the Company ceased to be a potential obligor related to the claims asserted by these security holders. No additional expense was recorded in connection with the further settlement.
13. Initial Public Offering
              On April 20, 2009, the Company closed its initial public offering of common stock, in which 15.5 million shares of common stock were sold to the public at an offering price of $10.50 per share. The offering included 3.5 million shares sold by the Company and 12.0 million shares sold by selling
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Bridgepoint Education, Inc.
Notes to Interim Condensed Consolidated Financial Statements—(Continued)
(Unaudited)
13. Initial Public Offering—(Continued)

stockholders. The net proceeds to the Company from this offering were $28.8 million, after deducting underwriting discounts and commissions and offering expenses. The Company used the proceeds from the offering primarily to pay the accreted value of the redeemable convertible preferred stock ($27.7 million) upon the optional conversion of all outstanding shares of redeemable convertible preferred stock into 44.7 million shares of common stock at the closing of the offering.
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Table of Contents

 PART II

INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.    Other Expenses of Issuance and Distribution
              The following table sets forth an estimate of the fees and expenses relating to the issuance and distribution of the securities being registered hereby, other than underwriting discounts and commissions, all of which shall be borne by the registrant. All of such fees and expenses, except for the SEC registration fee, are estimated:

SEC registration fee	 	$	15,035	 	
FINRA filing fee	 	 	27,444	 	
Transfer agent's fees and expenses	 	 	7,300	 	
Legal fees and expenses	 	 	400,000	 	
Printing fees and expenses	 	 	325,000	 	
Accounting fees and expenses	 	 	200,000	 	
Miscellaneous fees and expenses	 	 	25,000	 	
 	 	 	 	
Total	 	$	999,779	 	
 	 	 	 	
Item 14.    Indemnification of Directors and Officers
              Section 145 of the Delaware General Corporation Law provides for the indemnification of officers, directors and other corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended. The registrant's certificate of incorporation and bylaws require the registrant to indemnify its directors and officers to the fullest extent permitted by Delaware law.
              Additionally, as permitted by Delaware law, the registrant has entered into indemnification agreements with each of its directors and officers that require the registrant to indemnify such persons, to the fullest extent authorized or permitted under Delaware law, against any and all costs and expenses (including attorneys', witness or other professional fees) actually and reasonably incurred by such persons in connection with the investigation, defense, settlement or appeal of any action, hearing, suit or other proceeding, whether pending, threatened or completed, to which any such person may be made a witness or a party by reason of (1) the fact that such person is or was a director, officer, employee or agent of the registrant or its subsidiaries, whether serving in such capacity or otherwise acting at the request of the registrant or its subsidiaries and (2) anything done or not done, or alleged to have been done or not done, by such person in that capacity. The indemnification agreements also require the registrant to advance expenses incurred by directors and officers within 20 days after receipt of a written request, provided that such persons undertake to repay such amounts if it is ultimately determined that they are not entitled to indemnification. Additionally, the agreements set forth certain procedures that will apply in the event of a claim for indemnification thereunder, including a presumption that directors and officers are entitled to indemnification under the agreements, and that the registrant has the burden of proof to overcome that presumption in reaching any contrary determination. The registrant is not required to provide indemnification under the agreements for certain matters, including: (1) indemnification beyond that permitted by Delaware law; (2) indemnification for liabilities for which the officer or director is reimbursed pursuant to such insurance as may exist for such person's benefit; (3) indemnification related to disgorgement of profits under Section 16(b) of the Securities Exchange Act of 1934; (4) in connection with certain proceedings initiated against the registrant by the director or officer; or (5) indemnification for settlements the director or officer enters into without the registrant's written consent. The indemnification agreements require the registrant to maintain directors' and officers' insurance in full force and effect while any
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director or officer continues to serve in such capacity, and so long as any such person may incur costs and expenses related to legal proceedings as described above.
Item 15.    Recent Sales of Unregistered Securities
              Set forth below is information regarding securities sold by the registrant in the past three years which were not registered under the Securities Act.
              In January 2009, the registrant issued an aggregate of 112,076 shares of common stock to Warburg Pincus upon the conversion of 49,473.38 shares of Series A Convertible Preferred Stock. The shares were offered and sold without registration under the Securities Act in reliance upon the exemption provided by Section 3(a)(9) thereunder.
              In February 2009, the registrant issued to William C. Turner, Trustee of the Turner Trust dated 1/7/82, as amended, 55,555 shares of common stock upon the exercise of a warrant at an exercise price of $1.13 per share. The registrant concluded the investor qualified as an accredited investor under Rule 501(a) based on representations made by the investor at the time of sale. The shares were offered and sold in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
              In March 2009, pursuant to a settlement agreement, the registrant agreed to issue to certain existing investors an aggregate of 710,097 shares of common stock in exchange for a release of claims against the registrant, all of which shares were issued by April 2009. The registrant concluded each investor qualified as an accredited investor under Rule 501(a) based on representations made by the investors in the settlement agreement. The shares were offered and sold in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
              On April 20, 2009, in connection with the closing of the registrant's initial public offering:
•
The registrant issued an aggregate of 44,693,361 shares of common stock to ten investors upon the optional conversion of 19,728,859.62 shares of Series A Convertible Preferred Stock. The shares were offered and sold without registration under the Securities Act in reliance upon the exemption provided by Section 3(a)(9) thereunder. 

•
The registrant issued 102,963 shares of common stock upon the exercise of options by six selling stockholders with a weighted average exercise price of $0.36 per share for total proceeds to the registrant of $37,083. The shares were offered and sold without registration under the Securities Act in reliance upon the exemption provided by Rule 701 under the Securities Act. 

•
The registrant issued 426,217 shares of common stock upon the exercise of warrants by eight selling stockholders with a weighted average exercise price of $2.14 per share for total proceeds to the registrant of $910,103. The shares were offered and sold without registration under the Securities Act in reliance upon the exemption provided by (i) for compensatory warrants, Rule 701 under the Securities Act, and (ii) for non-compensatory warrants, Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder. The registrant concluded that each investor exercising a non-compensatory warrant qualified as an accredited investor under Rule 501(a) based on representations made by the investor at the time of sale. 

•
The registrant issued an aggregate of 204,361 shares of common stock upon the conversion by four selling stockholders of warrants to purchase an aggregate of 228,887 shares of common stock at a weighted average exercise price of $1.125 per share. Pursuant to the cashless net exercise feature of the warrants, the warrants could be converted, in lieu of cash exercise, into a number of shares of common stock determined by multiplying the number of
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shares purchasable under the warrant by the difference between the fair market value of the common stock on the date of conversion and the warrant exercise price, and dividing such product by the fair market value of the common stock on the date of conversion. The fair market value of the common stock determined in accordance with the warrants on the date of conversion was $10.50 per share. The shares were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act.
              On July 1, 2009, the registrant issued an aggregate of 186,763 shares of common stock to three investors upon the conversion of warrants to purchase an aggregate of 199,999 shares of common stock at a weighted average exercise price of $1.125 per share. Pursuant to the cashless net exercise feature of the warrants, the warrants could be converted, in lieu of cash exercise, into a number of shares of common stock determined by multiplying the number of shares purchasable under the warrant by the difference between the fair market value of the common stock on the date of conversion and the warrant exercise price, and dividing such product by the fair market value of the common stock on the date of conversion. The fair market value of the common stock determined in accordance with the warrants on the date of conversion was $17.00 per share. The shares were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act.
Stock Option Awards
•
As of April 14, 2009, the date of effectiveness of the Form S-1 registration statement relating to the registrant's initial public offering, under its Amended and Restated 2005 Stock Incentive Plan, or 2005 Plan, the registrant had outstanding stock options to directors, officers, employees and consultants to purchase an aggregate of 8,762,019 shares of common stock with a weighted average exercise price of $0.38 per share and had issued 193,543 shares of common stock for an aggregate purchase price of $60,966 upon exercise of options awarded under the 2005 Plan. The stock option grants and the common stock issuances described in this paragraph were made pursuant to written compensatory plans or agreements in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. 

•
As of April 14, 2009, the date of effectiveness of the Form S-1 registration statement relating to the registrant's initial public offering, the registrant had outstanding stock options issued outside of the 2005 Plan to certain employees to purchase an aggregate of 65,566 shares of common stock with an exercise price of $0.32 per share. The registrant concluded each of such employees qualified as an accredited investor under Rule 501(a) of Regulation D promulgated under the Securities Act based on representations made by the employees at the time of award. The stock option grants were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
With respect to the stock option grants that were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder: (i) no underwriters were involved in the issuances of securities; (ii) each security holder represented to us in connection with the grant of stock options that the security holder was acquiring the securities for investment and not distribution, that security holders could bear the risks of the investment and could hold the securities for an indefinite period of time; (iii) the security holders received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration; and (iv) the issuance of these securities were made without general solicitation or advertising.
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Item 16.    Exhibits and Financial Statement Schedules
(a)
Exhibits.

 	 	 	 	Incorporation by Reference	
Exhibit
Number	 	Description of Document	 	Filed
Herewith	 	Form	 	Exhibit
No.	 	Date Filed	
 	1.1	 	Form of Underwriting Agreement.	 	X	 	 	 	 	 	 	
 	2.1	 	Purchase and Sale Agreement dated December 3, 2004, as amended, among The Franciscan University of the Prairies, the Sisters of St. Francis and the registrant.	 	 	 	S-1	 	2.1	 	February 17, 2009	
 	2.2	 	Asset Purchase and Sale Agreement dated September 12, 2007 between the Colorado School of Professional Psychology and the registrant.	 	 	 	S-1	 	2.2	 	February 17, 2009	
 	3.1	 	Fifth Amended and Restated Certificate of Incorporation.	 	 	 	10-Q	 	3.1	 	May 21, 2009	
 	3.2	 	Second Amended and Restated Bylaws of the registrant.	 	 	 	S-1	 	3.4	 	March 20, 2009	
 	4.1	 	Specimen of Stock Certificate.	 	 	 	S-1	 	4.1	 	March 30, 2009	
 	4.2	 	Registration Rights Agreement dated November 26, 2003 among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	 	 	 	S-1	 	4.2	 	December 22, 2008	
 	4.3	 	Stockholders' Agreement dated November 26, 2003, as amended to date, among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	 	 	 	S-1	 	4.3	 	April 13, 2009	
 	4.4	 	Second Amended and Restated Registration Rights Agreement dated August 26, 2009 among the registrant and the other persons named therein.	 	X	 	 	 	 	 	 	
 	4.5	 	Form of Warrant A.	 	 	 	S-1	 	4.5	 	March 20, 2009	
 	4.6	 	Form of Warrant B.	 	 	 	S-1	 	4.6	 	March 20, 2009	
 	4.7	 	Form of Warrant C.	 	 	 	S-1	 	4.7	 	March 20, 2009	
 	4.8	 	Form of Warrant D.	 	 	 	S-1	 	4.8	 	March 20, 2009	
 	4.9	 	Form of Warrant E.	 	 	 	S-1	 	4.9	 	March 20, 2009	
 	4.10	 	Form of Warrant F.	 	 	 	S-1	 	4.10	 	March 20, 2009	
 	4.11	 	Form of Warrant G.	 	 	 	S-1	 	4.11	 	March 20, 2009	
 	4.12	 	Table of Warrants Granted.	 	 	 	S-1	 	4.12	 	March 20, 2009	
 	4.13	 	Limited Waiver of Underwriting Agreement dated August 19, 2009.	 	X	 	 	 	 	 	 	
 	5.1	 	Opinion of Wilson Sonsini Goodrich & Rosati, PC	 	X	 	 	 	 	 	 	
 	5.2	 	Opinion of Richards, Layton & Finger P.A.	 	X	 	 	 	 	 	 	
 	10.1	 	Amended and Restated 2005 Stock Incentive Plan.	 	 	 	S-1	 	10.1	 	December 22, 2008	
 	10.2	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Founders.	 	 	 	S-1	 	10.2	 	February 17, 2009	
 	10.3	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Charlene Dackerman, Jane McAuliffe, Ross Woodard and other non-executive employees.	 	 	 	S-1	 	10.3	 	February 17, 2009	
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 	 	 	 	Incorporation by Reference	
Exhibit
Number	 	Description of Document	 	Filed
Herewith	 	Form	 	Exhibit
No.	 	Date Filed	
 	10.4	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Andrew S. Clark, Daniel J. Devine, Rodney T. Sheng and Christopher L. Spohn.	 	 	 	S-1	 	10.4	 	February 17, 2009	
 	10.5	 	Amended and Restated 2009 Stock Incentive Plan.	 	 	 	S-1	 	10.5	 	April 1, 2009	
 	10.6	 	Amended and Restated Employee Stock Purchase Plan.	 	 	 	S-1	 	10.6	 	April 1, 2009	
 	10.7	 	Independent Contractor Agreement, as amended, between Robert Hartman and the registrant.	 	 	 	S-1	 	10.7	 	December 22, 2008	
 	10.8	 	Form of Indemnification Agreement.	 	 	 	S-1	 	10.8	 	December 22, 2008	
 	10.9	 	Loan and Security Agreement dated April 12, 2004, as amended, between Comerica Bank, Bridgepoint Education Real Estate Holdings, LLC and the registrant.	 	 	 	S-1	 	10.9	 	March 20, 2009	
 	10.10	 	Grid Note dated March 12, 2007 between Warburg Pincus Private Equity VIII, L.P. and the registrant.	 	 	 	S-1	 	10.10	 	December 22, 2008	
 	10.11	 	Nominating Agreement between Warburg Pincus and the registrant.	 	 	 	S-1	 	10.11	 	February 17, 2009	
 	10.12	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Robert Hartman.	 	 	 	S-1	 	10.12	 	February 17, 2009	
 	10.13†	 	Amended and Restated 2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Charlene Dackerman, Jane McAuliffe, Ross Woodard and other non-executive employees.	 	 	 	S-1	 	10.13	 	March 2, 2009	
 	10.14†	 	Amended and Restated 2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Andrew S. Clark, Daniel J. Devine, Rodney T. Sheng and Christopher L. Spohn.	 	 	 	S-1	 	10.14	 	March 2, 2009	
 	10.15†	 	Office Lease dated January 31, 2008 between Kilroy Realty, L.P. and the registrant related to the premises located at 13480 Evening Creek, San Diego, California.	 	 	 	S-1	 	10.15	 	April 13, 2009	
 	10.16†	 	Office Lease and Sublease Agreements related to the premises located at 13500 Evening Creek, San Diego, California.	 	 	 	S-1	 	10.16	 	April 13, 2009	
 	10.17†	 	Standard Form Modified Gross Office Lease dated October 22, 2008, and addendum, between Sunroad Centrum Office I, L.P. and the registrant related to the premises located at 8620 Spectrum Center Lane, San Diego, California.	 	 	 	S-1	 	10.17	 	March 2, 2009	
 	10.18†	 	Office Lease and Amendments related to the University of the Rockies Campus located in Colorado Springs, Colorado.	 	 	 	S-1	 	10.18	 	March 2, 2009	
 	10.19†	 	Commercial Net Lease dated January 26, 2007, as amended, between Frye Development, Inc. and Center Leaf Partners, LLC.	 	 	 	S-1	 	10.19	 	March 2, 2009	
 	10.20†	 	Blackboard License and Services Agreement dated December 23, 2003, as amended, between Blackboard, Inc. and Ashford University, LLC.	 	 	 	S-1	 	10.20	 	March 30, 2009	
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 	 	 	 	Incorporation by Reference	
Exhibit
Number	 	Description of Document	 	Filed
Herewith	 	Form	 	Exhibit
No.	 	Date Filed	
 	10.21†	 	Software License Agreement and Campuscare Support Agreement between Campus Management Corp. and the registrant.	 	 	 	S-1	 	10.21	 	March 30, 2009	
 	10.22†	 	General Services Agreement dated January 1, 2009 between Affiliated Computer Services, Inc. and Ashford University, LLC.	 	 	 	S-1	 	10.22	 	April 13, 2009	
 	10.23†	 	General Services Agreement dated January 1, 2009 between Affiliated Computer Services, Inc. and University of the Rockies, LLC.	 	 	 	S-1	 	10.23	 	April 13, 2009	
 	10.24	 	Employment Agreement between Andrew S. Clark and the registrant.	 	 	 	S-1	 	10.24	 	March 20, 2009	
 	10.25	 	Employment Agreement between Daniel J. Devine and the registrant.	 	 	 	S-1	 	10.25	 	March 20, 2009	
 	10.26	 	Employment Agreement between Christopher L. Spohn and the registrant.	 	 	 	S-1	 	10.26	 	March 20, 2009	
 	10.27	 	Employment Agreement between Rodney T. Sheng and the registrant.	 	 	 	S-1	 	10.27	 	March 20, 2009	
 	10.28	 	Offer Letter to Diane Thompson.	 	 	 	S-1	 	10.28	 	March 20, 2009	
 	10.29	 	Offer Letter to Thomas Ashbrook.	 	 	 	S-1	 	10.29	 	March 20, 2009	
 	10.30	 	Offer Letter to Dale Crandall.	 	 	 	S-1	 	10.30	 	March 20, 2009	
 	10.31	 	Executive Severance Plan.	 	 	 	S-1	 	10.31	 	March 20, 2009	
 	10.32	 	Form of Severance Agreement under the Executive Severance Plan.	 	 	 	S-1	 	10.32	 	March 20, 2009	
 	10.33	 	Amendment to Stock Option Award under Amended and Restated 2005 Stock Incentive Plan.	 	 	 	S-1	 	10.33	 	March 30, 2009	
 	10.34†	 	Office Lease dated June 26, 2009 with Kilroy Realty, L.P. related to the premises located at 13520 Evening Creek, San Diego, California.	 	 	 	10-Q	 	10.1	 	August 11, 2009	
 	10.35	 	Ninth Amendment to Loan and Security Agreement with Comerica Bank dated May 1, 2009.	 	 	 	10-Q	 	10.2	 	August 11, 2009	
 	10.36	 	Tenth Amendment to Loan and Security Agreement with Comerica Bank dated June 22, 2009.	 	 	 	10-Q	 	10.3	 	August 11, 2009	
 	10.37†	 	Addenda to Software License Agreement with Campus Management Corp. dated June 29, 2009.	 	 	 	10-Q	 	10.4	 	August 11, 2009	
 	21.1	 	List of subsidiaries of the registrant.	 	X	 	 	 	 	 	 	
 	23.1	 	Consent of Wilson Sonsini Goodrich & Rosati, PC (included in Exhibit 5.1).	 	X	 	 	 	 	 	 	
 	23.2	 	Consent of Independent Registered Public Accounting Firm.	 	X	 	 	 	 	 	 	
 	24.1	 	Power of Attorney (included on signature page).	 	X	 	 	 	 	 	 	

†
Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the non-public information has been filed separately with the SEC.
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(b)
Financial Statement Schedules.
              Below is Schedule II—Valuation and Qualifying Accounts. All other consolidated financial statement schedules are omitted because they are not applicable or the information is included in the consolidated financial statements or related notes.
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
To the Board of Directors and Stockholders of Bridgepoint Education, Inc.:
              Our audits of the consolidated financial statements referred to in our report dated March 19, 2009, except for Note 19, "Subsequent Events: Reverse Stock Split," which is as of March 31, 2009, appearing in this registration statement on Form S-1 of Bridgepoint Education, Inc. also included an audit of the financial statement schedule listed in Schedule II of this registration statement on Form S-1. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Diego, California
March 19, 2009, except for Note 19, "Subsequent Events: Reverse Stock Split," which is as of March 31, 2009.
SCHEDULE II
Valuation and Qualifying Accounts

 	 	Balance at
Beginning of
Year	 	Expense	 	Deductions(1)	 	Balance at
End of
Year	 	
 	 	(In thousands)	 	
Allowance for doubtful accounts receivable:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2006	 	$	973	 	 	971	 	 	(11	)	$	1,933	 	
Year ended December 31, 2007	 	$	1,933	 	 	4,731	 	 	(648	)	$	6,016	 	
Year ended December 31, 2008	 	$	6,016	 	 	13,431	 	 	(1,201	)	$	18,246	 	
Valuation allowance for deferred tax assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2006	 	$	6,697	 	 	1,907	 	 	—	 	$	8,604	 	
Year ended December 31, 2007	 	$	8,604	 	 	—	 	 	(1,321	)	$	7,283	 	
Year ended December 31, 2008	 	$	7,283	 	 	—	 	 	(7,283	)	 	—	 	

(1)
Deductions represent accounts written off, net of recoveries or reversals of the allowance for deferred tax assets.
Item 17.    Undertakings
              The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denomination and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
              Insofar as indemnification for liabilities arising under the Securities Act of 1933 (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
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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, 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 Securities Act and will be governed by the final adjudication of such issues.
              The undersigned registrant hereby undertakes that:
(1)
for purposes of determining any liability under the Securities Act, 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; and

(2)
for the purpose of determining any liability under the Securities Act, 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.
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 SIGNATURES
              Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Diego, State of California, on August 26, 2009.

 	BRIDGEPOINT EDUCATION, INC.	

By:	
 	
/s/ ANDREW S. CLARK

Andrew S. Clark
 CEO and President	

 POWER OF ATTORNEY
              Each person whose signature appears below constitutes and appoints, jointly and severally, Andrew S. Clark and Daniel J. Devine and each one of them acting individually, his true and lawful attorneys-in-fact and agents, each with full power of substitution, for his and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement related to the offering contemplated by this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done with respect to the offering of securities contemplated by this registration statement, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
              Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name 	 	Title 	 	Date 	

 	

 	
/s/ ANDREW S. CLARK

Andrew S. Clark	 	CEO and President (Principal Executive Officer) and a Director	 	August 26, 2009	

/s/ DANIEL J. DEVINE

Daniel J. Devine	
 	
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	
 	
August 26, 2009	

/s/ RYAN CRAIG

Ryan Craig	
 	
Director	
 	
August 26, 2009	

/s/ DALE CRANDALL

Dale Crandall	
 	
Director	
 	
August 26, 2009	
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Name 	 	Title 	 	Date 	

 	

 	
/s/ PATRICK T. HACKETT

Patrick T. Hackett	 	Director	 	August 26, 2009	

/s/ ROBERT HARTMAN

Robert Hartman	
 	
Director	
 	
August 26, 2009	

/s/ ADARSH SARMA

Adarsh Sarma	
 	
Director	
 	
August 26, 2009	
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 INDEX TO EXHIBITS

 	 	 	 	Incorporation by Reference	
Exhibit Number	 	Description of Document	 	Filed Herewith	 	Form	 	Exhibit No.	 	Date Filed	
1.1	 	Form of Underwriting Agreement.	 	X	 	 	 	 	 	 	
2.1	 	Purchase and Sale Agreement dated December 3, 2004, as amended, among The Franciscan University of the Prairies, the Sisters of St. Francis and the registrant.	 	 	 	S-1	 	2.1	 	February 17, 2009	
2.2	 	Asset Purchase and Sale Agreement dated September 12, 2007 between the Colorado School of Professional Psychology and the registrant.	 	 	 	S-1	 	2.2	 	February 17, 2009	
3.1	 	Fifth Amended and Restated Certificate of Incorporation.	 	 	 	10-Q	 	3.1	 	May 21, 2009	
3.2	 	Second Amended and Restated Bylaws of the registrant.	 	 	 	S-1	 	3.4	 	March 20, 2009	
4.1	 	Specimen of Stock Certificate.	 	 	 	S-1	 	4.1	 	March 30, 2009	
4.2	 	Registration Rights Agreement dated November 26, 2003 among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	 	 	 	S-1	 	4.2	 	December 22, 2008	
4.3	 	Stockholders Agreement dated November 26, 2003, as amended to date, among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	 	 	 	S-1	 	4.3	 	April 13, 2009	
4.4	 	Second Amended and Restated Registration Rights Agreement dated August 26, 2009 among the registrant and the other persons named therein.	 	X	 	 	 	 	 	 	
4.5	 	Form of Warrant A.	 	 	 	S-1	 	4.5	 	March 20, 2009	
4.6	 	Form of Warrant B.	 	 	 	S-1	 	4.6	 	March 20, 2009	
4.7	 	Form of Warrant C.	 	 	 	S-1	 	4.7	 	March 20, 2009	
4.8	 	Form of Warrant D.	 	 	 	S-1	 	4.8	 	March 20, 2009	
4.9	 	Form of Warrant E.	 	 	 	S-1	 	4.9	 	March 20, 2009	
4.10	 	Form of Warrant F.	 	 	 	S-1	 	4.10	 	March 20, 2009	
4.11	 	Form of Warrant G.	 	 	 	S-1	 	4.11	 	March 20, 2009	
4.12	 	Table of Warrants Granted.	 	 	 	S-1	 	4.12	 	March 20, 2009	
4.13	 	Limited Waiver of Underwriting Agreement dated August 19, 2009.	 	X	 	 	 	 	 	 	
5.1	 	Opinion of Wilson Sonsini Goodrich & Rosati, PC	 	X	 	 	 	 	 	 	
5.2	 	Opinion of Richards, Layton & Finger P.A.	 	X	 	 	 	 	 	 	
10.1	 	Amended and Restated 2005 Stock Incentive Plan.	 	 	 	S-1	 	10.1	 	December 22, 2008	
10.2	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Founders.	 	 	 	S-1	 	10.2	 	February 17, 2009	
10.3	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Charlene Dackerman, Jane McAuliffe, Ross Woodard and other non-executive employees.	 	 	 	S-1	 	10.3	 	February 17, 2009	
10.4	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Andrew S. Clark, Daniel J. Devine, Rodney T. Sheng and Christopher L. Spohn.	 	 	 	S-1	 	10.4	 	February 17, 2009	
10.5	 	Amended and Restated 2009 Stock Incentive Plan.	 	 	 	S-1	 	10.5	 	April 1, 2009	
10.6	 	Amended and Restated Employee Stock Purchase Plan.	 	 	 	S-1	 	10.6	 	April 1, 2009	

Table of Contents

 	 	 	 	Incorporation by Reference	
Exhibit Number	 	Description of Document	 	Filed Herewith	 	Form	 	Exhibit No.	 	Date Filed	
10.7	 	Independent Contractor Agreement, as amended, between Robert Hartman and the registrant.	 	 	 	S-1	 	10.7	 	December 22, 2008	
10.8	 	Form of Indemnification Agreement.	 	 	 	S-1	 	10.8	 	December 22, 2008	
10.9	 	Loan and Security Agreement dated April 12, 2004, as amended, between Comerica Bank, Bridgepoint Education Real Estate Holdings, LLC and the registrant.	 	 	 	S-1	 	10.9	 	March 20, 2009	
10.10	 	Grid Note dated March 12, 2007 between Warburg Pincus Private Equity VIII, L.P. and the registrant.	 	 	 	S-1	 	10.10	 	December 22, 2008	
10.11	 	Nominating Agreement between Warburg Pincus and the registrant.	 	 	 	S-1	 	10.11	 	February 17, 2009	
10.12	 	2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Robert Hartman.	 	 	 	S-1	 	10.12	 	February 17, 2009	
10.13†	 	Amended and Restated 2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Charlene Dackerman, Jane McAuliffe, Ross Woodard and other non-executive employees.	 	 	 	S-1	 	10.13	 	March 2, 2009	
10.14†	 	Amended and Restated 2005 Stock Incentive Plan—Form of Stock Option Agreement and Notice of Option Grant for Andrew S. Clark, Daniel J. Devine, Rodney T. Sheng and Christopher L. Spohn.	 	 	 	S-1	 	10.14	 	March 2, 2009	
10.15†	 	Office Lease dated January 31, 2008 between Kilroy Realty, L.P. and the registrant related to the premises located at 13480 Evening Creek, San Diego, California.	 	 	 	S-1	 	10.15	 	April 13, 2009	
10.16†	 	Office Lease and Sublease Agreements related to the premises located at 13500 Evening Creek, San Diego, California.	 	 	 	S-1	 	10.16	 	April 13, 2009	
10.17†	 	Standard Form Modified Gross Office Lease dated October 22, 2008, and addendum, between Sunroad Centrum Office I, L.P. and the registrant related to the premises located at 8620 Spectrum Center Lane, San Diego, California.	 	 	 	S-1	 	10.17	 	March 2, 2009	
10.18†	 	Office Lease and Amendments related to the University of the Rockies Campus located in Colorado Springs, Colorado.	 	 	 	S-1	 	10.18	 	March 2, 2009	
10.19†	 	Commercial Net Lease dated January 26, 2007, as amended, between Frye Development, Inc. and Center Leaf Partners, LLC.	 	 	 	S-1	 	10.19	 	March 2, 2009	
10.20†	 	Blackboard License and Services Agreement dated December 23, 2003, as amended, between Blackboard, Inc. and Ashford University, LLC.	 	 	 	S-1	 	10.20	 	March 30, 2009	
10.21†	 	Software License Agreement and Campuscare Support Agreement between Campus Management Corp. and the registrant.	 	 	 	S-1	 	10.21	 	March 30, 2009	
10.22†	 	General Services Agreement dated January 1, 2009 between Affiliated Computer Services, Inc. and Ashford University, LLC.	 	 	 	S-1	 	10.22	 	April 13, 2009	
10.23†	 	General Services Agreement dated January 1, 2009 between Affiliated Computer Services, Inc. and University of the Rockies, LLC.	 	 	 	S-1	 	10.23	 	April 13, 2009	
10.24	 	Employment Agreement between Andrew S. Clark and the registrant.	 	 	 	S-1	 	10.24	 	March 20, 2009	

Table of Contents

 	 	 	 	Incorporation by Reference	
Exhibit Number	 	Description of Document	 	Filed Herewith	 	Form	 	Exhibit No.	 	Date Filed	
10.25	 	Employment Agreement between Daniel J. Devine and the registrant.	 	 	 	S-1	 	10.25	 	March 20, 2009	
10.26	 	Employment Agreement between Christopher L. Spohn and the registrant.	 	 	 	S-1	 	10.26	 	March 20, 2009	
10.27	 	Employment Agreement between Rodney T. Sheng and the registrant.	 	 	 	S-1	 	10.27	 	March 20, 2009	
10.28	 	Offer Letter to Diane Thompson.	 	 	 	S-1	 	10.28	 	March 20, 2009	
10.29	 	Offer Letter to Thomas Ashbrook.	 	 	 	S-1	 	10.29	 	March 20, 2009	
10.30	 	Offer Letter to Dale Crandall.	 	 	 	S-1	 	10.30	 	March 20, 2009	
10.31	 	Executive Severance Plan.	 	 	 	S-1	 	10.31	 	March 20, 2009	
10.32	 	Form of Severance Agreement under the Executive Severance Plan.	 	 	 	S-1	 	10.32	 	March 20, 2009	
10.33	 	Amendment to Stock Option Award under Amended and Restated 2005 Stock Incentive Plan.	 	 	 	S-1	 	10.33	 	March 30, 2009	
10.34†	 	Office Lease dated June 26, 2009 with Kilroy Realty, L.P. related to the premises located at 13520 Evening Creek North, San Diego, California.	 	 	 	10-Q	 	10.1	 	August 11, 2009	
10.35†	 	Second Amendment to Office Lease dated June 3, 2009 with Kilroy Realty L.P. related to the premises located at 13480 Evening Creek Drive North, Sand Diego, California.	 	 	 	10-Q	 	10.2	 	August 11, 2009	
10.36	 	Ninth Amendment to Loan and Security Agreement with Comerica Bank dated May 1, 2009.	 	 	 	10-Q	 	10.3	 	August 11, 2009	
10.37	 	Tenth Amendment to Loan and Security Agreement with Comerica Bank dated June 22, 2009.	 	 	 	10-Q	 	10.4	 	August 11, 2009	
10.38†	 	Addenda to Software License Agreement with Campus Management Corp. dated June 29, 2009.	 	 	 	10-Q	 	10.5	 	August 11, 2009	
21.1	 	List of subsidiaries of the registrant.	 	X	 	 	 	 	 	 	
23.1	 	Consent of Wilson Sonsini Goodrich & Rosati, PC (included in Exhibit 5.1).	 	X	 	 	 	 	 	 	
23.2	 	Consent of Independent Registered Public Accounting Firm.	 	X	 	 	 	 	 	 	
24.1	 	Power of Attorney (included on signature page).	 	X	 	 	 	 	 	 	

†
Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the non-public information has been filed separately with the SEC.

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 Exhibit 1.1

BRIDGEPOINT EDUCATION, INC.
(a Delaware corporation)
[                        ] Shares of Common Stock
PURCHASE AGREEMENT
Dated:    •    , 2009

BRIDGEPOINT EDUCATION, INC.
(a Delaware corporation)
[                        ] Shares of Common Stock
(Par Value $0.01 Per Share)
PURCHASE AGREEMENT
    •    , 2009

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated
J.P. Morgan Securities Inc.
    as Representatives of the several Underwriters	
c/o	 	Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated	
4 World Financial Center
New York, New York 10080	
Ladies and Gentlemen:
        Each stockholder of Bridgepoint Education Inc., a Delaware corporation (the "Company"), listed on Annex I hereto (each a "Selling Stockholder" and collectively, the "Selling Stockholders"), confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch and J.P. Morgan Securities Inc. ("J.P. Morgan") are acting as representatives (in such capacity, the "Representatives"), with respect to the sale by the Selling Stockholders, acting severally and not jointly, and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of the Company's Common Stock, par value $0.01 per share ("Common Stock"), set forth in said Schedule A, and with respect to the grant by the Selling Stockholders, acting severally and not jointly, to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [    •    ] additional shares of Common Stock to cover overallotments, if any. The aforesaid [                        ] shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the [    •    ] shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities."
        The Company and the Selling Stockholders understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.
        All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in any Registration Statement, any preliminary prospectus or the Final Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information (if any) which is incorporated by reference in or otherwise deemed by the Rules and Regulations to be a part of or included in any Registration Statement, any preliminary prospectus or the Final Prospectus, as the case may be.
         SECTION 1.    Representations and Warranties .    
        (a)     Representations and Warranties by the Company.     The Company represents and warrants to, and agrees with, the several Underwriters that:
        (i)     Filing and Effectiveness of Registration Statement; Certain Defined Terms.     The Company has filed with the Commission a registration statement on Form S-1 (No. 333-    •    ) covering the registration of the Securities under the Act, including a related preliminary prospectus or prospectuses. At any particular time, this initial registration statement, in the form then on file

with the Commission, including all material then incorporated by reference therein, all information contained in the registration statement (if any) pursuant to Rule 462(b) and then deemed to be a part of the initial registration statement, and all 430A Information and all 430C Information, that in any case has not then been superseded or modified, shall be referred to as the "Initial Registration Statement." The Company may also have filed, or may file with the Commission, a Rule 462(b) registration statement covering the registration of Securities. At any particular time, this Rule 462(b) registration statement, in the form then on file with the Commission, including the contents of the Initial Registration Statement incorporated by reference therein and including all 430A Information and all 430C Information, that in any case has not then been superseded or modified, shall be referred to as the "Additional Registration Statement."
        As of the time of execution and delivery of this Agreement, the Initial Registration Statement has been declared effective under the Act and is not proposed to be amended. Any Additional Registration Statement has or will become effective upon filing with the Commission pursuant to Rule 462(b) and is not proposed to be amended. The Securities all have been or will be duly registered under the Act pursuant to the Initial Registration Statement and, if applicable, the Additional Registration Statement.
        For purposes of this Agreement:
        "430A Information", with respect to any registration statement, means information included in a prospectus and retroactively deemed to be a part of such registration statement pursuant to Rule 430A(b).
        "430C Information", with respect to any registration statement, means information included in a prospectus then deemed to be a part of such registration statement pursuant to Rule 430C.
        "Act" means the Securities Act of 1933, as amended.
        "Applicable Time" means [    •    ] [am][pm] (Eastern time) on the date of this Agreement.
        "Closing Time" has the meaning defined in Section 2(c) hereof.
        "Commission" means the United States Securities and Exchange Commission.
        "EDGAR" means the Commission's Electronic Data Gathering, Analysis and Retrieval system.
        "Effective Time" with respect to the Initial Registration Statement or, if filed prior to the execution and delivery of this Agreement, the Additional Registration Statement, means the date and time as of which such Registration Statement was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c). If an Additional Registration Statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "Effective Time" with respect to such Additional Registration Statement means the date and time as of which such Registration Statement is filed and becomes effective pursuant to Rule 462(b).
        "Exchange Act" means the Securities Exchange Act of 1934, as amended.
        "Final Prospectus" means the Statutory Prospectus that discloses the public offering price, other 430A Information and other final terms of the Securities and otherwise satisfies Section 10(a) of the Act.
        "General Use Issuer Free Writing Prospectus" means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors, as evidenced by its being so specified in Schedule D to this Agreement.
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        "Issuer Free Writing Prospectus" means any "issuer free writing prospectus," as defined in Rule 433, relating to the Securities in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company's records pursuant to Rule 433(g).
        "Limited Use Issuer Free Writing Prospectus" means any Issuer Free Writing Prospectus that is not a General Use Issuer Free Writing Prospectus.
        The Initial Registration Statement and the Additional Registration Statement are referred to collectively as the "Registration Statements" and individually as a "Registration Statement". A "Registration Statement" with reference to a particular time means the Initial Registration Statement and any Additional Registration Statement as of such time. A "Registration Statement" without reference to a time means such Registration Statement as of its Effective Time. For purposes of the foregoing definitions, 430A Information with respect to a Registration Statement shall be considered to be included in such Registration Statement as of the time specified in Rule 430A.
        "Rule 424B" means Rule 424B of the Rules and Regulations under the Act.
        "Rule 430A" means Rule 430A of the Rules and Regulations under the Act.
        "Rule 430C" means Rule 430C of the Rules and Regulations of the Act.
        "Rules and Regulations" means the rules and regulations of the Commission.
        "Securities Laws" means, collectively, the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), the Act, the Exchange Act, the Rules and Regulations, the auditing principles, rules, standards and practices applicable to auditors of "issuers" (as defined in Sarbanes-Oxley) promulgated or approved by the Public Company Accounting Oversight Board and, as applicable, the rules of the New York Stock Exchange ("Exchange Rules"), the National Association of Securities Dealers or the Financial Industry Regulation Authority.
        "Statutory Prospectus" with reference to a particular time means the prospectus included in a Registration Statement immediately prior to that time, including any document incorporated by reference therein and any 430A Information or 430C Information with respect to such Registration Statement. For purposes of the foregoing definition, 430A Information shall be considered to be included in the Statutory Prospectus as of the actual time that form of prospectus is filed with the Commission pursuant to Rule 424(b) or Rule 462(c) and not retroactively.
        Unless otherwise specified, a reference to a "rule" is to the indicated rule under the Act.
        (ii)     Compliance with Securities Act Requirements.     (i) (A) At their respective Effective Times, (B) on the date of this Agreement and (C) at the Closing Time and on each Date of Delivery, each of the Initial Registration Statement and the Additional Registration Statement (if any) conformed and will conform in all respects to the requirements of the Act, (ii) on its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Time of the Additional Registration Statement in which the Final Prospectus is included, and at the Closing Time and on each Date of Delivery, the Final Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) on the date of this Agreement, at their respective Effective Times or issue dates and at the Closing Time and on each Date of Delivery, each Registration Statement, the Final Prospectus, any Statutory Prospectus, any prospectus wrapper and any Issuer Free Writing Prospectus complied or comply in all material respects, and such documents and any further amendments or supplements thereto will comply in all material
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respects, with any applicable laws or regulations of foreign jurisdictions in which the Final Prospectus, any Statutory Prospectus, any prospectus wrapper or any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed. The preceding sentence does not apply to statements in or omissions from any such document based upon written information furnished to the Company by any Selling Stockholder (other than a Selling Stockholder who is a director or officer of the Company) or by any Underwriter through the Representatives, in either case specifically for use therein.
        (iii)     Ineligible Issuer Status.     (i) At the time of the initial filing of the Initial Registration Statement and (ii) at the date of this Agreement, the Company was not and is not an "ineligible issuer," as defined in Rule 405, including (x) the Company or any other subsidiary in the preceding three years not having been convicted of a felony or misdemeanor or having been made the subject of a judicial or administrative decree or order as described in Rule 405 and (y) the Company in the preceding three years not having been the subject of a bankruptcy petition or insolvency or similar proceeding, not having had a registration statement be the subject of a proceeding under Section 8 of the Act and not being the subject of a proceeding under Section 8A of the Act in connection with the offering of the Securities, all as described in Rule 405.
        (iv)     General Disclosure Package.     As of the Applicable Time, neither (i) the General Use Issuer Free Writing Prospectus(es) issued at or prior to the Applicable Time, the preliminary prospectus, dated [    •    ], 2009 and the other information, if any, stated in Schedule D to this Agreement to be included in the General Disclosure Package, all considered together (collectively, the "General Disclosure Package"), nor (ii) any individual Limited Use Issuer Free Writing Prospectus, when considered together with the General Disclosure Package, included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from any Statutory Prospectus or any Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Company by any Selling Stockholder (other than a Selling Stockholder who is a director or officer of the Company) or by any Underwriter through the Representatives, in either case specifically for use therein.
        (v)     Issuer Free Writing Prospectuses.     Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Securities or until any earlier date that the Company notified or notifies the Representatives as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in any Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information then contained in any Registration Statement or as a result of which such Issuer Free Writing Prospectus, if republished immediately following such event or development, would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (i) the Company has promptly notified or will promptly notify the Representatives and (ii) the Company has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
        (vi)     Good Standing of the Company.     (x) The Company has been duly incorporated and is existing and in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the General Disclosure Package; and (y) the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the
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conduct of its business requires such qualification, except in the case of clause (y) where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the condition (financial or other), business, properties, prospects or results of operations of the Company and its subsidiaries taken as a whole ("Material Adverse Effect").
        (vii)     Subsidiaries.     Each subsidiary of the Company has been duly formed as a limited liability company and is existing and in good standing under the laws of the jurisdiction of its organization, with limited liability company power and authority to own its properties and conduct its business as described in the General Disclosure Package; and each subsidiary of the Company is duly registered to do business as a foreign limited liability company in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such registration, except, in each case, where the failure to be so registered or in good standing would not, individually or in the aggregate, have a Material Adverse Effect; all of the issued and outstanding membership interests of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable; and the membership interests of each subsidiary owned by the Company, directly or through subsidiaries, are owned free from liens, encumbrances and defects.
        (viii)     Securities.     The Securities and all other outstanding shares of capital stock of the Company have been duly authorized; the authorized equity capitalization of the Company is as set forth in the General Disclosure Package; all outstanding shares of capital stock of the Company are, or in the case of Securities to be issued upon the exercise of options and warrants by Selling Stockholders, when the Securities have been delivered and paid for in accordance with the terms of such options and warrants will be, at the Closing Time and on each Date of Delivery, validly issued, fully paid and nonassessable and will conform to the information in the General Disclosure Package and to the description of such Securities contained in the Final Prospectus; the stockholders of the Company have no preemptive rights with respect to the Securities; and none of the outstanding shares of capital stock of the Company have been issued in violation of any preemptive or similar rights of any security holder.
        (ix)     No Finder's Fee.     Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering.
        (x)     Registration Rights.     (A) Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act (collectively, "registration rights"); and (B) each Selling Stockholder has agreed not to exercise such rights until after the expiration of the restricted period referred to in Section 3(i) hereof, other than the exercise of any such rights by a Selling Stockholder with respect to the Securities sold by such Selling Stockholder to the Underwriters pursuant to this Agreement.
        (xi)     Listing.     The Securities are listed on The New York Stock Exchange.
        (xii)     Absence of Further Requirements.     No consent, approval, authorization, or order of, or filing or registration with, any person (including any governmental agency or body, any accrediting agency or any court) is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement in connection with the sale of the Securities,
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except such as have been obtained, or made and such as may be required under state securities laws.
        (xiii)     Title to Property.     Except as disclosed in the General Disclosure Package, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, charge, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them and, except as disclosed in the General Disclosure Package, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no terms or provisions that would materially interfere with the use made or to be made thereof by them.
        (xiv)     Absence of Defaults and Conflicts Resulting from Transaction.     The execution, delivery and performance of this Agreement, and the sale of the Securities by the Selling Stockholders will not result in a breach or violation of any of the terms and provisions of, or constitute a default or a Debt Repayment Triggering Event (as defined below) under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (i) the charter or by-laws of the Company or the articles of organization or operating agreement of any of its subsidiaries, (ii) any statute, rule, regulation or order of any governmental agency or body, any accrediting agency or any court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, including, without limitation, the Higher Education Act of 1965, as amended (the "HEA"), or (iii) any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties of the Company or any of its subsidiaries is subject except, in the cases of clauses (ii) and (iii) such breaches, violations, defaults or impositions (other than a Debt Repayment Triggering Event) that would not, individually or in the aggregate, result in a Material Adverse Effect; a "Debt Repayment Triggering Event" means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture, or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.
        (xv)     Absence of Existing Defaults and Conflicts.     Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default (or with the giving of notice or lapse of time would be in default) under any existing obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument to which any of them is a party or by which any of them is bound or to which any of the properties of any of them is subject, except such defaults that would not, individually or in the aggregate, result in a Material Adverse Effect.
        (xvi)     Authorization of Agreement.     This Agreement has been duly authorized, executed and delivered by the Company.
        (xvii)     Possession of Licenses and Permits.     The Company and its subsidiaries (A) possess, and are in compliance, in all material respects, with the terms of, all certificates, authorizations, accreditations, franchises, licenses and permits ("Licenses") necessary or material to the conduct of the business now conducted or proposed in the General Disclosure Package to be conducted by them, including, without limitation, all authorizations required to participate in federal financial aid programs under Title IV of the HEA, and (B) have not received any notice of proceedings relating to the revocation or modification of any Licenses that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect.
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        (xviii)     Absence of Labor Dispute.     No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent that would reasonably be expected to have a Material Adverse Effect.
        (xix)     Possession of Intellectual Property.     The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect.
        (xx)     Environmental Laws.     Except as disclosed in the General Disclosure Package, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim.
        (xxi)     Accurate Disclosure.     The statements in the General Disclosure Package and the Final Prospectus under the headings "Material U.S. Federal Tax Consequences to Non-U.S. Holders of Common Stock," "Description of Capital Stock," "Risk Factors-Risks Related to the Extensive Regulation of Our Business" and "Regulation," insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings and present the information required to be shown.
        (xxii)     Absence of Manipulation.     The Company has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
        (xxiii)     Statistical and Market-Related Data.     Any third-party statistical and market-related data included or incorporated by reference in a Registration Statement, a Statutory Prospectus or the General Disclosure Package are based on or derived from sources that the Company believes to be reliable and accurate.
        (xxiv)     Internal Controls.     Except as set forth in the General Disclosure Package, the Company maintains a system of internal controls, including, but not limited to, disclosure controls and procedures, internal controls over accounting matters and financial reporting, an internal audit function and legal and regulatory compliance controls (collectively, "Internal Controls") that comply with the Securities Laws and are sufficient to provide reasonable assurances that (i) the Company maintains records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets, (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles, (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements and (iv) information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported,
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within the time periods specified in the Commission's rules and forms. The Internal Controls are overseen by the Audit Committee (the "Audit Committee") of the Company's Board of Directors (the "Board") in accordance with Exchange Rules. Except as contemplated in the General Disclosure Package, the Company has not publicly disclosed or reported to the Audit Committee or the Board, and within the next 135 days the Company does not reasonably expect to publicly disclose or report to the Audit Committee or the Board, a significant deficiency, material weakness, change in Internal Controls or fraud involving management or other employees who have a significant role in Internal Controls (each, an "Internal Control Event"), any violation of, or failure to comply with, the Securities Laws, or any matter which, if determined adversely, would have a Material Adverse Effect.
        (xxv)     Absence of Accounting Issues.     A member of the Audit Committee has confirmed to the Chief Executive Officer, Chief Financial Officer or General Counsel that, except as set forth in the General Disclosure Package, the Audit Committee is not reviewing or investigating, and neither the Company's independent auditors nor its internal auditors have recommended that the Audit Committee review or investigate, (i) adding to, deleting, changing the application of, or changing the Company's disclosure with respect to, any of the Company's material accounting policies; (ii) any matter which could be reasonably likely to result in a restatement of the Company's financial statements for any annual or interim period during the current or prior three fiscal years; or (iii) any Internal Control Event.
        (xxvi)     Sarbanes-Oxley.     The Company is in compliance with all applicable provisions of Sarbanes-Oxley and the applicable rules and regulations thereunder.
        (xxvii)     Litigation.     There are no pending actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Securities; and no such actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) are threatened or, to the Company's knowledge, contemplated.
        (xxviii)     Financial Statements.     The financial statements included in each Registration Statement and the General Disclosure Package present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; all non-GAAP financial information included in the Registration Statement and the General Disclosure Package complies with the requirements of Regulation G and Item 10 of Regulation S-K under the Act; the schedules included in each Registration Statement present fairly the information required to be stated therein; there are no pro forma or as adjusted financial statements which are required to be included in the Registration Statement and the General Disclosure Package in accordance with Regulation S-X under the Act; and there are no off-balance sheet arrangements (as defined in Regulation S-K under the Act, Item 303(a)(4)(ii)).
        (xxix)     No Material Adverse Change in Business.     Except as disclosed in the General Disclosure Package, since the end of the period covered by the latest audited financial statements included in the General Disclosure Package (i) there has been no change, nor any development or event involving a prospective change, in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries, taken as a whole, that is material and adverse, (ii) except as disclosed in or contemplated by the General Disclosure
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Package, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock and (iii) except as has had, or that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or as disclosed in or contemplated by the General Disclosure Package, there has been no change in the capital stock, short-term indebtedness, long-term indebtedness, net current assets or net assets of the Company and its subsidiaries.
        (xxx)     Accounting Policies.     The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies and Estimates" in each Registration Statement and the General Disclosure Package accurately and fairly describes (A) accounting policies which the Company believes are the most important in the portrayal of the financial condition and results of operations of the Company and its consolidated subsidiaries and which require management's most difficult, subjective or complex judgments ("Critical Accounting Policies"), (B) judgments and uncertainties affecting the application of Critical Accounting Policies, and (C) to the extent required by the Rules and Regulations, explanations of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
        (xxxi)     Disclosure of Material Trends.     To the extent required by the Rules and Regulations, the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" in the Registration Statement and the General Disclosure Package accurately and fairly describes material trends, demands, commitments, events, uncertainties and risks, and the potential effects thereof, that the Company believes would materially affect its liquidity and are reasonably likely to occur.
        (xxxii)     Investment Company Act.     The Company is not an "investment company" as defined in the Investment Company Act of 1940 (the "Investment Company Act").
        (xxxiii)     Absence of Unlawful Influence.     The Company has caused the Underwriters to offer or sell, any Securities to any person with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
        (xxxiv)     Change of Control.     The execution, delivery and performance of this Agreement and the sale of the Securities by the Selling Stockholders will not constitute a change in ownership resulting in a "change of control" of the Company pursuant to the applicable regulations promulgated under the HEA or any applicable statute or regulation.
        (xxxv)     Taxes.     The Company and its subsidiaries have filed all federal, state, local and non-U.S. tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not have a Material Adverse Effect); and, except as set forth in the General Disclosure Package, the Company and its subsidiaries have paid all taxes (including any assessments, fines or penalties) required to be paid by them, except for any such taxes, assessments, fines or penalties currently being contested in good faith or as would not, individually or in the aggregate, have a Material Adverse Effect.
        (xxxvi)     Insurance.     The Company and its subsidiaries are insured by insurers with appropriately rated claims paying abilities against such losses and risks and in such amounts as are prudent and customary for the businesses in which they are engaged; all policies of insurance insuring the Company or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to
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which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as set forth in or contemplated in the General Disclosure Package; and the Company has obtained or will obtain directors' and officer's insurance in such amounts as is customary for a public company of comparable size in its industry.
        (xxxvii)     Compliance with Various Laws and Regulations.     Each of the Company, its subsidiaries, its affiliates and any of their respective officers, directors, supervisors, managers, agents, or employees, has not violated, and each's participation in the offering will not violate, any of the following laws: (a) anti-bribery laws, including but not limited to, any applicable law, rule, or regulation of any locality, including but not limited to any law, rule, or regulation promulgated to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed December 17, 1997, including the U.S. Foreign Corrupt Practices Act of 1977 or any other law, rule or regulation of similar purpose and scope, (b) anti-money laundering laws, including but not limited to, applicable federal, state, international, foreign or other laws, regulations or government guidance regarding anti-money laundering, including, without limitation, Title 18 U.S. Code section 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur, all as amended, and any Executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder or (c) laws and regulations imposing U.S. economic sanctions measures, including, but not limited to, the International Emergency Economic Powers Act, the Trading with the Enemy Act, the United Nations Participation Act, and the Syria Accountability and Lebanese Sovereignty Act, all as amended, and any Executive Order, directive, or regulation pursuant to the authority of any of the foregoing, including the regulations of the United States Treasury Department set forth under 31 CFR, Subtitle B, Chapter V, as amended, or any orders or licenses issued thereunder.
        (xxxviii)     Accuracy of Enrollment Data.     The enrollment data included in any Registration Statement, the Final Prospectus or the General Disclosure Package present fairly and accurately the enrollment of students at the institutions owned by the Company, and as of the date hereof, there has not been any material adverse change in any of the Company's enrollment data as of June 30, 2009, as set forth in such Registration Statement, Final Prospectus or General Disclosure Package, as applicable.
        (xxxix)     Independence of Prior Auditor.     Clifton Gunderson LLP ("Clifton Gunderson") and Peterson & Co., LLP ("Peterson") were independent within the meaning of the Act during their respective periods of engagement by the Company.
        (xl)     2004 Financial Statements.     The financial statements for the year ended December 31, 2004 included in any Registration Statement or the Final Prospectus (a) are derived from the internal accounting records of the Company, (b) are prepared on a basis substantially consistent with the audited financial statements of the Company included in any Registration Statement or the Final Prospectus and (c) present fairly, in all material respects, the financial position of the Company in conformity with U.S. generally accepted accounting principles.
        (xli)     Procedures Performed on 2004 Financial Statements.     The Chief Financial Officer of the Company, or a member of his staff, has read the items marked on the attached copies of selected
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pages of the Registration Statement and Final Prospectus, included in Exhibit E hereto and has performed the procedures as set forth in Exhibit E hereto.
        (b)   Each Selling Stockholder severally represents and warrants to, and agrees with, the several Underwriters that:
        (i)     Title to Securities.     Such Selling Stockholder (x) has valid and unencumbered title to its Securities, warrants issued by the Company or options issued by the Company, in each case, which upon conversion or exercise in aggregate represent at least the number of the Securities to be sold by such Selling Stockholder (which options and warrants will be fully vested and convertible or exercisable on or prior to the Closing Time and each Date of Delivery) and (y) at the Closing Time and on each Date of Delivery will have valid and unencumbered title to the Securities to be delivered by such Selling Stockholder at the Closing Time or on such Date of Delivery, as applicable, and full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Securities to be delivered by such Selling Stockholder at the Closing Time or on such Date of Delivery, as applicable, hereunder; and upon the delivery of and payment for the Securities at the Closing Time and on each Date of Delivery hereunder the several Underwriters will acquire valid and unencumbered title to the Securities to be delivered by such Selling Stockholder at the Closing Time or on such Date of Delivery, as applicable.
        (ii)     Absence of Further Requirements.     No consent, approval, authorization or order of, or filing with, any person (including any governmental agency or body or any court) is required to be obtained or made by such Selling Stockholder for the consummation of the transactions contemplated by the Custody Agreement or this Agreement in connection with the offering and sale of the Securities to be sold by such Selling Stockholder, except such as have been obtained and made under the Act and such as may be required under state securities laws.
        (iii)     Absence of Defaults and Conflicts Resulting from Transaction.     The execution, delivery and performance of this Agreement and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of such Selling Stockholder pursuant to, (i) any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over such Selling Stockholder or any of its properties or (ii) any agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the properties of such Selling Stockholder is subject or (iii) the charter or by-laws of such Selling Stockholder that is a corporation or the constituent documents of such Selling Stockholder that is not a natural person or a corporation, except, in the case of clauses (i) and (ii) above, for any breaches, violations, defaults, liens, charges or encumbrances that would not, individually or in the aggregate, have a material adverse effect on such Selling Stockholder or materially and adversely affect the ability of such Selling Stockholder to consummate the transactions contemplated herein;
        (iv)     Custody Agreement.     The Power of Attorney and related Custody Agreement with respect to such Selling Stockholder have been duly authorized (to the extent the Selling Stockholder is not a natural person), executed and delivered by or on behalf of such Selling Stockholder and constitute valid and legally binding obligations of such Selling Stockholder enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles;
        (v)     Compliance with Securities Act Requirements.     (i) (A) At their respective Effective Times, (B) on the date of this Agreement and (C) at the Closing Time and on each Date of Delivery, each of the Initial Registration Statement and the Additional Registration Statement (if any)
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conformed and will conform in all material respects to the requirements of the Act and did not include and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) on its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Time of the Additional Registration Statement in which the Final Prospectus is included, and at the Closing Time and on each Date of Delivery, the Final Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The preceding sentence does not apply to statements in or omissions from any such document based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein. Notwithstanding anything in this paragraph (v) to the contrary, with respect to each Selling Stockholder, the provisions of this paragraph (v) apply only to the extent that any statements in or omissions from any Registration Statement, Final Prospectus, prospectus wrapper, as amended or supplemented or any Statutory Prospectus are made in reliance on and in conformity with written information relating to such Selling Stockholder that is furnished to the Company by or on behalf of such Selling Stockholder specifically and expressly for use therein, it being understood and agreed that the only such information contained in any Registration Statement or any Statutory Prospectus is the information in such Registration Statement or such Statutory Prospectus with respect to such Selling Stockholder (excluding percentages) which appear in the table (and corresponding footnotes) under the caption "Principal and Selling Stockholders" (the "Selling Stockholder Information"), provided that with respect to Warburg Pincus Private Equity VIII, L.P. ("WP") as a Selling Stockholder, Selling Stockholder Information shall also include the information contained in any Registration Statement or any Statutory Prospectus describing (x) WP's agreements with Ryan Craig or performance thereunder, (y) WP's guarantee in favor of a postsecondary college in the Connecticut state college system or performance thereunder or (z) WP's loan to Andrew Clark, related documents thereto or performance with respect to such loan or related documents, in each case which appear:
(1)
in the first or second paragraphs or the first sentence of the third paragraph in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transactions";

(2)
in footnote (5) to the table regarding compensation information for non-employee directors under "Management—Compensation of Directors";

(3)
in "Certain Relationships and Related Transactions—Warburg Pincus Guarantee"; or

(4)
in "Certain Relationships and Related Transactions—November 2003 Loan from Warburg Pincus to Andrew Clark".

(5)
in Note 15 to the Company's Consolidated Financial Statements, under the headings "Director Agreement", "November 2003 Loan from Warburg Pincus to the Company's CEO and President" and "Warburg Pincus Guarantee", but not including the last sentence of the paragraph under the heading "Warburg Pincus Guarantee".
        (vi)     Authorization of Agreement.     This Agreement has been duly authorized (to the extent the Selling Stockholder is not a natural person), executed and delivered by or on behalf of such Selling Stockholder.
        (vii)     No Finder's Fee.     Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between such Selling Stockholder and any person that would give rise to a valid claim against such Selling Stockholder or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering.
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        (viii)     Absence of Manipulation.     Such Selling Stockholder has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
         SECTION 2.    Sale and Delivery to Underwriters; Closing .    
        (a)     Initial Securities.     On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, each Selling Stockholder, severally and not jointly, agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from each Selling Stockholder, severally and not jointly, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. Except in the case of a Selling Stockholder that does not hold Securities to be sold by it in certificated form, certificates in negotiable form for the Securities to be sold hereunder by the Selling Stockholders have been placed in custody, for delivery under this Agreement, under Custody Agreements (each a "Custody Agreement", and together, the "Custody Agreements") made with Wells Fargo Shareholder Services, as custodian ("Custodian"). Each Selling Stockholder that holds Securities to be sold by it in certificated form agrees that the shares represented by the certificates held in custody for such Selling Stockholder under such Custody Agreements are subject to the interests of the Underwriters hereunder, that the arrangements made by such Selling Stockholder for such custody are to that extent irrevocable, and that the obligations of such Selling Stockholder hereunder shall not be terminated by operation of law, whether by the death of any individual Selling Stockholder or the occurrence of any other event, or in the case of a trust, by the death of any trustee or trustees or the termination of such trust. If any individual Selling Stockholder or any such trustee or trustees should die, or if any other such event should occur, or if any of such trusts should terminate, before the delivery of the Securities hereunder, certificates for such Securities shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death or other event or termination had not occurred, regardless of whether or not the Custodian shall have received notice of such death or other event or termination.
        (b)     Option Securities.     In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Selling Stockholders, severally and not jointly, hereby grant an option to the Underwriters, severally and not jointly, to purchase up to an additional [    •    ] shares of Common Stock in the aggregate, severally and not jointly, at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering overallotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by Merrill Lynch and J.P. Morgan to the Selling Stockholders setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by Merrill Lynch and J.P. Morgan, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased, which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as Merrill Lynch and J.P. Morgan in their discretion shall make to eliminate any sales or purchases of fractional shares.
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        (c)     Payment.     The Custodian, with respect to Initial Securities held by Selling Stockholders in certificated form, and each Selling Stockholder, with respect to Initial Securities held by such Selling Stockholder in non-certificated form, will deliver the Initial Securities to or as instructed by the Representatives for the accounts of the several Underwriters in a form reasonably acceptable to the Representatives against payment by the Underwriters of the purchase price in Federal (same day) funds or wire transfer of immediately available funds to an account at a bank acceptable to the Representatives drawn to the order of the Custodian (with respect to the Initial Securities being purchased from the Selling Stockholders, respectively) or the respective Selling Stockholders, as applicable, at the office of Cravath, Swaine & Moore LLP, or at such other place as shall be agreed upon by the Representatives and the Selling Stockholders, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Selling Stockholders (such time and date of payment and delivery being herein called "Closing Time").
        In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, the Custodian, with respect to Option Securities held by Selling Stockholders in certificated form, and each Selling Stockholder, with respect to Option Securities held by such Selling Stockholder in non-certificated form, will deliver the Option Securities being purchased on each Date of Delivery to or as instructed by the Representatives for the accounts of the several Underwriters in a form reasonably acceptable to the Representatives, against payment by the Underwriters of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to the Representatives drawn to the order of the Custodian (with respect to the Option Securities being purchased from the Selling Stockholders, respectively) or the respective Selling Stockholders, as applicable, at the above office of Cravath, Swaine & Moore LLP.
        Payment shall be made to the Selling Stockholders by wire transfer of immediately available funds to a bank account designated by the Custodian or the Selling Stockholders, as applicable, against delivery to the Representatives for the respective accounts of the Underwriters of certificates (or if no such certificates exist, Securities in a form reasonably acceptable to the Representatives) for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch or J.P. Morgan, individually and not as representatives of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. For purposes of Rule 15c6-1 under the Exchange Act, the Closing Time (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Securities sold pursuant to the offering.
        (d)     Denominations; Registration.     Certificates for the Initial Securities and the Option Securities (or other form of the Securities reasonably acceptable to the Representatives), if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities (or other form of the Securities reasonably acceptable to the Representatives), if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be.
         SECTION 3.    Covenants of the Company and the Selling Stockholders.     Each Selling Stockholder, severally and not jointly, covenants with the Underwriters and hereby agrees to execute and deliver the "lock-up" agreements referred to in Section 5(h) of this Agreement.
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        The Company covenants with each Underwriter as follows:
        (a)     Compliance with Securities Regulations and Commission Requests.     The Company, subject to Section 3(b), will comply with the requirements of Rule 430A and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to any Registration Statement shall become effective, or any supplement to the Final Prospectus or any amended Final Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to any Registration Statement or any amendment or supplement to the Final Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(e) of the Act concerning any Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Act in connection with the offering of the Securities. The Company will effect the filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment.
        (b)     Filing of Amendments and Exchange Act Documents.     The Company will give the Representatives notice of its intention to file or prepare any amendment to any Registration Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to either the prospectus included in any Registration Statement at the time it became effective or to the Final Prospectus, and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. The Company has given the Representatives notice of any filings made pursuant to the Exchange Act or the Rules and Regulations within 48 hours prior to the execution of this Agreement; the Company will give the Representatives notice of its intention to make any such filing from the execution of this Agreement to the Closing Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object.
        (c)     Delivery of Registration Statements.     The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of each Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of each Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statements and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
        (d)     Delivery of Prospectuses.     The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Act. The Company will furnish to each Underwriter, without charge, during the period when the Final Prospectus is required to be delivered under the Act, such number of copies of the Final Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Final Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted
15

copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
        (e)     Continued Compliance with Securities Laws.     The Company will comply with the Act and the Rules and Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Final Prospectus. If at any time when a prospectus is required by the Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend any Registration Statement or amend or supplement the Final Prospectus in order that the Final Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend any Registration Statement or amend or supplement the Final Prospectus in order to comply with the requirements of the Act or the Rules and Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make any Registration Statement or the Final Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. If at any time following the issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in any Registration Statement relating to the Securities or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances, prevailing at that subsequent time, not misleading, the Company will promptly notify Merrill Lynch and J.P. Morgan and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
        (f)     Blue Sky Qualifications.     The Company will use its reasonable best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the Effective Date of the Registration Statement and any Additional Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
        (g)     Rule 158.     The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the Act.
        (h)     Listing.     The Company will use its reasonable best efforts to maintain the listing of the Securities on the New York Stock Exchange.
        (i)     Restriction on Sale of Securities.     During a period of 90 days from the date of the Final Prospectus, the Company will not, without the prior written consent of Merrill Lynch and J.P. Morgan, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in
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whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Final Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Final Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan. Notwithstanding the foregoing, if (1) during the last 17 days of the 90-day restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs or (2) prior to the expiration of the 90-day restricted period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 90-day restricted period, the restrictions imposed in this clause (i) shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
        (j)     Reporting Requirements.     The Company, during the period when the Final Prospectus is required to be delivered under the Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and the rules and regulations of the Commission thereunder.
        (k)     Issuer Free Writing Prospectuses.     The Company and Selling Stockholders represent and agree that, unless they obtain the prior consent of the Representatives, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Securities that would constitute an "issuer free writing prospectus," as defined in Rule 433, or that would otherwise constitute a "free writing prospectus," as defined in Rule 405, required to be filed with the Commission. Any such free writing prospectus consented to by the Representatives or by the Company and the Representatives, as the case may be, is hereinafter referred to as a "Permitted Free Writing Prospectus." The Company represents that it has treated or agrees that it will treat each Permitted Free Writing Prospectus as an "issuer free writing prospectus," as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping.
         SECTION 4.    Payment of Expenses .    
        (a)     Expenses.     The Company will pay all expenses incident to the performance of its obligations and the obligations of the Selling Stockholders under this Agreement, including (i) the preparation, printing and filing of any Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Permitted Free Writing Prospectus and of the Final Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (vii) the
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preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities and (ix) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of aircraft and other transportation chartered in connection with the road show.
        (b)     Termination of Agreement.     If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
         SECTION 5.    Conditions of Underwriters' Obligations.     The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Selling Stockholders contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholders of their covenants and other obligations hereunder, and to the following further conditions:
        (a)     Effectiveness of Registration Statement.     Each Registration Statement, including any Additional Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of any Registration Statement shall have been issued under the Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A.
        (b)     Opinion of Counsel for Company.     At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time, of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Company, in substantially the form set forth in Exhibit A.
        (c)     Opinion of Counsel for Underwriters.     At Closing Time, the Representatives shall have received from Cravath, Swaine & Moore LLP, counsel for the Underwriters, such opinion or opinions, with respect to such matters as the Underwriters may require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters.
        (d)     Officers' Certificate.     At Closing Time, there shall not have been, since the date hereof, since the Applicable Time or since the respective dates as of which information is given in the Final Prospectus or the General Disclosure Package, any material adverse change in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries, taken as a whole, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to their knowledge, contemplated by the Commission.
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        (e)     Accountant's Comfort Letter.     At the time of the execution of this Agreement, the Representatives shall have received from PricewaterhouseCoopers LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in any Registration Statement and the Final Prospectus.
        (f)     Bring-down Comfort Letter.     At Closing Time, the Representatives shall have received from PricewaterhouseCoopers LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the "specified date" referred to in such letter shall be a date not more than three business days prior to Closing Time.
        (g)     Approval of Listing.     At Closing Time, the Securities shall be listed on the New York Stock Exchange.
        (h)     Lock-up Agreements.     At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B-1 hereto signed by the persons listed on Schedule C hereto. Each of the Selling Stockholders hereby agree to execute and deliver such agreements.
        (i)     Opinion of Counsel for Selling Stockholders.     At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time (a) of Willkie Farr & Gallagher LLP, counsel for WP, in substantially the form set forth in Exhibit C-1 hereto and (b) of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Selling Stockholders (other than WP), in substantially the form set forth in Exhibit C-2 hereto.
        (j)     Opinion of Regulatory Counsel for the Company.     At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time, of Powers Pyles Sutter & Verville P.C., special regulatory counsel for the Company, in substantially the form set forth in Exhibit D hereto.
        (k)     Conditions to Purchase of Option Securities.     In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Selling Stockholders contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:
        (i)     Officers' Certificate.     A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.
        (ii)     Opinion of Counsel for Company.     The opinion of Wilson Sonsini Goodrich & Rosati P.C., counsel for the Company, dated as of such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise in substantially the form as the opinion required by Section 5(b) hereof.
        (iii)     Opinion of Counsel for Underwriters.     The opinion of Cravath, Swaine & Moore LLP, counsel for the Underwriters, dated as of such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise in substantially the form as the opinion required by Section 5(c) hereof
        (iv)     Opinion of Counsel for Selling Stockholders.     The opinion of (i) of Willkie Farr & Gallagher LLP, counsel for the WP and (ii) of Wilson Sonsini Goodrich & Rosati P.C., counsel for
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the Selling Stockholders (other than WP), in each case dated as of such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise in substantially the form as the opinions required by Section 5(i) hereof.
        (v)     Opinion of Regulatory Counsel for Company.     The opinion of Powers Pyles Sutter & Verville PC, special regulatory counsel for the Company, dated as of such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise in substantially the form as the opinion required by Section 5(j) hereof.
        (vi)     Bring-down Comfort Letter.     A letter from PricewaterhouseCoopers LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery
        (l)     Additional Documents.     At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Selling Stockholders and the Company in connection with the sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.
        (m)     Custodian Tax Letter.     The Custodian will deliver to the Representatives a letter stating that it will deliver to each Selling Stockholder a United States Treasury Department Form 1099 (or other applicable form or statement specified by the United States Treasury Department regulations in lieu thereof) on or before January 31 of the year following the date of this Agreement.
        (n)     Termination of Agreement.     If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company and WP at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect.
         SECTION 6.    Indemnification .    
        (a)     Indemnification of Underwriters.     The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, as such term is defined in Rule 501(b) under the Act (each, an "Affiliate"), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act as follows:
        (i)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), including the 430A Information or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Issuer Free Writing Prospectus or the Final Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
20

        (ii)   against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;
        (iii)  against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch and J.P. Morgan), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided , however , that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Selling Stockholder (other than a Selling Stockholder who is a director or officer of the Company) or by any Underwriter through Merrill Lynch or J.P. Morgan, in either case expressly for use in any Registration Statement (or any amendment thereto), including the 430A Information or any preliminary prospectus, any Issuer Free Writing Prospectus or the Final Prospectus (or any amendment or supplement thereto).
        The Selling Stockholders, severally but not jointly, will indemnify and hold harmless each Underwriter, its Affiliates, its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act as follows:
        (i)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), including the 430A Information or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Issuer Free Writing Prospectus or the Final Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
        (ii)   against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;
        (iii)  against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch and J.P. Morgan), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided , however , that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company
21

by any Underwriter through Merrill Lynch or J.P. Morgan expressly for use in any Registration Statement (or any amendment thereto), including the 430A Information or any preliminary prospectus, any Issuer Free Writing Prospectus or the Final Prospectus (or any amendment or supplement thereto); and provided further , that each Selling Stockholder will be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance on and in conformity with the Selling Stockholder Information; provided further , that the liability of a Selling Stockholder pursuant to this subsection (a) shall not exceed the aggregate proceeds received after underwriting commissions and discounts, but before expenses, from the sale of Securities by such Selling Stockholder pursuant to this Agreement (with respect to each Selling Stockholder, such amount being referred to herein as such Selling Stockholder's "Net Proceeds").
        (b)     Indemnification of Company, Selling Stockholders, Directors and Officers.     Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed any Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each Selling Stockholder against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in any Registration Statement (or any amendment thereto), including the 430A Information or any preliminary prospectus, any Issuer Free Writing Prospectus or the Final Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Merrill Lynch or J.P. Morgan expressly for use therein.
        (c)     Actions against Parties; Notification.     Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch and J.P. Morgan, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the indemnified party. An indemnifying party may participate at its own expense in the defense of any such action; provided, however , that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
         SECTION 7.    Contribution.     If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by
22

such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
        The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the Selling Stockholders and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Final Prospectus, bear to the aggregate public offering price of the Securities as set forth on the cover of the Final Prospectus.
        The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
        The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
        Notwithstanding the provisions of this Section 7, (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission and (ii) no Selling Stockholder shall be required to contribute any amount in excess of such Selling Stockholder's Net Proceeds. The Selling Stockholders' obligations in this Section 7 to contribute are several in proportion to their respective Net Proceeds and not joint.
        No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
        For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each Underwriter's Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed any Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. The Underwriters' respective
23

obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.
         SECTION 8.    Representations, Warranties and Agreements to Survive.     All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company, any Selling Stockholder or any person controlling any Selling Stockholder and (ii) delivery of and payment for the Securities.
         SECTION 9.    Termination of Agreement .    
        (a)     Termination; General.     The Representatives may terminate this Agreement, by notice to the Company and WP, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Final Prospectus (exclusive of any supplement thereto) or General Disclosure Package, any change or any development or event involving a prospective change in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries taken as a whole which, in the judgment of the Representatives is material and adverse and makes it impractical or inadvisable to market the Securities (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or with respect to Clearstream or Euroclear systems in Europe, or (v) if a banking moratorium has been declared by either Federal or New York authorities.
        (b)     Liabilities.     If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect.
        SECTION 10.     Default by One or More of the Underwriters.     If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:
        (i)    if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
24

        (ii)   if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Selling Stockholders to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
        No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
        In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in any Registration Statement or Final Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10.
         SECTION 11.    Tax Disclosure.     Notwithstanding any other provision of this Agreement, from the commencement of discussions with respect to the transactions contemplated hereby, the Company (and each employee, representative or other agent of the Company) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are used in Sections 6011, 6111 and 6112 of the U.S. Code and the Treasury Regulations promulgated thereunder) of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided relating to such tax treatment and tax structure.
         SECTION 12.    Notices.     All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at 4 World Financial Center, New York, New York 10080, attention of Syndicate Department and at 383 Madison Avenue, New York, New York 10179, attention of Equity Syndicate Desk; notices to the Company shall be directed to it at 13500 Evening Creek Dr. North, Suite 600, San Diego, California 92128, attention of Daniel J. Devine; notices to WP shall be directed to it at One Market Plaza, Spears Tower, Suite 1700, San Francisco, California 94105, Attention: Barry Taylor; and notices to the Selling Stockholders shall be directed to them at Wilson Sonsini Goodrich & Rosati P.C. at 12235 El Camino Real, San Diego, California, attention of Martin J. Waters.
         SECTION 13.    Parties.     This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Selling Stockholders and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Selling Stockholders and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Selling Stockholders and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
         SECTION 14.    No Advisory or Fiduciary Relationship.     The Company and the Selling Stockholders acknowledge and agree that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the public offering price of the Securities and any related discounts and commissions, is an arm's-length commercial transaction between the Company and the Selling
25

Stockholders, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering contemplated hereby and the process leading to such transaction each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, or its stockholders, creditors, employees, any of the Selling Stockholders or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company or any Selling Stockholder with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Stockholder on other matters) and no Underwriter has any obligation to the Company or any Selling Stockholder with respect to the offering contemplated hereby except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of each of the Company and the Selling Stockholders, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company and the Selling Stockholders have consulted their own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.
         SECTION 15.    Integration.     This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Selling Stockholders and Underwriters, or any of them, with respect to the subject matter hereof.
         SECTION 16.    Trial by Jury.     The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates), each Selling Stockholder and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
         SECTION 17.    GOVERNING LAW.     THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
         SECTION 18.    TIME.     TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
         SECTION 19.    Counterparts.     This Agreement may be executed in any number of original, facsimile and/or PDF counterparts, each of which shall be deemed to be an original, but all of which counterparts shall together constitute one and the same instrument.
         SECTION 20.    Effect of Headings.     The Section headings herein are for convenience only and shall not affect the construction hereof.
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        If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters, the Selling Stockholders and the Company in accordance with its terms.

 	 	Very truly yours,	

 	
BRIDGEPORT EDUCATION, INC.	

 	
By	

Title:	

 	
[SELLING STOCKHOLDERS]	

 	
By	

Title:	

 	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

 	
By:	
 	
WARBURG PINCUS PARTNERS, LLC,
its Sole General Partner	

 	
By	
 	
WARBURG PINCUS & CO.,
its Managing Member	

 	
By	

Title:	

					
CONFIRMED AND ACCEPTED,
as of the date first above written:	 	 	

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
                                INCORPORATED
J.P. MORGAN SECURITIES INC.	

By:	
 	
MERRILL LYNCH, PIERCE, FENNER & SMITH
                                INCORPORATED	

By	

Authorized Signatory	

By:	
 	
J.P. MORGAN SECURITIES INC.	

By	

Authorized Signatory	

        For themselves and as Representatives of the other Underwriters named in Schedule A hereto.
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 Exhibit 4.4

 BRIDGEPOINT EDUCATION, INC.

 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
        THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this " Agreement ") dated August 26, 2009, is made and entered into among Bridgepoint Education, Inc., a Delaware corporation (the " Company "), and the undersigned security holders of the Company.

 BACKGROUND
        A.    The Company, Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership (" Warburg Pincus "), and certain other security holders of the Company, as listed under the caption "Prior Holders" on Schedule A attached hereto (collectively, the " Prior Holders "), entered into an Amended and Restated Registration Rights Agreement dated January 7, 2009, which was subsequently amended on March 29, 2009, April 3, 2009 and April 9, 2009 (the agreement as amended is referred to as the " Prior Agreement "). The Prior Agreement defined the registration rights of Warburg Pincus and the Prior Holders, and superseded all prior contractual arrangements among such parties pertaining to registration rights.
        B.    On August 20, 2009, pursuant to Section 2(A)(1) of the Prior Agreement, Warburg Pincus submitted a written request that the Company effect a registration with respect to a part of its Registrable Securities (the " Secondary Public Offering ").
        C.    The Company, Warburg Pincus and the undersigned parties wish to amend and restate the Prior Agreement, pursuant to this Agreement, to:
        (1)   determine the registration rights of members of the Company Management Team with respect to the Secondary Public Offering; and
        (3)   define fully in this Agreement the registration rights of Warburg Pincus and the Other Holders, and supersede all prior contractual arrangements among the parties pertaining to registration rights.
        D.    Under Section 4.G. of the Prior Agreement, the Company and Warburg Pincus have the power to amend and restate the Prior Agreement, as provided in this Agreement, because the changes to the Prior Agreement do not adversely affect the "Other Holders," as defined in the Prior Agreement, in a manner different than Warburg Pincus.
        NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the parties hereby agree as follows:

 SECTION 1. DEFINITIONS
        As used in this Agreement, the following terms have the respective meaning set forth below:
        " Commission " shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act;
        " Company Management Team " shall mean Andrew S. Clark, Charlene Dackerman, Daniel J. Devine, Richard K. Gessner, Todd Irwin, Steve Isbister, Jane McAuliffe, Rodney T. Sheng, Christopher L. Spohn and Ross Woodard.
        " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended;
        " Holders " shall mean Warburg Pincus and the Other Holders collectively;
        " Initial Public Offering " shall mean the initial public offering of shares of Common Stock pursuant to a registration under the Securities Act;

        " Other Holders " shall mean the parties listed on Schedule A hereto;
        " Person " shall mean an individual, partnership, joint-stock company, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof;
        " Register ," " registered " and " registration " shall mean a registration effected by preparing and filing a registration statement in compliance with the Securities Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement;
        " Registrable Securities " shall mean only (A) shares of Common Stock issued upon conversion of shares of Series A Preferred Stock on or prior to April 20, 2009, (B) any shares of Common Stock acquired by the Holders, other than those acquired upon the exercise of employee stock options, and (C) any capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Series A Preferred Stock or Common Stock referred to in clause (A) or (B) above; provided , however , that with, respect to the Initial Public Offering and the Secondary Public Offering, the term "Registrable Securities" shall also mean any shares of Common Stock (including those acquired upon the exercise of employee stock options) that Holders who are members of the Company Management Team may request to include in the registration pursuant to Sections 2(B)(3) or 2(A)(3) of this Agreement, as the case may be; and provided , further , that with, respect to the Initial Public Offering, the shares of Common Stock issued on or before April 14, 2009 pursuant to the settlement of claims made by holders of the Company's Common Stock or warrants of the Company related primarily to the Company's financing transactions and grant of employee stock options in 2005 and 2006, shall not be considered "Registrable Securities";
        " Registration Expenses " shall mean all expenses incurred by the Company in compliance with Section 2(A), (B) and (C) hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, fees and expenses of one counsel for all the Holders in an amount not to exceed $25,000 (except if the registration is the Initial Public Offering, in which case the Company shall pay the reasonable fees and expenses (which may exceed $25,000) of one counsel for Warburg Pincus and one counsel for all the other Holders (to be selected by the Company in the case of the other Holders)), blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company);
        " security " and " securities " shall have the meaning set forth in Section 2(1) of the Securities Act;
        " Securities Act " shall mean the Securities Act of 1933, as amended; and
        " Selling Expenses " shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and expenses of counsel that are not considered "Registration Expenses."

 SECTION 2. REGISTRATION RIGHTS
        A.     Requested Registration .
        1.     Request for Registration.     If the Company shall receive from Warburg Pincus, at any time, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the Company will:
        (a)   promptly give written notice of the proposed registration, qualification or compliance to all Other Holders; and
        (b)   as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective
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amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 10 business days after written notice from the Company is given under Section 2(A)(1)(a) above (or 6 business days in the case of the Secondary Public Offering); provided that the Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2(A):
        (i)    In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder;
        (ii)   After the Company has effected two (2) such registrations pursuant to this Section 2(A) and such registrations have been declared or ordered effective and the sales of such Registrable Securities shall have closed;
        (iii)  If the Registrable Securities requested by all Holders to be registered pursuant to such request do not have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than $7,500,000 (or $15,000,000 if such requested registration is the Initial Public Offering);
        (iv)  During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on the date one hundred eighty (180) days immediately following the effective date of, any registration statement filed pursuant to Section 2(B) pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that during the 60-day period prior to such filing the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; provided , however , that the Company may only delay an offering pursuant to this Section 2(A)(1)(b)(iv) for a period of not more than ninety (90) days, if a filing of any other registration statement is not made within that period and the Company may only exercise this right once in any twelve (12)-month period; or
        (v)   If the Company shall furnish to Warburg Pincus a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, in which case the Company's obligation to use its best efforts to comply with this Section 2 shall be deferred for a period not to exceed one hundred eighty (180) days from the date of receipt of written request from Warburg Pincus; provided , however , that the Company shall not exercise such right more than once in any twelve (12)-month period.
        The registration statement filed pursuant to the request of Warburg Pincus may, subject to the provisions of Section 2(A)(2) below, include (i) other securities of the Company which are held by Persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration (" Other Stockholders ") and (ii) Registrable Securities held by the Other Holders. In the event any Holder requests a registration pursuant to this Section 2(A) in connection with a distribution of Registrable Securities to its partners, the registration shall provide for the resale by such partners, if requested by such Holder.
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        The registration rights set forth in this Section 2 may be assigned, in whole or in part, to any transferee of Registrable Securities (who shall be bound by all obligations of this Agreement).
        2.      Underwriting .
        (a)   If Warburg Pincus intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to Section 2(A).
        (b)   If Other Stockholders or Other Holders request inclusion of their securities in the underwriting, Warburg Pincus shall offer to include the securities of such Persons in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section 2. The Holders whose shares are to be included in such registration and the Company shall (together with all Other Stockholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by Warburg Pincus and reasonably acceptable to the Company.
        (c)   Notwithstanding any other provision of this Section 2(A), if the representative advises the Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by Other Stockholders shall be excluded from such registration to the extent so required by such limitation. If, after the exclusion of such shares, further reductions are still required, the number of shares included in the registration by each Other Holder shall be reduced on a pro rata basis (based on the number of Registrable Securities held by such Other Holder relative to the total number of Registrable Securities held by all Other Holders requesting inclusion of their securities in the underwriting), by such minimum number of shares as is necessary to comply with such request. If, after the exclusion of such Other Holder shares, further reductions are still required, the number of shares included in the registration by Warburg Pincus shall be reduced, by such minimum number of shares as is necessary to comply with such request; provided , however , that, if the registration is the Secondary Public Offering and the representative determines that a limitation on the number of shares to be underwritten is required, the number of shares requested to be included in the registration and underwriting shall be reduced by such minimum number of shares as is necessary to comply with such limitation, on a pro rata basis based on the number of Registrable Securities requested to be included by each Holder relative to the total number of Registrable Securities requested to be included by all such Holders.
        (d)   No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Other Stockholder or Holder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such Person may elect to withdraw therefrom by written notice to the Company, the underwriter and Warburg Pincus. The securities so withdrawn shall also be withdrawn from registration. If the underwriter has not limited the number of Registrable Securities or other securities to be underwritten, the Company and officers and directors of the Company may include its or their securities for its or their own account in such registration if the representative so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited.
        3.     Special Secondary Public Offering Registration Rights for Company Management Team. If the registration pursuant to this Section 2(A) is the Secondary Public Offering, each Holder that is a member of the Company Management Team shall have the following (and only the following) registration rights: Each Holder that is a member of the Company Management Team may request to include in the registration, as "Registrable Securities," a number of shares of Common Stock up to and
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equaling, but not exceeding, 10% of the sum of (i) the total number of shares of Common Stock subject to employee stock options held by such member that will be vested as of August 1, 2009, plus (ii) the number of other "Registrable Securities" held by such member, if any; provided, however, that such number of shares may be increased, as agreed by the representative(s) of the underwriters of the Secondary Public Offering, proportionately in connection with any increase in the total size of the Secondary Public Offering pursuant to Rule 462(b) under the Securities Act; provided, further, that, for sake of clarity, (i) Steve Isbister and Todd Irwin are only deemed to be "Holders" under this Agreement with respect to the Initial Public Offering and the Secondary Public Offering; and (ii) any Holder that is a member of the Company Management Team may request to include in such registration, subject to the limitations set forth in this paragraph, shares of Common Stock that may be acquired upon the exercise of employee stock options.
        4.     Special Secondary Public Offering Registration Rights for Holders other than the Company Management Team. If the registration pursuant to this Section 2(A) is the Secondary Public Offering, each Holder (including Warburg Pincus) that is not a member of the Company Management Team shall have the following (and only the following) registration rights: Each such Holder may request to include in the registration and underwriting a number of Registrable Securities up to and equaling but not exceeding (except as provided below in certain circumstances if such Holder elects to sell the " Maximum Number of Shares Available ") the product, rounded down to the nearest share, of (i) the number of Registrable Securities held by such Holder, multiplied by (ii) a fraction, the numerator of which is the total number of shares proposed to be sold in the underwriting by all Holders, less the number of shares requested by the Company Management Team to be included in the underwriting pursuant to Section 2(A)(3) (such shares collectively, the " Management Secondary Shares "), and the denominator of which is the total number of Registrable Securities held by all Holders other than the Company Management Team. When returning the indication of interest to the Company specifying the number of Registrable Securities such Holder may request to include in the underwriting (if any), such Holder shall elect to request to include either (i) a fixed number of Registrable Securities (including zero) or (ii) the "Maximum Number of Shares Available" to such Holder (which number shall equal the product of the formula in the preceding sentence if all Holders other than the Company Management Team elect to request to include in the underwriting the maximum number of Registrable Securities available to such Holders). If one or more Holders request not to include in the underwriting the maximum number of Registrable Securities available to such Holder(s), then any Holder electing to sell the "Maximum Number of Shares Available" shall be deemed to have requested to include in the underwriting a number of Registrable Securities equal to, but not exceeding, the product, rounded down to the nearest share, of (i) the number of Registrable Securities held by such Holder, multiplied by (ii) a fraction, the numerator of which is the total number of shares proposed to be sold in the underwriting by all Holders, less the Management Secondary Shares and the total number of Registrable Securities requested to be included in the underwriting by those Holders requesting to include a fixed number of Registrable Securities, and the denominator of which is the total number of Registrable Securities held by all Holders other than the Company Management Team and those Holders requesting to include in the underwriting a fixed number of Registrable Securities.
        B.     Company Registration .
        1.     If the Company shall determine to register any of its equity securities either for its own account or for the account of Other Stockholders, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales or does not include
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substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will:
        (a)   promptly give to each of the Holders a written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and
        (b)   include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by the Holders within 15 days of the written notice from the Company described in clause (a) above, except as set forth in Section 2(B)(2) below. Such written request may specify all or a part of the Holders' Registrable Securities. For avoidance of doubt, if any Holder fails to deliver a written request to the Company within 15 days after written notice from the Company described in clause (a) above, such Holder will forfeit any right under this Section 2(B) to include Registrable Securities in such registration (and related qualification under blue sky laws and other compliance), and in any underwriting involved therein. In the event any Holder requests inclusion in a registration pursuant to this Section 2(B) (except for a registration related to the Company's Initial Public Offering) in connection with a distribution of Registrable Securities to its partners, the registration shall provide for the resale by such partners, if requested by such Holder.
        2.     Underwriting.     If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise each of the Holders as a part of the written notice given pursuant to Section 2(B)(1)(a). In such event, the right of each of the Holders to registration pursuant to this Section 2(B) shall be conditioned upon such Holders' participation in such underwriting and the inclusion of such Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders whose shares are to be included in such registration shall (together with the Company and the Other Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this Section 2(B), if the representative determines that marketing factors require a limitation on the number of shares to be underwritten, (x) if such registration is the Initial Public Offering, the representative may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto, and (y) if such registration is other than the Initial Public Offering, the representative may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than twenty five percent (25%) of the shares included therein (based on the number of shares). In such event, the Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner: the securities of the Company held by Other Stockholders of the Company (other than Registrable Securities and other than securities held by holders who by contractual right demanded such registration ("Demanding Holders")) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting by each of the Holders and Demanding Holders shall be reduced on a pro rata basis (based on the number of Registrable Securities held by each Holder or Demanding Holder relative to the total number of Registrable Securities held by all Holders and Demanding Holders requesting inclusion of their securities in the underwriting), by such minimum number of shares as is necessary to comply with such limitation; provided, however, that, if the registration is the Initial Public Offering and the representative determines that a limitation on the number of shares to be underwritten is required, the number of shares
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requested to be included in the registration and underwriting shall be reduced as follows (in each case by such minimum number of shares as is necessary to comply with such limitation): (a) first, the number of shares requested to be included by Warburg Pincus shall be excluded, (b) second, the number of shares requested to be included by Holders other than Warburg Pincus and the Company Management Team shall be excluded on a pro rata basis based on the number of Registrable Securities requested to be included by each Holder relative to the total number of Registrable Securities requested to be included by all such Holders, and (c) third, the number of shares requested to be included by the Company Management Team shall be excluded on a pro rata basis based on the number of Registrable Securities requested to be included by each member of the Company Management Team relative to the total number of Registrable Securities requested to be included by all members of the Company Management Team. If any of the participating Holders disapprove of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter; provided that such Holder has not already signed an Irrevocable Power of Attorney or similar document obligating such Holder to sell shares in the registration and underwriting. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.
        3.     Special IPO Registration Rights for Company Management Team.     If the registration pursuant to this Section 2(B) is the Initial Public Offering, each Holder that is a member of the Company Management Team shall have the following (and only the following) registration rights: Each Holder that is a member of the Company Management Team may request to include in the registration, as "Registrable Securities," a number of shares of Common Stock up to and equaling, but not exceeding, 10% of the sum of (i) the total number of shares of Common Stock subject to employee stock options held by such member that will be vested as of April 30, 2009 (assuming, for purposes of this calculation, that any "Exit Options" held by such member shall be fully vested at such time), plus (ii) the number of other "Registrable Securities" held by such member, if any; provided, however, that such number of shares may be increased, as agreed by the representative(s) of the underwriters of the Initial Public Offering, proportionately in connection with any increase in the total size of the Initial Public Offering pursuant to Rule 462(b) under the Securities Act; provided, further, that, for sake of clarity, (i) Steve Isbister and Todd Irwin are only deemed to be "Holders" under this Agreement with respect to the Initial Public Offering; and (ii) any Holder that is a member of the Company Management Team may request to include in such registration, subject to the limitations set forth in this paragraph, shares of Common Stock that may be acquired upon the exercise of employee stock options.
        4.     Special IPO Registration Rights for Holders Other than Warburg Pincus and the Company Management Team.     If the registration pursuant to this Section 2(B) is the Initial Public Offering, each Holder that is not a member of the Company Management Team or Warburg Pincus shall have the following (and only the following) registration rights: Each such Holder may request to include in the registration and underwriting a number of Registrable Securities up to and equaling, but not exceeding, 50% of the total number of Registrable Securities held by such Holder, rounded up to the nearest whole share. The number of shares that may be included by any such Holder in the Initial Public Offering shall be reduced, in the event the representative determines that a limitation on the number of shares to be underwritten is required, only if the shares requested to be included in the registration and underwriting by Warburg Pincus have first been excluded fully.
        C.     Form S-3 .
        Following the Initial Public Offering, the Company shall use its best efforts to qualify for registration on Form S-3 for secondary sales. After the Company has qualified for the use of Form S-3, Warburg Pincus shall have the right to request an unlimited number of registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of shares by such holders), provided that the
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Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2(C):
        1.     Unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities having an aggregate price to the public (before deduction of Selling Expenses) of more than $5,000,000;
        2.     Within 180 days of the effective date of the most recent registration pursuant to this Section 2(C) in which securities held by the requesting Holder could have been included for sale or distribution; or
        3.     In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder.
        The Company shall give written notice to all Holders of the receipt of a request for registration pursuant to this Section 2(C) and any Holder or Holders joining in such request, as and if specified in a written request received by the Company within 10 days after such written notice, may participate in the registration, provided that if the registration is for an underwritten offering, the terms of Section 2(A)(2) shall apply to all participants in such offering. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. In the event any Holder requests a registration pursuant to this Section 2(C) in connection with a distribution of Registrable Securities to its partners, the registration shall provide for the resale by such partners, if requested by such Holder.
        D.     Expenses of Registration .
        All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Section 2 shall be borne by the Company, and all Selling Expenses shall be borne by the Holders of the securities so registered pro rata on the basis of the number of their shares so registered.
        E.     Registration Procedures .
        In the case of each registration effected by the Company pursuant to this Section 2, the Company will keep the Holders, as applicable, advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will:
        1.     keep such registration effective for a period of 120 days or until the Holders (or in the case of a distribution to the partners of such Holder, such partners), as applicable, have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided , however , that (A) such 120-day period shall be extended for a period of time equal to the period during which the Holders or partners, as applicable, refrain from selling any securities included in such registration in accordance with provisions in Section 2(l) hereof; and (B) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a) of the Securities Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information
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required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 12 or 15(d) of the Exchange Act in the registration statement;
        2.     furnish such number of prospectuses and other documents incident thereto as each of the Holders, as applicable, from time to time may reasonably request;
        3.     notify each Holder of Registrable Securities covered by such registration at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and
        4.     furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (1) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in such registration, addressed to the underwriters, if any, and to the Holders participating in such registration and (2) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in such registration, addressed to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders participating in such registration.
        F.      Indemnification .
        1.     The Company will indemnify each of the Holders, as applicable, each of its officers, directors and partners, and each Person controlling each of the Holders, with respect to each registration which has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or the Exchange Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Holders, each of its officers, directors and partners, and each Person controlling each of the Holders, each such underwriter and each Person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Holders or underwriter and stated to be specifically for use therein.
        2.     Each of the Holders will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such
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underwriter, each other Holder and Other Stockholder and each of their officers, directors, and partners, and each person controlling such other Holder and Other Stockholder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document made by such Holder, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements by such Holder therein not misleading, and will reimburse the Company and such other Holders and Other Stockholders, directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of each of the Holders hereunder shall be limited to an amount equal to the net proceeds to such Holder of securities sold as contemplated herein.
        3.     Each party entitled to indemnification under this Section 2(F) (the " Indemnified Party ") shall give notice to the party required to provide indemnification (the " Indemnifying Party ") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation. resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party's expense (unless the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2(F) unless the Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.
        4.     If the indemnification provided for in this Section 2(F) is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
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        5.     Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling.
        6.     The foregoing indemnity agreement of the Company and Holders is subject to the condition that, insofar as they relate to any loss, claim, liability or damage arising out of a statement made in or omitted from a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement in question becomes effective or the amended prospectus filed with the Commission pursuant to Commission Rule 424(b) (the " Final Prospectus "), such indemnity or contribution agreement shall not inure to the benefit of any underwriter or Holder if a copy of the Final Prospectus was furnished to the underwriter and was not furnished to the Person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.
        G.     Information by the Holders .
        1.     Each of the Holders holding securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 2.
        2.     In the event that, either immediately prior to or subsequent to the effectiveness of any registration statement, any Holder shall distribute Registrable Securities to its partners, such Holder shall so advise the Company and provide such information as shall be necessary to permit an amendment to such registration statement to provide information with respect to such partners, as selling security holders. Promptly following receipt of such information, the Company shall file an appropriate amendment to such registration statement reflecting the information so provided. Any incremental expense to the Company resulting from such amendment shall be borne by such Holder.
        H.     Rule 144 Reporting .
        With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of restricted securities to the public without registration, the Company agrees to:
        1.     make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act (" Rule 144 "), at all times from and after 90 days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
        2.     use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and
        3.     so long as the Holder owns any Registrable Securities, furnish to the Holder upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration.
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        I.      "Market Stand-off" Agreement .
        Each of the Holders agrees, if requested by the Company and an underwriter of equity securities of the Company, not to sell or otherwise transfer or dispose of any Registrable Securities held by such Holder during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act (as such period may be extended by the underwriter for a customary period of time related to the Company's release (or announcement of release) of earnings results or other material news or events near the end of such 180-day period), provided that:
        1.     such agreement only applies to the Initial Public Offering; and
        2.     all executive officers and directors of the Company enter into similar agreements.
        If requested by the underwriters, the Holders shall execute a separate agreement to the foregoing effect. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said 180-day period. The provisions of this Section 2(I) shall be binding upon any transferee who acquires Registrable Securities.
        J.      Termination .
        The registration rights set forth in this Section 2 shall not be available to any Holder with respect to any registration after the Company's Initial Public Offering if, (i) in the opinion of counsel to the Company, all of the Registrable Securities then owned by such Holder could be sold in any 90-day period pursuant to Rule 144 or (ii) all of the Registrable Securities held by such Holder have been sold in a registration pursuant to the Securities Act or pursuant to Rule 144.
12

 SECTION 3. COVENANTS OF THE PARTIES
        Each of the Holders hereby acknowledges and agrees that this Agreement constitutes the entire understanding of the parties hereto relating to the subject matter hereof and supersedes all prior understandings relating to such subject matter, including the Prior Agreement, and that the provisions of the Prior Agreement related to such subject matter are terminated and all rights thereunder are waived as of the date hereof, with no further liabilities or obligations relating thereto on the part of any party thereto.

 SECTION 4. MISCELLANEOUS
        A.     Directly or Indirectly .
        Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.
        B.     Governing Law; Consultation with Counsel .
        This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each party to this Agreement acknowledges and agrees that such party has been advised to, and has had the opportunity to, consult with such party's own counsel regarding this Agreement, and such party has either consulted with such counsel or expressly waived the right to do so.
        C.     Section Headings .
        The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof.
        D.     Notices .
        1.     All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered or certified mail, postage prepaid:
        (a)   if to Warburg Pincus, at 450 Lexington Avenue, New York, NY 10017 (facsimile: (212) 716-5142), Attention: General Counsel, or at such other address or facsimile number as Warburg Pincus may have furnished the Company in writing, with a copy to Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, NY 10019-6099 (facsimile: (212) 728-8111), Attention: Steven J. Gartner, Esq.;
        (b)   if to the Other Holders, at the address or facsimile number listed on Schedule A , or at such other address or facsimile number as may have been furnished to the Company and Warburg Pincus in writing; and
        (c)   if to the Company, at 13500 Evening Creek Drive North, Suite 600, San Diego, CA 92128 (facsimile: (858) 408-2903), Attention: Chief Executive Officer, or at such other address or facsimile number as it may have furnished the Holders in writing, with a copy to Wilson Sonsini Goodrich & Rosati, P.C.,12235 El Camino Real, Suite 200, San Diego, California 92130-3002, Fax -- 858-350-2399, Attention: Martin Waters, Esq.
        2.     Any notice so addressed shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery; if mailed by overnight courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing.
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        E.     Reproduction of Documents .
        This Agreement and all documents relating thereto, including, without limitation, any consents, waivers and modifications which may hereafter be executed may be reproduced by the Holders by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and the Holders may destroy any original document so reproduced. The parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Holders in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
        F.      Successors and Assigns .
        This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties; provided, however, that a transferee or assignee of Warburg Pincus may only be entitled to the benefits of this Agreement (i) in the event such transferee or assignee receives not less than 100,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments, for stock splits, stock dividends, reverse stock splits, recapitalization or similar events) and (ii) such transferee or assignee assumes in writing the obligations of Warburg Pincus under this Agreement in respect of such shares transferred or assigned. The Company shall be given written notice at the time of or within a reasonable time after such transfer or assignment, such notice shall state the name and address of the transferee or assignee and identify the Registrable Securities with respect to which such registration rights are being transferred or assigned.
        G.     Entire Agreement; Amendment and Waiver .
        This Agreement constitutes the entire understanding of the parties hereto relating to the subject matter hereof and supersedes all prior understanding among such parties. The provisions of the Prior Agreements relating to such subject matter and set forth on Schedule II hereto are hereby terminated and shall have no further force or effect and all rights thereunder are hereby waived in their entirety. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company and Warburg Pincus and, in the case of any amendment or waiver that would adversely affect the Other Holders in a manner different than Warburg Pincus, with the consent of the Other Holders holding a majority of the then outstanding Registrable Securities.
        H.     Severability .
        In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Agreement which shall remain in full force and effect.
        I.      Counterparts .
        This Agreement may be executed in two or more counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall be considered one and the same agreement.
[Remainder of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.

 	BRIDGEPOINT EDUCATION, INC.	

By:	
 	
/s/ DANIEL J. DEVINE

Name: Daniel J. Devine
Title: Chief Financial Officer	
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HOLDER:
   
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.

By:	
 	
WARBURG PINCUS & CO.,
General Partner	

By:	
 	
/s/ BARRY TAYLOR

Name: Barry Taylor	

OTHER HOLDERS
"Prior Holders"

/s/ DANIEL J. DEVINE

Daniel J. Devine	 	 	
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 Schedule A

 Other Holders
Name
Prior Holders
Andrew S. Clark
Linda M. Clugston
R. Wayne Clugston
Vicki Falcigno
Leonard Katz
Alfred Rattenni
Erich Tengelsen
Jonathon Turkel
Jill Falcigno Guzzanti Trust U/W/O Louis Falcigno dated 12/31/03
Sheilagh Falcigno Trust U/W/O Louis Falcigno dated 12/31/03
The Cooper Keith Guthrie Exempt Irrevocable Trust
The Tyler Christian Guthrie Exempt Irrevocable Trust
Turner Trust, dated 1/7/82, as amended
Roberts Wesleyan College
Ryan Craig
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Name
Venturetek L.P.
Comerica Bank
Christopher L. Spohn
Richard K. Gessner
Daniel J. Devine
Rodney T. Sheng
Ross Woodard
Jane McAuliffe
Charlene Dackerman
Elizabeth Tice
Ruby Corp.
Scott Turner
David Vande Pol
Lisa Vande Pol
Steve Isbister*
Todd Irwin*
* With respect to the Initial Public Offering and the Secondary Public Offering only.
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Exhibit 4.4
BRIDGEPOINT EDUCATION, INC.
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
BACKGROUND
SECTION 1. DEFINITIONS
SECTION 2. REGISTRATION RIGHTS
 SECTION 3. COVENANTS OF THE PARTIES
SECTION 4. MISCELLANEOUS
Schedule A
Other Holders

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 Exhibit 4.13

 Bridgepoint Education, Inc.

 Limited Waiver of Underwriting Agreement
August 19, 2009
Bridgepoint Education, Inc.
13500 Evening Creek Drive North, Suite 600
San Diego, California 92128
        Re: Limited Waiver of Bridgepoint Education, Inc. Underwriting Agreement
Ladies and Gentlemen:
        Reference is hereby made to that certain Underwriting Agreement (the "Agreement") entered into on April 14, 2009, by and among Credit Suisse Securities (USA) LLC and J.P. Morgan Securities Inc., as representatives (together, the "Representatives"), William Blair & Company, BMO Capital Markets, Piper Jaffray and Signal Hill, Bridgepoint Education, Inc. (the "Company") and, certain stockholders of the Company, in connection with the initial public offering (the "IPO") of the Common Stock of the Company. Capitalized terms used but not defined herein have the meanings set forth in the Agreement.
        Pursuant to Section 5(k) of the Agreement, the Company has agreed, among other things, not to directly or indirectly take any of the following actions with respect to its Securities or any securities convertible into or exchangeable or exercisable for any of its Securities ("Lock-Up Securities"): (i) offer, sell, issue, contract to sell, pledge or otherwise dispose of Lock-Up Securities, (ii) offer, sell, issue, contract to sell, contract to purchase or grant any option, right or warrant to purchase Lock-Up Securities, (iii) enter into any swap, hedge or any other agreement that transfers, in whole or in part, the economic consequences of ownership of Lock-Up Securities, (iv) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in Lock-Up Securities within the meaning of Section 16 of the Exchange Act, or (v) file with the Commission a registration statement under the Act relating to Lock-Up Securities, or publicly disclose the intention to take any such action, in each case without the prior written consent of the Representatives, during the Lock-up Period.
        The Representatives hereby waive the Lock-up Period of the Agreement solely as it relates to subsection (v) above, and public disclosure related thereto.
        Except to the extent, and only to the extent, so modified by this Limited Waiver of Underwriting Agreement, all terms, conditions and covenants contained in the Agreement and the documents related thereto shall remain in full force and effect, enforceable in accordance with their terms. This Limited Waiver of Underwriting Agreement is effective only as to the matters expressly waived. This Limited Waiver of Underwriting Agreement is intended for the benefit of, and may be relied upon by, the Company.

				
 	Very truly yours,	

THE REPRESENTATIVES	

Credit Suisse Securities (USA) LLC	

By:	

	
 	Name:	 	  
	
 	Title:	 	  

 	
J.P. Morgan Securities Inc.	

By:	

	
 	Name:	 	  
	
 	Title:	 	  

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Exhibit 4.13
Bridgepoint Education, Inc.
Limited Waiver of Underwriting Agreement

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 Exhibit 5.1
Bridgepoint Education, Inc.
13500 Evening Creek Drive North, Suite 600
San Diego, California 92128

 Re: Registration Statement on Form S-1 (333-                        )
Ladies and Gentlemen:
        You have requested our opinion with respect to certain matters in connection with the filing by Bridgepoint Education, Inc., a Delaware corporation (the " Company "), of a Registration Statement on Form S-1 (File No. 333-                        ) initially filed on August 26, 2009 (as amended and supplemented from time to time, the " Registration Statement ") with the Securities and Exchange Commission, including a related prospectus filed with the Registration Statement (the " Prospectus ") covering the offering for sale of an aggregate of up to 12,650,000 shares of the Company's Common Stock, $0.01 par value (the " Shares "), which will be sold by the selling stockholders named therein (the " Selling Stockholders "). All of the Shares are currently outstanding.
        This opinion is being furnished in accordance with the requirements of Item 601(b)(5)(i) of Regulation S-K.
        In connection with this opinion, we have reviewed and relied upon the Registration Statement and related Prospectus, the Company's charter documents, as amended and restated to date, resolutions adopted by the Board of Directors of the Company and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. With respect to the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as original and the conformity to originals of all documents submitted to us as certified or reproduced copies. We have also obtained from officers of the Company certificates as to certain factual matters and, insofar as this opinion is based on matters of fact, we have relied on such certificates without independent investigation.
        In rendering the opinion set forth below, we have relied on the opinion to you of Richards, Layton & Finger, P.A., dated as of the date hereof with respect to certain matters governed by Delaware law.
        Based on the foregoing review, and in reliance thereon, we are of the opinion that the Shares are duly authorized, validly issued, fully paid and non-assessable.
        We consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, the rules and regulations of the Securities and Exchange Commission promulgated thereunder or Item 509 of Regulation S-K.
        We express no opinion as to matters governed by any laws other than California and Delaware general corporate law.
        This opinion letter is rendered to you solely for use in connection with the sale of the Shares in accordance with the Registration Statement as of the date first written above and is not to be relied on for any other purpose. We disclaim any obligation to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein. Our opinion is expressly limited to the matters set forth above and we render

no opinion, whether by implication or otherwise, as to any other matters relating to the Company or the Shares.

 	
 	
Respectfully submitted,	

 	

WILSON SONSINI GOODRICH & ROSATI P.C.	
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Exhibit 5.1
Re: Registration Statement on Form S-1 (333- )

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 Exhibit 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
                                    , 2009
Bridgepoint Education, Inc.
13500 Evening Creek Drive North, Suite 600
San Diego, California 92128
Re:
Registration Statement on Form S-1
Ladies and Gentlemen:
        We have acted as special Delaware counsel to Bridgepoint Education, Inc., a Delaware corporation (the "Company"), in connection with the matters set forth herein. You have requested our opinion with respect to certain matters in connection with the filing by the Company of a Registration Statement on Form S-1 (File No. 333-                        ) initially filed on August 26, 2009 (as amended and supplemented from time to time, the "Registration Statement") with the Securities and Exchange Commission, including a related prospectus filed with the Registration Statement covering the offering for sale of an aggregate of up to 12,650,000 shares (the "Shares") of the Company's common stock, par value $0.01 per share (the "Common Stock"), which will be sold by the selling stockholders named therein (the "Selling Stockholders"). All of the Shares are currently outstanding.
        For the purpose of rendering our opinion as expressed herein, we have been furnished and have reviewed copies of the following documents:
          (i)  the Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware (the "Secretary of State") on May 21, 1999, as amended by the Certificate of Merger as filed with the Secretary of State on January 24, 2001, the Certificate of Amendment as filed with the Secretary of State on January 24, 2001, the Amended and Restated Certificate of Incorporation as filed with the Secretary of State on November 25, 2003, the Second Amended and Restated Certificate of Incorporation as filed with the Secretary of State on March 30, 2005, the Third Amended and Restated Certificate of Incorporation as filed with the Secretary of State on July 27, 2005, the Fourth Amended and Restated Certificate of Incorporation as filed with the Secretary of State on July 29, 2005, the Certificates of Correction as filed with the Secretary of State on December 11, 2008 and January 9, 2009, the Certificate of Amendment as filed with the Secretary of State on March 31, 2009, and the Fifth Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of State on April 20, 2009 (collectively, the "Certificate of Incorporation");
         (ii)  the Bylaws of the Company, the Amended and Restated Bylaws of the Company, and the amendments thereto (the "Bylaws");
        (iii)  certain records of the Company, including the records of the proceedings of the Board of Directors of the Company (the "Board") and the stockholders of the Company;
        (iv)  the memorandum, dated March 31, 2009, summarizing the results of the due diligence review with respect to the outstanding shares of capital stock of the Company; and
         (v)  a certificate of an officer of the Company, dated                                    , 2009, as to certain matters; and
        (vi)  the legal opinion of Wilson Sonsini Goodrich & Rosati, PC ("Wilson Sonsini"), counsel to the Company, dated                                    , 2009, addressed to you, as to the matters set forth therein.
        With respect to the foregoing documents, we have assumed: (a) the genuineness of all signatures, and the incumbency, authority, legal right and power and legal capacity under all applicable laws and regulations, of the officers and other persons and entities signing each of the said documents as or on behalf of the parties thereto; (b) the authenticity of all documents submitted to us as originals; (c) the conformity to authentic originals of all documents submitted to us as certified, conformed, photostatic or other copies; and (d) that the foregoing documents, in the forms submitted to us for our review,

have not been and will not be altered or amended in any respect material to our opinion as expressed herein. For the purpose of rendering our opinion as expressed herein, we have not reviewed any documents other than the documents listed above, and we assume there exists no provision of any such other document that bears upon or is inconsistent with our opinion as expressed herein. We have conducted no independent factual investigation of our own, but rather have relied solely upon the foregoing documents, the statements and information set forth therein, and the additional matters recited or assumed herein, all of which we assume to be true, complete and accurate in all material respects.
Background
        The Company was organized as a Delaware corporation on May 21, 1999, through the filing by its incorporator of its original Certificate of Incorporation with the Secretary of State. Under its original Certificate of Incorporation, the Company was authorized to issue up to 2,000 shares of Common Stock. No director was named in the original Certificate of Incorporation; rather, the incorporator, acting by written consent, appointed Michael Clifford as the sole initial director. That consent, however, was lost, and neither the Company nor the incorporator has been able to locate it, despite diligent efforts to do so. On November 20, 2003, Mr. Clifford executed an affidavit confirming that the incorporator had elected him as the sole initial director on May 21, 1999.
        On May 21, 1999, Mr. Clifford, acting by written consent as sole director, adopted the Company's organizational resolutions and authorized the issuance of 500 shares of Common Stock to each of Mr. Clifford and Louis Falcigno, in recognition of past services they provided to the Company in their capacities as founders. Pursuant to such resolutions, the Board ratified the filing of the Certificate of Incorporation, adopted the initial Bylaws, appointed the Company's officers and fixed the number of directors at two (but did not fill the vacancy created by the expansion).
        On June 7, 1999, Messrs. Clifford and Falcigno, constituting all of the members of the Board, executed a written consent authorizing the offer of shares of Common Stock in units, each unit consisting of 100,000 shares, with a minimum of 20 units and a maximum of 30 units to be sold in the offering. In connection with this offering, the Board approved a 3,000-for-one stock split (the "Stock Split") of all then-outstanding shares of Common Stock ( i.e. , the 500 shares held by Mr. Clifford and the 500 shares held by Mr. Falcigno) and authorized the execution and delivery of all documents required to effect the Stock Split. The Board also approved an amendment to the Certificate of Incorporation to increase the total number of shares of all classes of capital stock to 25,000,000, consisting of 5,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of the Company and 20,000,000 shares of Common Stock. The proposed amendment also provided the Board with "blank check" authority to divide the Preferred Stock into series, fix the designations and number of shares of those series, and determine the designations, rights and preferences of those series. The Board adopted a resolution directing the officers of the Company to prepare a certificate of amendment, to submit the certificate of amendment to the stockholders for adoption thereby and to file the certificate of amendment with the Secretary of State. The Company has not been able to locate a separate document reflecting the stockholders' adoption of such amendment; however, at the time the Board executed the unanimous consent approving the amendment, all of the issued and outstanding shares of the Company's capital stock were held by the directors.
        The Certificate of Amendment in respect of such amendment was not filed with the Secretary of State until January 24, 2001. Paragraph THIRD of the Certificate of Amendment recites that the amendments were adopted on January 12, 2001, by the written consent of stockholders; however, the Company has been unable to locate that consent. In addition, the language effecting the Stock Split was omitted from the Certificate of Amendment. On December 11, 2008, the Company filed a Certificate of Correction to the Certificate of Amendment to include language effecting the Stock Split. Between June 7, 1999 and January 24, 2001, the Company issued shares of Common Stock in excess of
2

the 2,000 shares of Common Stock that were authorized for issuance under the Certificate of Incorporation as in effect at the time of such issuances. All such shares, however, were issued on the basis that the Stock Split and the amendments adopted by the Board on June 7, 1999, had then become effective, and all persons who acquired shares of Common Stock during that period acquired such shares on that basis.
        On November 7, 2003, the Board adopted resolutions (i) acknowledging that certain corporate records were inadvertently lost and that other corporate actions were not properly documented, (ii) confirming the number of outstanding shares issued as of November 3, 2003 and (iii) ratifying the issuance of all shares of capital stock, warrants and notes of the Company as of November 3, 2003. On November 25, 2003, the Board again ratified and approved the issuance of the Company's then-outstanding shares, notes and warrants (as set forth on a schedule specifically identifying the name of the securityholder, the number and type of securities held by such holder, and the date on which such securities were issued to such holder) and rescinded the issuance of any shares, notes or warrants not set forth on the schedule. The total number of outstanding shares of Common Stock as of November 24, 2003 was 5,241,548, and the total number of outstanding shares of Common Stock (assuming the conversion to Common Stock of all notes, warrants and other securities then-outstanding) was 14,125,226. In connection with the November 25, 2003 resolutions, the Board determined that the consideration received by the Company for the issuance of such shares, notes and warrants so ratified was full and adequate. Each holder of a security (as set forth on the schedule to the November 7, 2003 resolutions), having received notice of the facts surrounding the issues relating to the Company's capital structure, including the record-keeping issues and other potential defects in the authorization of the issuance of the shares, executed a consent acknowledging and agreeing that the amount of securities held by such holder, as reflected on the schedule, represented such holder's entire ownership interest in the Company's securities.
        On November 25, 2003, the Board approved the issuance of shares of a series of preferred stock to be designated the "Series A Convertible Preferred Stock" (the "Series A Preferred Stock") pursuant to, and in the amount set forth in, the Securities Purchase Agreement, dated November 26, 2003, among the Company and the investors identified therein (as amended, the "Securities Purchase Agreement"), in exchange for consideration of $1 per share. On January 30, 2004, the Board ratified the initial issuance of 1,825,000 shares of Series A Preferred Stock pursuant to the Securities Purchase Agreement, as well as the issuance of 258,333 shares of Series A Preferred Stock issued to subsequent investors pursuant to joinder agreements to the Securities Purchase Agreement. Between February 4, 2004 and March 4, 2005, the Board authorized the issuance of an additional 2,250,000 shares of Series A Preferred Stock to Warburg Pincus Equity VIII, L.P. ("Warburg") in exchange for consideration of $1.00 per share. On August 30, 2004, the Board authorized the issuance of an additional 1,333,000 shares of Series A Preferred Stock to Warburg in exchange for consideration of $1.00 per share. On December 28, 2004, the Board authorized the issuance of 3,500,000 shares of Series A Preferred Stock to Warburg in exchange for consideration of $1.00 per share. On March 4, 2005, the Board authorized the issuance of 5,500,000 shares of Series A Preferred Stock to Warburg in exchange for consideration of $1.00 per share. Following these issuances, the total number of shares of Series A Preferred Stock issued and outstanding was 14,666,333.
        On November 25, 2003, the Board also approved, and the stockholders adopted, the Amended and Restated Certificate of Incorporation, which was filed with the Secretary of State and became effective on November 25, 2003 (the "First Restated Charter"). The First Restated Charter increased the authorized number of shares of capital stock to 152,500,000, consisting of 137,000,000 shares of Common Stock and 15,500,000 shares of Preferred Stock, and provided for the creation of the Series A Preferred Stock. Under the First Restated Charter, upon an optional conversion of the Series A Preferred Stock, the holders thereof would receive shares of Common Stock representing a value equal to the sum of (i) an amount (the "Liquidation Preference") equal to the issue price of the Series A
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Preferred Stock, an 8% annual return (14% after the seventh anniversary of the date of issuance) and any declared and unpaid dividends on the Series A Preferred Stock plus (ii) an amount (the "Participation Amount") equal to a fixed percentage of the total equity value of the Company over the Liquidation Preference (the "Common Equity Value"). The percentage of the Common Equity Value to which the holders of the Series A Preferred Stock would be entitled is referred to herein as the "Participation Percentage." Under the First Restated Charter, the Participation Percentage in effect at any time was determined based on the number of shares of Series A Preferred Stock that had been issued. The Participation Percentage was set at 20% whenever the number of shares of Series A Preferred Stock that had been issued was 750,000 or less, but the Participation Percentage increased pursuant to a formula as additional shares of Series A Preferred Stock were issued, until it reached 75% when all 15,333,333 shares of Series A Preferred contemplated by the Securities Purchase Agreement were sold.
        Because the Participation Percentage was set at a fixed percentage, based on the number of shares of Series A Preferred Stock that had been issued, it was not subject to dilution based on the issuance of additional shares of Common Stock or other securities or the grant of management stock options. The First Restated Charter provided, however, that if the number of stock options granted to management would have diluted the interest of the "Initial Common Stock Holders" ( i.e. , the holders of Common Stock of record as of the first date of issue of the Series A Preferred Stock) in the Common Equity Value by more than 37%, the excess dilution would proportionately dilute the Participation Percentage and the percentage interest of the Initial Common Stock Holders in the Common Equity Value. The determination whether the 37% threshold was breached was to be made by the Board, provided that if a majority of the holders of Series A Preferred Stock or the Initial Common Stock Holders disagreed, an independent appraiser selected by such holders and the Company would make the determination. In addition, the formula through which the conversion ratio was derived was based in part on the "Total Enterprise Value," which required a determination of the fair market value of the Common Stock as determined by the Board. Again, if holders of a majority of the Series A Preferred Stock or the Initial Common Stock Holders disagreed with the determination, an independent appraiser selected by such holders and the Company would make the determination.
        The First Restated Charter provided that each share of Series A Preferred Stock would be entitled to that number of votes equal to the number of shares of Common Stock into which such share was then convertible, and further provided that, except with respect to the special voting rights of the Series A Preferred Stock set forth in the First Restated Charter and except as otherwise required by law, the Series A Preferred Stock would vote together with the Common Stock as a single class on all matters. The First Restated Charter also contained a provision specifying that, notwithstanding Section 242(b) of the General Corporation Law, the holders of Common Stock and Series A Preferred Stock shall vote together as one class on any amendment to increase the number of authorized shares of Common Stock. This provision remained in place throughout all subsequent amendments to the Certificate of Incorporation.
        On April 22, 2004, the Board committed that the Company would grant Bill Wenrich an option for .25% of the then-outstanding Common Stock, vested over four years and priced at the fair market value of the stock on the date of grant. This grant was to be made in connection with Mr. Wenrich's appointment as Independent Director. The grant was actually made to Mr. Wenrich in February 2006 under the terms of a stockholder-ratified stock option plan. On February 8, 2005, the Board authorized the issuance of 11,749 shares of Common Stock to Roberts Wesleyan College ("RWC"). The Board also adopted resolutions providing that the previous resolutions authorizing the grant of an option to RWC to purchase 80,892 shares of Common Stock would be modified to authorize instead new options to purchase 59,742 shares of Common Stock, with 18,750 shares having an exercise price of $.25 and 40,992 shares having an exercise price of $.50. On March 9, 2005, one warrant was issued to RWC with an effective date of July 1, 2004; the warrant provided an option to purchase 59,742 shares with an
4

exercise price of $.25. In March 2005, the Board also approved the issuance of the warrant to purchase 59,742 shares to RWC; the resolutions do not reflect the exercise price, but provide that the terms of the warrant shall be as set forth on an exhibit attached to the resolutions. The resolutions do not include the exhibit that was to have been attached, but the Company has a copy of the warrant so issued.
        On March 30, 2005, the Board approved the Second Amended and Restated Certificate of Incorporation (the "Second Restated Charter"), which increased the number of authorized shares to 291,200,000, consisting of 275,000,000 shares of Common Stock and 16,200,000 shares of Series A Preferred Stock, and provided that the "Participation Percentage" would be 76.11% when 16,166,133 shares had been issued. Holders of a majority of the Series A Preferred Stock (which also constituted a majority in voting power of the outstanding stock) adopted the Second Restated Charter by written consent on March 30, 2005, and it was filed and became effective on March 30, 2005. The Company has been unable to locate any record of a substantially contemporaneous notice of the adoption of the Second Restated Charter to the holders of capital stock entitled to vote thereon who did not execute the consent. Such notice, however, was provided to such holders on December 23, 2008.
        On March 30, 2005, the Board authorized the issuance of 1,500,000 shares of Series A Preferred Stock to Warburg in exchange for consideration of $1.00 per share. Following this issuance, the total number of issued and outstanding shares of Series A Preferred Stock would have been 16,166,333. In connection with this authorization, on July 25, 2005, the Board approved the Third Amended and Restated Certificate of Incorporation, which was filed and became effective on July 27, 2005, and on July 29, 2005, the Board approved the Fourth Amended and Restated Certificate of Incorporation, which was filed and became effective on that date. The Fourth Amended and Restated Certificate of Incorporation was filed for the sole purpose of correcting immaterial errors in the Third Restated Certificate of Incorporation; accordingly, these documents will be analyzed together for purposes of this opinion and are referred to herein as the "Fourth Restated Charter." Holders of a majority of the Series A Preferred Stock (which also constituted a majority in voting power of the outstanding capital stock) adopted the Fourth Restated Charter by written consent. The Company has been unable to locate any record of a substantially contemporaneous notice of the adoption of the Fourth Restated Charter to the holders of capital stock entitled to vote thereon who did not execute the consent. Such notice, however, was provided to such holders on December 23, 2008.
        The Fourth Restated Charter increased the number of authorized shares to 319,850,000, consisting of 300,000,000 shares of Common Stock and 19,850,000 shares of Series A Preferred Stock, and revised the optional conversion provisions of the Series A Preferred Stock, while maintaining the principle that the holders thereof would receive a value equal to the sum of the Participation Amount and the Liquidation Preference. The Participation Amount was to be received through the conversion of the Series A Preferred Stock into Common Stock at a fixed conversion ratio, subject to standard anti-dilution protection. The conversion ratio was set such that if shares of Series A Preferred Stock were converted immediately, the value of the Common Stock issued would equal the Participation Amount that would have resulted from the application of the formula in the Second Restated Charter, utilizing a Participation Percentage of 85.14%. The 9.03% increase in the Participation Percentage (over the 76.11% then in effect) was determined by dividing the $3,612,000 investment by the total equity value of the Company based on a $40 million pre-money valuation. The fixed conversion rate structure subjected the Participation Percentage to dilution for future option grants. Consistent with these changes, the Fourth Restated Charter also eliminated the provisions dealing with any objection by the Initial Common Stock Holders with respect to certain determinations of the Board and the appointment of an independent appraiser.
        On July 20, 2005, the Board approved the issuance of an unsecured subordinated convertible promissory note to Warburg in a principal amount of $3,500,000, with a maturity date of September 30, 2005, at which time the holder could convert the outstanding balance into shares of Series A Preferred
5

Stock at $1.00 per share. The note was issued on July 27, 2005, and on that same day, Warburg sent a notice to the Company to convert the note into 3,500,000 shares of Series A Preferred Stock. On July 26, 2005, the Board authorized the issuance of a total of 112,000 shares of Series A Preferred Stock to four members of management pursuant to a Subscription Agreement, which provided that the Company would receive consideration of $1.00 per share. The holders of a majority of the Series A Preferred Stock approved the terms of the Subscription Agreement and the issuance.
        On January 20, 2006, the Board approved the Company's 2005 Stock Incentive Plan (the "Plan"), under which 29,663,925 shares of Common Stock were reserved for issuance. This Plan was subsequently adopted by the holder of a majority of the outstanding Series A Preferred Stock (which constituted approval by a majority in voting power of the outstanding stock). The Company has been unable to locate any record of a substantially contemporaneous notice of such adoption to the holders of capital stock entitled to vote thereon who did not execute the consent. Such notice, however, was provided on December 23, 2008. At this meeting, the Board authorized time-vested options to the founders and to other members of senior management under the terms of the Plan, with an exercise price of $.07 per share, which the Board determined to be the fair market value of the Common Stock on the date of grant. The Board also issued options to members of the management team outside the terms of the Plan.
        On April 1, 2006, the Board modified Scott Turner's employment agreement and founder options to extend the exercise period of such options. On August 23, 2006, the Board amended the Plan to increase the number of shares of Common Stock reserved for issuance thereunder and to reserve shares of Common Stock for issuance outside the Plan. The amendment was approved by holders of a majority of the outstanding shares of Series A Preferred Stock (which constituted a majority in voting power of the outstanding capital stock), acting by written consent, on February 12, 2007. The Company has been unable to locate any record of a substantially contemporaneous notice of such adoption to the holders of capital stock entitled to vote thereon who did not execute the consent. Such notice, however, was provided on December 23, 2008.
        On February 28, 2007, the Board granted, in accordance with the terms of the Plan, time-vested options to Robert Hartman at an exercise price of $.09 per share. On November 27, 2007, the Board approved the Amended and Restated 2005 Stock Incentive Plan (the "Amended and Restated Plan") to increase the number of shares available for issuance thereunder and to make certain other technical changes. At that time, the Board also eliminated the reservation of shares for issuance upon the exercise of awards outside the Amended and Restated Plan. On that same day, the holders of a majority of the outstanding Series A Preferred Stock (which constituted a majority in voting power of the outstanding shares of capital stock) adopted the Amended and Restated Plan, acting by written consent. The Company has been unable to locate any record of a substantially contemporaneous notice of such adoption to the holders of capital stock entitled to vote thereon who did not execute the consent. Such notice, however, was provided on December 23, 2008. The Board also granted, in accordance with the terms of the Amended and Restated Plan, time-vested options, with an exercise price of $.13 per share, to various individuals.
Issues Presented for Consideration
A.
Organizational Matters
        The Company's initial director was not named in the original Certificate of Incorporation. Under the General Corporation Law, if the directors are not specifically named in the original certificate of incorporation—as in the case of the Company—the powers of the incorporator, including the power to adopt the organizational resolutions, continue until such time as the directors are elected. In the present case, all of the organizational resolutions were adopted by Mr. Clifford, in his capacity as sole director; however, the Company has been unable to locate the consent of the incorporator appointing
6

him as such. Thus, there is a question as to whether Mr. Clifford, acting as sole director, had the authority to adopt the organizational resolutions included in the May 21, 1999 consent of the Board, including the resolution authorizing the initial issuance of Common Stock. We believe that the extrinsic evidence establishes that Mr. Clifford was duly elected as the sole initial director and, as such, had the authority to take the actions referenced in the initial Board consent.
        An additional question that arises is whether the initial Board consent constituted a valid action of the Board, given that Mr. Clifford, through that consent, had expanded the size of the Board to two directors but was the only director then in office. As a result of the expansion, the consent was adopted by unanimous written consent of the directors then in office, but by less than a majority of the total authorized directors, which raises quorum issues. Under Section 2.6 of the Bylaws adopted by virtue of that consent, however, "[a] majority of the number of directors fixed by, or in the manner provided in, these bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the board of directors, a quorum shall consist of a majority of the remaining directors until the vacancy has been filled." Thus, the relevant inquiry is whether the Bylaws effectively provided that a majority of the remaining directors would constitute a quorum and whether Mr. Clifford, as the sole remaining director, satisfied the minimum quorum requirements under the General Corporation Law. In our view, Mr. Clifford, as the sole remaining director, satisfied the minimum quorum requirements under the General Corporation Law.
B.
Appointment of Louis Falcigno as a Director and Certain Subsequent Board Appointments
        The initial Board consent provided that the "Board of Directors shall consist of two Director[s]." The resolution establishing the size of the Board was consistent with Section 2.2 of the Bylaws as adopted by the initial Board consent. That section provided that "the board of directors of the corporation shall consist of four (4) persons," but further specified that "[t]he number of directors may at any time and from time to time be increased or decreased by action of either the shareholders or the board of directors." Thus, while the Bylaws initially called for a Board consisting of four directors, they provided that such number could be increased or decreased through an action of the Board, such as the establishment of the size of the Board adopted in the initial Board consent. Accordingly, immediately following the adoption of the initial Board consent, there were a total of two authorized directorships: one filled by Mr. Clifford and one vacancy.
        As indicated above, the initial Board consent did not include a resolution filling the vacancy created by the expansion of the Board. But the immediately succeeding action of the Board included in the Company's records—a unanimous written consent executed on June 7, 1999—reflects that each of Messrs. Clifford and Falcigno then constituted the entire Board. In addition, Mr. Clifford's November 20, 2003 affidavit provides that "[t]he appointment of Louis Falcigno as a director of the [Company] as of May 21, 1999, is hereby ratified." At this time, Mr. Clifford, as the sole director in office, had the authority under the Bylaws and the General Corporation Law to fill vacancies on the Board, and we believe that the extrinsic evidence establishes that Mr. Falcigno was duly elected to the Board as of May 21, 1999 to fill the vacancy created by the expansion of the Board effected pursuant to the initial Board consent. Subsequent to the appointment of Mr. Falcigno, additional directors were added to the Board, although there is no record in certain cases of a resolution of the Board formally expanding the size of the Board. As indicated above, however, under the Bylaws and the General Corporation Law, the Board was authorized to increase the number of directors and to fill the vacancies created thereby. In our view, the election by the Board of such additional directors had the effect of simultaneously expanding the size of the Board to accommodate such directors' election to the Board.
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C.
The Stock Split and Stock Issuances from the Initial Issuance through the Effectiveness of the Certificate of Amendment
        As noted above, at its June 7, 1999 meeting, the Board approved the Stock Split and an amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock and to authorize shares of "blank check" Preferred Stock. The Certificate of Amendment reflecting the amendments was not filed until January 24, 2001, and the language required to effect the Stock Split was inadvertently omitted from the Certificate of Amendment. The Certificate of Amendment was subsequently corrected to include the language effecting the Stock Split. Following the Board's adoption of the Stock Split and the amendments but prior to the filing of the Certificate of Amendment, the Board issued shares of Common Stock (including the shares purported to be issued pursuant to the Stock Split) in excess of the number of shares of Common Stock authorized under the Certificate of Incorporation as then in effect. In our view, the shares issued pursuant to the Stock Split, as well as the shares issued between the time of the initial stock issuance and the effectiveness of the Certificate of Amendment, are valid, notwithstanding these defects, given that the Certificate of Correction relates back to the date of the filing of the Certificate of Amendment to cure the defects caused by the omission of the language effecting the Stock-Split (except as to parties substantially and adversely affected thereby), that the extrinsic evidence demonstrates that no relevant parties were substantially and adversely affected by the Certificate of Correction, and that the stockholders' acknowledgment confirming the number of outstanding shares issued as of November 3, 2003 (as reflected in the Board resolutions adopted on November 7, 2003) described above constituted a valid ratification of the issuance of such other shares.
D.
Notice of Stockholder Action by Written Consent
        As described above, on several occasions the Company amended the Certificate of Incorporation or took other actions, such as adopting the Plan and amendments thereto, with the approval of a majority in voting power (but less than all) of the stockholders entitled to vote thereon, acting by written consent. But the Company did not provide the notice of these actions to the non-consenting stockholders, as required by the General Corporation Law and the Bylaws,(1) until December 23, 2008, years after any such action was taken. The Company's delay in sending such notice raises questions regarding the effectiveness of such amendments and other actions. Specifically, in cases where the amendment increased the number of authorized shares, or provided for the issuance of options up to a specified threshold, any issue regarding the effectiveness of the amendment or action could affect the validity of any shares issued under the relevant instrument. In our view, the delay in such notice would not result in a finding that such amendments to the Certificate of Incorporation, the Plan or any amendments thereto are ineffective, nor would it result in a finding that any shares or options issued thereunder are invalid, and at most gave rise to an estoppel claim on the part of those stockholders to whom the requisite notice had not initially been provided until such time as such notice was provided.

(1)
At all relevant times, Section 1.4 of the Bylaws provided: "Within 10 days after obtaining authorization by written consent [pursuant to Section 228 of the General Corporation Law], notice must be given to those shareholders who have not consented in writing or who are not entitled to vote on the action." Section 1.4 of the Bylaws also required that the notice summarize the material features of the action so taken.

E.
Amendment to the Second Restated Charter
        As described above, the Company amended the Second Restated Charter to change the conversion ratio of the Series A Preferred Stock from a specified formula to a fixed ratio. The amendments contemplated by the Fourth Restated Charter were authorized by the Series A Preferred Stock (which constituted a majority in voting power of the Company's capital stock), acting by written consent, but no vote or consent of the holders of Common Stock, acting as a separate class, was sought or obtained. Thus, there is a question as to whether a separate class vote of the Common Stock was required under
8

the General Corporation Law to authorize the amendments contemplated by the Fourth Restated Charter. In our view, no separate vote of the Common Stock was so required, because the amendment did not alter or change the powers, preferences or special rights of the Common Stock.
Conclusion
        We are not aware of any case directly addressing the issues posed for our consideration. Nonetheless, based upon and subject to our review of such matters of Delaware law as we have deemed necessary and appropriate to render our opinion as expressed herein, and subject to the assumptions, exceptions, limitations and qualifications set forth herein, it is our opinion that none of the issues presented for our consideration herein would affect the conclusion expressed in the opinion of Wilson Sonsini that the Shares are duly authorized, validly issued, fully paid and non-assessable.
        We are admitted to practice law in the State of Delaware and do not hold ourselves out as being experts on the law of any other jurisdiction. The foregoing opinion is limited to the General Corporation Law currently in effect, and we have not considered and express no opinion on the effect of any other laws of the State of Delaware or the laws of any other state or jurisdiction, including state or federal laws relating to securities or other federal laws, or the rules and regulations of stock exchanges or of any other regulatory body.
        We consent to the filing of this opinion letter as Exhibit 5.2 to the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, the rules and regulations of the Securities and Exchange Commission promulgated thereunder or Item 509 of Regulation S-K. We understand that Wilson Sonsini wishes to rely on this opinion in rendering its opinion to you in connection with the foregoing, and we consent to such reliance. Except as stated above, this opinion letter is rendered to you solely for use in connection with the issuance and sale of the Shares in accordance with the Registration Statement as of the date first written above and, without our prior written consent, may not be furnished or quoted to, or relied upon by, any other person or entity for any purpose.
        We disclaim any obligation to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company or the Shares.

 	
 	
Very truly yours,	
CSB/JMZ
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Exhibit 5.2

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 Exhibit 21.1
SUBSIDIARIES OF
BRIDGEPOINT EDUCATION, INC.
AS OF AUGUST 19, 2009

 	 	JURISDICTION OF
INCORPORATION
OR ORGANIZATION	
SUBSIDIARIES OF BRIDGEPOINT EDUCATION, INC.:	 	 	
Ashford University, LLC	 	Iowa	
Bridgepoint Education Real Estate Holdings, LLC	 	Iowa	
University of the Rockies, LLC	 	Colorado	
Waypoint Outcomes, LLC	 	Delaware	
SUBSIDIARIES OF ASHFORD UNIVERSITY, LLC:	 	 	
Center Leaf Partners, LLC	 	Iowa	

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Exhibit 21.1

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 Exhibit 23.2

 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              We hereby consent to the use in the Registration Statement on Form S-1 of our reports dated March 19, 2009, except for Note 19, "Subsequent Events: Reverse Stock Split," which is as of March 31, 2009, relating to the financial statements and financial statement schedules of Bridgepoint Education, Inc. and its subsidiaries, which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Diego, California
August 26, 2009

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Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM