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As filed with the Securities and Exchange Commission on December 22, 2008
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 
(State or other jurisdiction
of incorporation or organization)	 	8221 
(Primary Standard Industrial
Classification Code Number)	 	59-3551629 
(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
 Chief Executive Officer
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:	
John J. Hentrich, Esq.
Robert L. Wernli, Jr., Esq.
Sheppard, Mullin, Richter & Hampton LLP
12275 El Camino Real, Suite 200
San Diego, CA 92130
Telephone: (858) 720-8900
Facsimile: (858) 509-3691	 	Kris F. Heinzelman, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
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 the 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, other than securities offered only in connection with dividend or interest reinvestment plans, 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. (Check one):

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	 	Proposed Maximum Aggregate
Offering Price (1) (2)	 	Amount of
Registration Fee	
 	
Common Stock, par value $0.01 per share	 	$230,000,000	 	$9,039	
 	
(1)
Estimated solely for the purpose of computing the amount of the registration fee, in accordance with Rule 457(o) promulgated under the Securities Act of 1933.
(2)
Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.
           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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission 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, DATED DECEMBER 22, 2008
             Shares

Bridgepoint Education, Inc.
Common Stock

        Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $                           and $                           per share. We will apply to list our common stock on the New York Stock Exchange under the symbol "BPI."
        We are selling                           shares of common stock and the selling stockholders are selling                           shares of common stock.
        The underwriters have an option to purchase a maximum of                                        additiona l shares from the selling stockholders to cover over-allotments of shares.
         Investing in our common stock involves risks. See "Risk Factors" beginning on page 11.

 	 	Price to
Public	 	Underwriting
Discounts and
Commissions	 	Proceeds to
Bridgepoint	 	Proceeds to
Selling
Stockholders	 	
Per Share	 	 	$	 	 	$	 	 	$	 	 	$	 	
Total	 	$	 	 	$	 	 	$	 	 	$	 	 	
        Delivery of the shares of common stock will be made on or about                           , 2009.
         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.

Credit Suisse	 	J.P.Morgan	
The date of this prospectus is                                        , 2009.

 TABLE OF CONTENTS

 	 	Page	 	
PROSPECTUS SUMMARY	 	 	1	 	
RISK FACTORS	 	 	11	 	
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	 	 	33	 	
USE OF PROCEEDS	 	 	34	 	
DIVIDEND POLICY	 	 	34	 	
CAPITALIZATION	 	 	35	 	
DILUTION	 	 	37	 	
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	 	 	39	 	
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	 	 	43	 	
BUSINESS	 	 	60	 	
REGULATION	 	 	78	 	
MANAGEMENT	 	 	91	 	
COMPENSATION DISCUSSION AND ANALYSIS	 	 	98	 	
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	 	 	118	 	
PRINCIPAL AND SELLING STOCKHOLDERS	 	 	121	 	
DESCRIPTION OF CAPITAL STOCK	 	 	124	 	
SHARES ELIGIBLE FOR FUTURE SALE	 	 	130	 	
MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK	 	 	132	 	
UNDERWRITING	 	 	135	 	
INTERNATIONAL SELLING RESTRICTIONS	 	 	138	 	
LEGAL MATTERS	 	 	140	 	
EXPERTS	 	 	140	 	
CHANGE IN ACCOUNTANTS	 	 	140	 	
WHERE YOU CAN FIND MORE INFORMATION	 	 	141	 	
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.

 Dealer Prospectus Delivery Obligation
         Until                  , 2009 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 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, (ii) the term "Warburg Pincus" refers to Warburg Pincus Private Equity VIII, L.P. and (iii) the terms "redeemable convertible preferred stock" and "Series A Convertible Preferred Stock" refer to our Series A Convertible Preferred Stock, par value $0.01 per share.
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 September 30, 2008, we offered over 760 courses and 41 degree programs with 37 specializations and 21 concentrations. We had 30,547 students enrolled in our institutions as of September 30, 2008, 98% 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. At December 31, 2007 and September 30, 2008, our enrollment was 12,623 and 30,547, respectively, an increase of 182.3% and 140.2%, respectively, over our enrollment as of the comparable dates in the prior years. At September 30, 2008, our ground enrollment was 761, 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, 2007 and the nine months ended September 30, 2008, our revenue was $85.7 million and $149.2 million, respectively, an increase of 199.5% and 173.4%, respectively, over the same periods for the prior years. For the year
1

ended December 31, 2007 and the nine months ended September 30, 2008, our operating income was $4.0 million and $26.3 million, respectively, an increase from an operating loss of $4.8 million and from operating income of $1.4 million, respectively, in the same periods for 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 Chief Executive Officer, 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 24 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 2008 report by the Department of Education's National Center for Education Statistics, or NCES, revenue of postsecondary degree-granting educational institutions exceeded $385 billion in the 2004-05 academic year. According to a September 2008 NCES report, the number of students enrolled in postsecondary institutions was 18.0 million in 2007 and is projected to grow to 18.6 million by 2010.
        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 0.5 million to 1.8 million between 2002 and 2007, representing a compound annual growth rate of 30.4%. 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;
2

•
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 2006 median incomes for individuals 25 years or older with a bachelor's, master's and doctoral degree were 70%, 103% and 186% higher, respectively, than for a high school graduate 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 2008 NCES report, 67% of all individuals 25 years or older in the United States who have obtained a high school degree, or over 110 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 2008 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 2008 NCES report, over 32 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.
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
3

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.   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 78% transferred in credits and 50% 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. We have over 100 years of aggregate history between Ashford University and the University of the Rockies.
         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 a July 2008 survey we conducted, in which over 2,000 students responded, 98% 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 Chief Executive Officer, 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 2008 NCES report, programs in our disciplines represent 69% of total bachelor's degrees conferred by all postsecondary institutions in 2005-06.
         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.
4

         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 11. 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; 

•
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; or 

•
adverse economic or other developments negatively impact demand in our core disciplines or the availability or cost of Title IV or other funding.
Corporate Information
        We were incorporated in Delaware in May 1999. 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.
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.
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The Offering

Common stock offered by us	 	            shares	
Common stock offered by the selling stockholders	 	            shares	
Total common stock offered	 	            shares	
Common stock outstanding after this offering	 	            shares	
Use of proceeds	 	We estimate the net proceeds to us from this offering will be $       million, based on an initial public offering price of $        per share, the midpoint of the range set forth on the cover of this prospectus. We will pay $       million of the net proceeds to holders of our Series A Convertible Preferred Stock, and the balance will be available for general corporate purposes. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See "Use of Proceeds."	
Risk factors	 	See "Risk Factors" for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.	
Proposed New York Stock Exchange symbol	 	"BPI"	
        The number of shares of common stock to be outstanding immediately after this offering is based upon            shares of common stock outstanding as of                  , 2009, and excludes:
•
7,100,595 shares of common stock issuable upon the exercise of warrants outstanding as of                  , 2009, at a weighted average exercise price of $0.50 per share; 

•
shares of common stock issuable upon the exercise of options outstanding as of                  , 2009, at a weighted average exercise price of $            per share; and 

•
shares of common stock reserved for future issuance under our equity incentive plans.
        Unless otherwise stated, all information in this prospectus assumes:
•
an initial public offering price of $        per share, the midpoint of the range set forth on the cover of this prospectus; 

•
a one-for-            split of our outstanding common stock to be effective prior to the consummation of this offering; and 

•
no exercise of the over-allotment option granted to the underwriters.
6

 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, 2005, 2006 and 2007, and the summary consolidated balance sheet data as of December 31, 2006 and 2007, have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2005, have been derived from our audited consolidated financial statements, which are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods.
        The summary consolidated statement of operations data for each of the nine months ended September 30, 2007 and 2008, and the summary consolidated balance sheet data as of September 30, 2008, have been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial position and operating results for the unaudited periods.

 	 	Year Ended December 31,	 	Nine Months
Ended
September 30,	 	
 	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except per share data)	 	
Consolidated Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	7,951	 	$	28,619	 	$	85,709	 	$	54,558	 	$	149,167	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	5,498	 	 	12,510	 	 	29,837	 	 	19,154	 	 	42,050	 	
 	Marketing and promotional	 	 	4,078	 	 	12,214	 	 	35,997	 	 	24,532	 	 	54,490	 	
 	General and administrative	 	 	6,190	 	 	8,704	 	 	15,892	 	 	9,503	 	 	26,326	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	15,766	 	 	33,428	 	 	81,726	 	 	53,189	 	 	122,866	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(7,815	)	 	(4,809	)	 	3,983	 	 	1,369	 	 	26,301	 	
Interest (income)	 	 	(38	)	 	(10	)	 	(12	)	 	(1	)	 	(195	)	
Interest expense	 	 	228	 	 	351	 	 	544	 	 	332	 	 	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(8,005	)	 	(5,150	)	 	3,451	 	 	1,038	 	 	26,299	 	
Income tax expense	 	 	—	 	 	—	 	 	164	 	 	50	 	 	5,521	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(8,005	)	 	(5,150	)	 	3,287	 	 	988	 	 	20,778	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Preferred dividends(2)	 	 	1,344	 	 	1,718	 	 	1,856	 	 	1,392	 	 	1,503	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(9,349	)	$	(6,868	)	$	1,431	 	$	(404	)	$	19,275	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(0.66	)	$	(0.48	)	$	0.10	 	$	(0.03	)	$	1.28	 	
 	Diluted	 	$	(0.66	)	$	(0.48	)	$	0.01	 	$	(0.03	)	$	0.08	 	
Shares used in computing earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	14,131	 	 	14,357	 	 	14,896	 	 	14,845	 	 	15,008	 	
 	Diluted	 	 	14,131	 	 	14,357	 	 	223,324	 	 	14,845	 	 	245,723	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7

																		
 	 	Year Ended December 31,	 	Nine Months
Ended
September 30,	 	
 	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except per share data)	 	
Pro forma earnings per common share (unaudited)(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	$	0.02	 	 	 	 	$	0.10	 	
 	Diluted	 	 	 	 	 	 	 	$	0.01	 	 	 	 	$	0.08	 	
Shares used in computing pro forma earnings per common share (unaudited)(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	216,520	 	 	 	 	 	216,632	 	
 	Diluted	 	 	 	 	 	 	 	 	223,324	 	 	 	 	 	245,723	 	
Supplemental pro forma earnings per common share (unaudited)(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in computing supplemental pro forma earnings per common share (unaudited)(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

																	
 	 	As of December 31,	 	As of
September 30, 2008	 	
 	 	2005(1)	 	2006(1)	 	2007	 	Actual	 	Pro forma as
Adjusted(5)	 	
 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands)	 	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	2,163	 	$	54	 	$	7,351	 	$	31,992	 	$	 	 	
Total assets	 	 	14,749	 	 	17,091	 	 	39,057	 	 	94,470	 	 	 	 	
Total indebtedness (including short-term indebtedness)	 	 	3,779	 	 	4,193	 	 	5,673	 	 	683	 	 	 	 	
Redeemable convertible preferred stock	 	 	21,482	 	 	23,200	 	 	25,056	 	 	26,560	 	 	 	 	
Total stockholders' equity (deficit)	 	 	(15,197	)	 	(21,692	)	 	(20,143	)	 	(744	)	 	 	 	
 
8

																		
 	 	Year Ended December 31,	 	Nine Months Ended
September 30,	 	
 	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except enrollment data)	 	
Consolidated Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	$	323	 	$	1,381	 	$	3,571	 	$	3,428	 	$	9,057	 	
Depreciation and amortization	 	 	494	 	 	735	 	 	1,236	 	 	785	 	 	1,547	 	
EBITDA(6) (unaudited)	 	 	(7,321	)	 	(4,074	)	 	5,219	 	 	2,154	 	 	27,848	 	
Cash flows provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Operating activities	 	 	(7,244	)	 	(1,082	)	 	10,367	 	 	1,662	 	 	39,353	 	
 	Investing activities	 	 	(8,020	)	 	(1,373	)	 	(2,936	)	 	(2,793	)	 	(9,723	)	
 	Financing activities	 	 	13,857	 	 	346	 	 	(134	)	 	2,448	 	 	(4,989	)	
Period end enrollment:(7)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	729	 	 	4,111	 	 	12,104	 	 	12,117	 	 	29,786	 	
 	Ground	 	 	334	 	 	360	 	 	519	 	 	599	 	 	761	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	1,063	 	 	4,471	 	 	12,623	 	 	12,716	 	 	30,547	 	

(1)
Our consolidated financial statements as of and for the years ended December 31, 2005 and 2006 have been restated. See Note 3, "Restatement of Consolidated Financial Statements," to our consolidated financial statements, which are included elsewhere in this prospectus.

(2)
Upon the closing of this offering, the holders of Series A Convertible Preferred Stock will receive a payment equal to the original purchase price of $1.00 per share, plus accreted dividends.

(3)
Pro forma basic earnings per share has been calculated assuming the conversion of all outstanding shares of our Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering. Pro forma diluted earnings per share further includes the incremental shares of common stock issuable upon the exercise of stock options and warrants. See Note 9, "Earnings Per Share," to our consolidated financial statements, which are included elsewhere in this prospectus.

(4)
Supplemental pro forma basic earnings per share has been calculated assuming (i) the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering and (ii) the payment of $          to holders of Series A Convertible Preferred Stock from the net proceeds of this offering. Supplemental pro forma diluted earnings per share further includes the incremental shares of common stock issuable upon the exercise of stock options and warrants. See Note 9, "Earnings Per Share," to our consolidated financial statements, which are included elsewhere in this prospectus.

(5)
The pro forma as-adjusted consolidated balance sheet data as of September 30, 2008, give effect to:

(i)
the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering;

(ii)
the sale by us of                        shares of common stock in this offering, at an assumed initial public offering price of $                        per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering costs payable by us; and

(iii)
the payment by us of $                        to holders of Series A Convertible Preferred Stock upon the closing of this offering.
9

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) cash, cash equivalents and short-term investments, total assets and stockholders' equity by $             million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and estimated offering expenses payable by us.
(6)
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, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments.
We believe EBITDA is useful to investors in evaluating our operating performance and liquidity 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,	 	Nine Months Ended
September 30,	 	
 	 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
 	 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	 	(In thousands)	 	
 	Net income (loss)	 	$	(8,005	)	$	(5,150	)	$	3,287	 	$	988	 	$	20,778	 	
 	Plus: interest expense	 	 	228	 	 	351	 	 	544	 	 	332	 	 	197	 	
 	Less: interest (income)	 	 	(38	)	 	(10	)	 	(12	)	 	(1	)	 	(195	)	
 	Plus: income tax expense	 	 	—	 	 	—	 	 	164	 	 	50	 	 	5,521	 	
 	Plus: depreciation and amortization	 	 	494	 	 	735	 	 	1,236	 	 	785	 	 	1,547	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	EBITDA	 	$	(7,321	)	$	(4,074	)	$	5,219	 	$	2,154	 	$	27,848	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
(7)
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.
10

 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 schools fail to comply with extensive regulatory requirements, we could face monetary liabilities or penalties, restrictions on our operations or growth or loss of access to federal loans and grants for our students on which we are substantially dependent.
        In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from federal student financial aid programs, referred to in this prospectus as Title IV programs, administered by the 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 Department of Education as a reliable indicator of educational quality and certified as an eligible institution by the Department of Education. See "Regulation." As a result, we are subject to extensive regulation by state education agencies, our accrediting agency and the 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 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 Department of Education can 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 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 

•
referring a matter for possible civil or criminal investigation.
11

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 Department of Education prior to seeking recertification.
        An institution that is certified to participate in Title IV programs must periodically seek recertification from the Department of Education to continue participating in such programs, including when it undergoes a change of control as defined by the Department of Education. Our most recent provisional certification for Ashford University was scheduled to expire on June 30, 2008. We timely submitted our application for recertification and were notified by the Department of Education in November 2008 that our provisional certification will be renewed with a new expiration date of June 30, 2011. Our current provisional certification for the University of the Rockies is scheduled to expire on September 30, 2010. The 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 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 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
12

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 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 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 2009-10 academic year to review financial performance and the outcomes of the newly approved prior learning assessments and the increase in transfer credits. The Higher Learning Commission has scheduled Ashford University for a comprehensive evaluation during the 2016-17 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 2015-16 academic year in connection with the next regularly scheduled accreditation renewal process. To remain accredited, we 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 with the Iowa Secretary of State. 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 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 Department of Education's Office of Inspector General has commenced a compliance audit of Ashford University which is ongoing, and which could result in repayment of Title IV funds, interest, fines, penalties, remedial action, damage to our reputation in the industry or a limitation on, or a termination of, our participation in Title IV programs.
        The Department of Education's Office of Inspector General (OIG) is responsible for promoting the effectiveness and integrity of the Department of Education's programs and operations. With respect
13

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 the Title IV award year commencing on July 1, 2006. The OIG has informed us that it expects to complete its field work in January 2009. Based on our conversations with the OIG, we believe it will issue a draft audit report sometime in the first half of 2009 to which we will have an opportunity to respond. We expect that the OIG will not issue a final audit report until several months thereafter. The final audit report would include any findings and any recommendations to the Department of Education's Federal Student Aid office based on those findings. If the OIG identifies findings of noncompliance in its final report, the OIG could recommend remedial actions to the office of Federal Student Aid, which would determine what if any action to take. 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 schools fail to comply with extensive regulatory requirements, we could face monetary liabilities or penalties, restrictions on our operations or growth or loss of access to federal loans and grants for our students on which we are substantially dependent."
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 Department of Education or post a letter of credit in favor of the Department of Education and possibly accept other conditions to the institution's participation in Title IV programs. The Department of Education may also apply such measures of financial responsibility on a consolidated basis to the parent corporation of an eligible institution and, if such measures are not satisfied by the parent corporation, require the institution to post a letter of credit in favor of the 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 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 regulations of heightened cash monitoring level one method of payment. Under the heightened cash monitoring level one method of payment, we may not draw down Title IV funds until the day we disburse them to our 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.
14

        If either Ashford University or the University of the Rockies were unable to secure the required letter of credit, it would lose its eligibility to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations. In addition to the obligation to post a letter of credit, our institutions could be transferred from the heightened cash monitoring level one method of payment of Title IV program funds to the heightened cash monitoring level two method of payment or to the reimbursement method of payment, which would adversely affect the timing of our receipt of Title IV funds.
The failure of our schools to demonstrate administrative capability may result in a loss of eligibility to participate in Title IV programs.
        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; 

•
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 Department of Education regulations, the 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 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.
15

If we are found not to have satisfied the 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 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's having to post a letter of credit in an amount equal to 25% of its prior year Title IV returns. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
        For the year ended December 31, 2007, Ashford University exceeded the 5% threshold for late refunds sampled due to human error. As a result, we are subject to the requirement 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 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.
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 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 Department of Education no longer reviews and approves compensation plans prior to their implementation. If one of our schools 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 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
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enforcement measures. In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV funds. Ineligibility to participate in Title IV programs 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 our student loan default rates are too high.
        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 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 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 Department of Education in 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 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.
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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 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 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 loan funding through private lenders.
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 experience a change of control under the standards of applicable state education agencies, the Higher Learning Commission or the Department of Education, we must seek the approval of each relevant regulatory agency. The failure of one of our schools to reestablish its state authorization, Higher Learning Commission accreditation or Department of Education certification following a change in control could result in a suspension or loss of operating authority or ability to participate in Title IV programs, which would have a material adverse effect on our enrollments, revenues and results of operations. Transactions or events that constitute a change of control include significant acquisitions or dispositions of an institution's common stock and significant changes in the composition of an institution's board of directors.
        Immediately prior to this offering, Warburg Pincus beneficially owned    % 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. We have received confirmation from the Department of Education, and we plan to seek confirmation from the Higher Learning Commission and applicable state agencies, that this offering will not constitute a change in control under their respective standards. If the beneficial ownership of Warburg Pincus falls below 25%, or if other events occur that cause us to file a current report on Form 8-K disclosing a change of control, the Department of Education will deem a change of control to have occurred. The potential adverse effects of a change of control with respect to participation in Title IV programs could influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our common stock. The adverse regulatory effect of a change of control could also discourage bids for shares of our common stock and could have an adverse effect on the market price of our common stock.
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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 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 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 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.
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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.
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
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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 the consolidated financial statements included elsewhere in this prospectus, 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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sufficient personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of technical accounting principles in accordance with GAAP to support our financial accounting and reporting functions; or 

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effective controls over the selection, application and monitoring of accounting policies related to leasing transactions, revenue recognition, stock-based compensation, redeemable convertible preferred stock and purchase accounting to ensure that such transactions were accounted for in conformity with GAAP.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting." In addition, we have had to restate our financial statements for 2005 and 2006, in part due to inadequate internal controls. See Note 2, "Summary of Significant Accounting Policies—Correction of an Error," and Note 3, "Restatement of Consolidated Financial Statements," to our consolidated financial statements, which are included elsewhere in this prospectus.
        As a public company, we will be required to file annual and quarterly reports containing our consolidated financial statements and will be subject to the requirements and standards set by 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 and annual auditor attestation reports 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.
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        Although we are in the process of remediating these material weaknesses, we have not yet been able to complete our remediation efforts. It will take additional time and expenditures to design, implement and test the controls and procedures required to enable our management to conclude that our internal control over financial reporting is effective. We cannot at this time estimate how long it will take to complete our remediation efforts, and we cannot assure you that measures we plan to take will be effective in mitigating or preventing significant deficiencies or material weaknesses in our internal control over financial reporting.
A decline in the overall growth of enrollment in postsecondary institutions, or in the number of students seeking degrees 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 September 2008 report from the National Center for Education Statistics, enrollment in degree-granting, postsecondary institutions is projected to grow 12.0% over the ten-year period ending in the fall of 2016 to 19.9 million. This growth is slower than the 23.6% increase reported in the prior ten-year period ended in the fall of 2006, when enrollment increased from 14.4 million in 1996 to 17.8 million in 2006. 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 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 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
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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 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, 2005, 2006 and 2007, Ashford University derived 86.9%, 79.9% and 83.9%, respectively, of its revenues (calculated on a cash basis in accordance with applicable
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Department of Education regulations) from Title IV programs. For the year ended December 31, 2007, the University of the Rockies derived 61.9% of its revenues (calculated on a cash basis in accordance with applicable 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.
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.
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        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 September 30, 2008, 14% of our students are 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, during 2007, we provided scholarships of $0.7 million 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.
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 revenues fall 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
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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 they will be in the future.
        We have a limited operating history on which you can evaluate our management decisions, business strategy and financial results. As a result, our historical and recent financial and business results may not necessarily be representative of what they will be in the future. We are subject to risks, uncertainties, expenses and difficulties associated with changing and implementing our business strategy that are not typically encountered by companies with longer histories or in more mature industries. As a result, it is possible that we may incur significant operating losses in the future and that we may not be able to sustain long-term 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 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
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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. In the event 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 proceeds from this offering and 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 schools, our business could be harmed.
        From time to time, we may pursue acquisitions of other schools. 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; 

•
expenses associated with the integration efforts; and 

•
unidentified issues not discovered in our due diligence process, including legal contingencies.

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.
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.
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Risks Related to the Offering
There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.
        Immediately prior to this offering, there has been no public market for our common stock. An active and liquid public market for our common stock may not develop or be sustained after this offering. The price of our common stock in any such market may be higher or lower than the price you pay. If you purchase shares of common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters and such price may not be indicative of prices that will prevail in the open market following this offering.
The price of our common stock may fluctuate 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 could 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; 

•
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; 

•
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; 

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

•
sales of common stock by our directors, executive officers and significant stockholders.
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 do not publish research or reports about our business, if they 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 will be 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
28

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 will become subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy, will increase our costs and may divert management attention from our business.
        We have historically operated as a private company. After this offering, we must 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 will be required to ensure that we have the ability to prepare financial statements that comply with SEC reporting requirements on a timely basis. We will also become 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 will impose significant compliance obligations upon us. As a public company, we will be required to:
•
prepare and distribute periodic reports and other shareholder 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.
        The changes required by becoming a public company will require a significant commitment of additional resources and management oversight that will cause us to incur increased costs and which might place 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 required by Section 404 of the Sarbanes-Oxley Act. These standards must be assessed by management and attested to by our auditors 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. Furthermore, 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 attest to 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.
29

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.
        After this offering,                  shares of our common stock will be outstanding. Of these shares,                  will be freely tradable (including the                   shares sold in this offering, except for shares that may be purchased by our affiliates), without restriction, in the public market. Our directors, executive officers and certain principal stockholders have agreed to enter into "lock up" agreements with the underwriters, in which they will agree to refrain from selling their shares for a period of 180 days after this offering, subject to certain extensions. After the lock-up period expires, up to an additional                  currently outstanding shares will be eligible for sale in the public market,                  of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, and various vesting agreements. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up period expires, the trading price of our common stock could decline. Credit Suisse Securities (USA) LLC and J.P. Morgan Securities, Inc. may, in their sole discretion, permit our directors, officers, employees and current stockholders who are subject to the contractual lock-up to sell shares prior to the expiration of the lock-up agreements.
        In addition, as of          , there were                  shares underlying options and warrants that were issued and outstanding, and we have authorized grants of options covering                   shares of common stock to employees, directors and consultants at the closing of this offering. 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.
        Shortly after the effectiveness of this offering, we also intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under our equity incentive plans. Upon filing the Form S-8, shares of common stock issued upon the exercise of options or otherwise under our equity incentive plans will be 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.
You will suffer immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
        If you purchase common stock in this offering, you will experience immediate and substantial dilution insofar as the public offering price will be substantially greater than the tangible book value per share of our outstanding common stock after giving effect to this offering. See "Dilution." The exercise of outstanding options and warrants and any future equity issuances by us will result in further dilution to investors.
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.
        Following the closing of this offering, 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.
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Our principal stockholder will continue to own over 50% of our voting stock after this offering, which will allow them collectively to control substantially all matters requiring stockholder approval and may afford them access to our management.
        Our principal stockholder, Warburg Pincus will beneficially own                  shares, or    %, of our common stock (or                   shares, or    % of our common stock, if the over-allotment option is exercised in full), upon the closing of this offering. Accordingly, Warburg Pincus can control us through its ability to determine the outcome of the election of our directors, to amend our certificate of incorporation and bylaws and to take other actions requiring the vote or consent of stockholders, including mergers, going private transactions and other extraordinary transactions, and the terms of any of these transactions. The ownership position of Warburg Pincus may have the effect of delaying, deterring or preventing a change in control or a change in the composition of our board of directors. Warburg Pincus may also use its contractual rights, including its ability to designate and appoint directors, and its large ownership position to address its own interests, which may be different from those of our other stockholders, including investors in this offering.
We will have broad discretion in applying the net proceeds of this offering and we may not use those proceeds in ways that will enhance the market value of our common stock.
        Other than the net proceeds from this offering that will be used to pay the holders of our Series A Convertible Preferred Stock upon the closing of this offering, we have broad discretion in applying any remaining net proceeds we will receive in this offering. As part of your investment decision, you will not be able to assess or direct how we apply these net proceeds. If we do not apply these funds effectively, we may lose significant business opportunities. Furthermore, our stock price could decline if the market does not view our use of the net proceeds from this offering favorably. A significant portion of the offering is by selling stockholders, and we will not receive proceeds from the sale of the shares offered by them.
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;
31

•
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; 

•
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.
32

 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; 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 failure 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; 

•
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; 

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

•
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.
33

 USE OF PROCEEDS
        We estimate that we will receive net proceeds of $     million from our sale of the shares of common stock offered by us in this offering, assuming an initial public offering price of $     per share, which is the midpoint of the range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $     per share would increase (decrease) net proceeds received by us in this offering by $     million, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus, remains the same.
        We will pay $     million of the net proceeds to holders of our Series A Convertible Preferred Stock upon the closing of this offering. We intend to use the balance of the net proceeds for general corporate purposes. We will retain broad discretion in the allocation of a substantial portion of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.
        The holders of Series A Convertible Preferred Stock will receive a payment equal to the original purchase price of $1.00 per share, plus accreted dividends, upon the closing of this offering, at which time all shares of Series A Convertible Preferred Stock will convert into common stock and no further dividends will accrete on such shares.
        We will not receive any of the proceeds from any sale of shares by the selling stockholders.

 DIVIDEND POLICY
        We currently intend to retain any future earnings to finance the growth, development and expansion of our business 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.
34

 CAPITALIZATION
        The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2008:
•
on an actual basis; 

•
on a pro forma basis to reflect the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering; and 

•
on a pro forma as adjusted basis to reflect:

(i)
the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering;

(ii)
the sale by us of            shares of common stock in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us;

(iii)
the payment by us of $            to the holders of Series A Convertible Preferred Stock upon the closing of this offering; and

(iv)
the amendment and restatement of our certificate of incorporation in connection with the closing of this offering, which will increase our authorized capital stock.
        You should read this table together with "Use of Proceeds," "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 September 30, 2008	 	
 	 	Actual	 	Pro Forma	 	Pro Forma
as Adjusted	 	
 	 	(In thousands, except share and per share data)	 	
Cash and cash equivalents	 	$	31,992	 	$	31,992	 	$	 	 	
 	 	 	 	 	 	 	 	
Total indebtedness (including short-term indebtedness)	 	$	683	 	$	683	 	$	 	 	
Series A Convertible Preferred Stock: $0.01 par value; 19,850,000 shares authorized, 19,778,333 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted	 	 	26,560	 	 	—	 	 	 	 	
Stockholders' equity:	 	 	 	 	 	 	 	 	 	 	
 	Undesignated preferred stock: $0.01 par value; no shares authorized, issued and outstanding, actual and pro forma;            shares authorized, no shares issued and outstanding, pro forma as adjusted	 	 	 	 	 	 	 	 	 	 	
 	Common stock: $0.01 par value; 300,000,000 shares authorized, 15,007,934 shares issued and outstanding, actual; 300,000,000 shares authorized, 216,632,420 shares issued and outstanding, pro forma;            shares authorized,            shares issued and outstanding pro forma as adjusted	 	 	150	 	 	348	 	 	 	 	
 	Additional paid-in capital	 	 	—	 	 	26,362	 	 	 	 	
 	Retained earnings (accumulated deficit)	 	 	(894	)	 	(894	)	 	 	 	
 	 	 	 	 	 	 	 	
 	Total stockholders' equity (deficit)	 	 	(744	)	 	25,816	 	 	 	 	
 	 	 	 	 	 	 	 	
 	 	Total capitalization	 	$	26,499	 	$	26,499	 	$	 	 	
 	 	 	 	 	 	 	 	
        A $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) cash and cash equivalents by $       million, would increase or decrease additional paid-in capital by $       million and would increase (decrease) total stockholders' equity and total capitalization by $       million, assuming the number of shares offered by us, as set forth on the cover of this
35

prospectus, remains the same and after deducting the underwriting discount and estimated offering costs payable by us.
        The table above excludes the following shares:
•
shares of common stock issuable upon the exercise of warrants outstanding as of                        , 2009, at a weighted average exercise price of $            per share, on an actual and pro forma basis; 

•
shares of common stock issuable upon the exercise of warrants outstanding as of                        , 2009, at a weighted average exercise price of $            per share, on a pro forma as adjusted basis; 

•
shares of common stock issuable upon the exercise of options outstanding as of                        , 2009, at a weighted average exercise price of $            per share, on an actual and pro forma basis; and 

•
shares of common stock issuable upon the exercise of options outstanding as of                        , 2009, at a weighted average exercise price of $            per share, on a pro forma as adjusted basis.
36

 DILUTION
        If you invest in our common stock, your investment will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. We calculate net tangible book value per share by calculating our total assets less intangible assets and total liabilities, and dividing it by the number of outstanding shares of common stock.
        As of September 30, 2008, our net tangible book value was $23.9 million, or $1.59 per share of common stock, and our pro forma net tangible book value, after giving effect to the conversion of all Series A Convertible Preferred Stock, was $23.9 million, or $0.11 per share of common stock. After giving effect to (i) the sale of        shares of common stock in this offering by us at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover of this prospectus, (ii) the payment by us of $                        to holders of our Series A Convertible Preferred Stock and (iii) the deduction of the estimated underwriting discounts and commissions and the payment by us of estimated offering costs, our net tangible book value as of September 30, 2008, which we refer to as our pro forma as adjusted net tangible book value, would have been $                        , or $        per share. This represents an immediate increase in net tangible book value of $        per share to our existing stockholders and an immediate dilution of $        per share to purchasers of common stock in this offering. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share	 	 	 	 	$	 	 	
 	Net tangible book value per share as of September 30, 2008	 	$	1.59	 	 	 	 	
 	Decrease in net tangible book value per share attributable to the conversion of all outstanding shares of Series A Convertible Preferred Stock as of September 30, 2008	 	 	(1.48	)	 	 	 	
 	 	 	 	 	 	 	
 	Pro forma net tangible book value per share as of September 30, 2008	 	 	0.11	 	 	 	 	
 	Increase in pro forma net tangible book value per share attributable to this offering	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Pro forma as-adjusted net tangible book value per share after this offering	 	 	 	 	$	 	 	
 	 	 	 	 	 	 	
Dilution per share to new investors	 	 	 	 	$	 	 	
 	 	 	 	 	 	 	
        The foregoing computation of dilution to new investors does not give effect to the additional dilution as a result of the exercise by certain selling stockholders of options and warrants in connection with this offering. Assuming the issuance of             shares of common stock (i) upon exercise in full of all of our outstanding options to purchase common stock at a weighted average exercise price of $             per share and (ii) upon exercise in full of all outstanding warrants to purchase common stock at a weighted average exercise price of $            per share, in each case at September 30, 2008, pro forma net tangible book value at September 30, 2008, would be $             per share, representing an immediate dilution of $             per share to our existing stockholders and, after giving effect to the sale of             shares of common stock in this offering, there would be an immediate dilution of             per share to purchasers of our common stock in this offering.
        Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $         per share and the dilution in net tangible book value to new investors in this offering by $        per share, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus, remains the same.
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        The following table summarizes as of September 30, 2008, pro forma as adjusted to give effect to (i) the conversion of all outstanding shares of Series A Convertible Preferred Stock, (ii) the exercise of warrants and options by the selling stockholders in this offering and (iii) the use of proceeds from this offering (including the payment to holders of our Series A Convertible Preferred Stock), the differences between the number of shares of common stock purchased from us, the aggregate cash consideration paid and the average price per share paid by existing stockholders and new investors purchasing shares of common stock from us in this offering. The calculation below is based on an offering price of $        per share (the midpoint of the range set forth on the cover of this prospectus) before deducting estimated underwriting discounts and commissions and estimated offering costs payable by us:

 	 	Shares Purchased	 	Total Consideration	 	 	 	
 					 	Average Price
Per Share	 	
 	 	Number	 	Percent	 	Amount	 	Percent			 	
Existing stockholders	 	 	 	 	 	 	%	$	 	 	 	 	%	$	 	 	
New investors	 	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	 	 	 	100	%	$	 	 	 	100	%	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
        A $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) total consideration paid by new investors to us in this offering by $         million and would increase (decrease) the average price per share by new investors by $1.00, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus, remains the same.
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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, 2005, 2006 and 2007, and the selected consolidated balance sheet data as of December 31, 2006 and 2007, have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2005, 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 years ended December 31, 2003 and 2004, and the selected consolidated balance sheet data as of December 31, 2003 and 2004 have been derived from our unaudited consolidated financial statements, which are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods.
        The selected consolidated statement of operations data for each of the nine months ended September 30, 2007 and 2008, and the selected consolidated balance sheet data as of September 30, 2008, have been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial position and operating results for the unaudited 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 2003 and 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,	 	Nine Months Ended September 30,	 	
 	 	2003	 	2004	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Unaudited)	 	(Unaudited)	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except per share data)	 	
Consolidated Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	729	 	$	1,240	 	$	7,951	 	$	28,619	 	$	85,709	 	$	54,558	 	$	149,167	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	347	 	 	1,387	 	 	5,498	 	 	12,510	 	 	29,837	 	 	19,154	 	 	42,050	 	
 	Marketing and promotional	 	 	—	 	 	2,254	 	 	4,078	 	 	12,214	 	 	35,997	 	 	24,532	 	 	54,490	 	
 	General and administrative	 	 	2,277	 	 	2,550	 	 	6,190	 	 	8,704	 	 	15,892	 	 	9,503	 	 	26,326	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	2,624	 	 	6,191	 	 	15,766	 	 	33,428	 	 	81,726	 	 	53,189	 	 	122,866	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(1,895	)	 	(4,951	)	 	(7,815	)	 	(4,809	)	 	3,983	 	 	1,369	 	 	26,301	 	
Interest (income)	 	 	—	 	 	—	 	 	(38	)	 	(10	)	 	(12	)	 	(1	)	 	(195	)	
Interest expense	 	 	—	 	 	—	 	 	228	 	 	351	 	 	544	 	 	332	 	 	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(1,895	)	 	(4,951	)	 	(8,005	)	 	(5,150	)	 	3,451	 	 	1,038	 	 	26,299	 	
Income tax expense	 	 	—	 	 	—	 	 	—	 	 	—	 	 	164	 	 	50	 	 	5,521	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(1,895	)	 	(4,951	)	 	(8,005	)	 	(5,150	)	 	3,287	 	 	988	 	 	20,778	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred dividends(2)	 	 	16	 	 	343	 	 	1,344	 	 	1,718	 	 	1,856	 	 	1,392	 	 	1,503	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(1,911	)	$	(5,294	)	$	(9,349	)	$	(6,868	)	$	1,431	 	$	(404	)	$	19,275	 	

39

																								
 	 	Year Ended December 31,	 	Nine Months Ended September 30,	 	
 	 	2003	 	2004	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Unaudited)	 	(Unaudited)	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except per share data)	 	
Earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(0.31	)	 	(0.37	)	$	(0.66	)	$	(0.48	)	$	0.10	 	$	(0.03	)	$	1.28	 	
 	Diluted	 	$	(0.31	)	 	(0.37	)	$	(0.66	)	$	(0.48	)	$	0.01	 	$	(0.03	)	$	0.08	 	
Shares used in computing earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	6,093	 	 	14,125	 	 	14,131	 	 	14,357	 	 	14,896	 	 	14,845	 	 	15,008	 	
 	Diluted	 	 	6,093	 	 	14,125	 	 	14,131	 	 	14,357	 	 	223,324	 	 	14,845	 	 	245,723	 	
Pro forma earnings per common share (unaudited)(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.02	 	 	 	 	$	0.10	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.01	 	 	 	 	$	0.08	 	
Shares used in computing pro forma earnings per common share (unaudited)(3)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	216,520	 	 	 	 	 	216,632	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	223,324	 	 	 	 	 	245,723	 	
Supplemental pro forma earnings per common share (unaudited)(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in computing supplemental pro forma earnings per common share (unaudited)(4)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

																							
 	 	 	 	 	 	 	 	 	 	 	 	As of
September 30, 2008	 	
 	 	As of December 31,			 	
 			 	 	 	Pro forma as
Adjusted(5)	 	
 	 	2003	 	2004	 	2005(1)	 	2006(1)	 	2007	 	Actual			 	
 	 	(Unaudited)	 	(Unaudited)	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands)	 	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	1,578	 	$	3,570	 	$	2,163	 	$	54	 	$	7,351	 	$	31,992	 	$	 	 	
Total assets	 	 	1,684	 	 	4,506	 	 	14,749	 	 	17,091	 	 	39,057	 	 	94,470	 	 	 	 	
Total indebtedness (including short-term indebtedness)	 	 	—	 	 	125	 	 	3,779	 	 	4,193	 	 	5,673	 	 	683	 	 	 	 	
Redeemable convertible preferred stock	 	 	1,841	 	 	9,526	 	 	21,482	 	 	23,200	 	 	25,056	 	 	26,560	 	 	 	 	
Total stockholders' equity (deficit)	 	 	3,655	 	 	934	 	 	(15,197	)	 	(21,692	)	 	(20,143	)	 	(744	)	 	 	 	
40

																								
 	 	Year Ended December 31,	 	Nine Months Ended September 30,	 	
 	 	2003	 	2004	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Unaudited)	 	(Unaudited)	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except enrollment data)	 	
Consolidated Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	$	5	 	$	261	 	$	323	 	$	1,381	 	$	3,571	 	$	3,428	 	$	9,057	 	
Depreciation and amortization	 	 	23	 	 	47	 	 	494	 	 	735	 	 	1,236	 	 	785	 	 	1,547	 	
EBITDA(6)(unaudited)	 	 	(1,872	)	 	(4,904	)	 	(7,321	)	 	(4,074	)	 	5,219	 	 	2,154	 	 	27,848	 	
Cash flows provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Operating activities	 	 	(300	)	 	(5,214	)	 	(7,244	)	 	(1,082	)	 	10,367	 	 	1,662	 	 	39,353	 	
 	Investing activities	 	 	(5	)	 	(261	)	 	(8,020	)	 	(1,373	)	 	(2,936	)	 	(2,793	)	 	(9,723	)	
 	Financing activities	 	 	1,875	 	 	7,467	 	 	13,857	 	 	346	 	 	(134	)	 	2,448	 	 	(4,989	)	
Period end enrollment:(7)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	—	 	 	202	 	 	729	 	 	4,111	 	 	12,104	 	 	12,117	 	 	29,786	 	
 	Ground	 	 	53	 	 	126	 	 	334	 	 	360	 	 	519	 	 	599	 	 	761	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	53	 	 	328	 	 	1,063	 	 	4,471	 	 	12,623	 	 	12,716	 	 	30,547	 	

(1)
Our consolidated financial statements as of and for the years ended December 31, 2005 and 2006 have been restated. See Note 3, "Restatement of Consolidated Financial Statements," to our consolidated financial statements, which are included elsewhere in this prospectus.

(2)
Upon the closing of this offering, the holders of Series A Convertible Preferred Stock will receive a payment equal to the original purchase price of $1.00 per share, plus accreted dividends.

(3)
Pro forma basic earnings per share has been calculated assuming the conversion of all outstanding shares of our Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering. Pro forma diluted earnings per share further includes the incremental shares of common stock issuable upon the exercise of stock options and warrants. See Note 9, "Earnings Per Share," to our consolidated financial statements, which are included elsewhere in this prospectus.

(4)
Supplemental pro forma basic earnings per share has been calculated assuming (i) the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering and (ii) the payment of $            to holders of Series A Convertible Preferred Stock from the net proceeds of this offering. Supplemental pro forma diluted earnings per share further includes the incremental shares of common stock issuable upon the exercise of stock options and warrants. See Note 9, "Earnings Per Share," to our consolidated financial statements, which are included elsewhere in this prospectus.

(5)
The pro forma as adjusted consolidated balance sheet data as of September 30, 2008, give effect to:

(i)
the conversion of all outstanding shares of Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering;

(ii)
the sale by us of                 shares of common stock in this offering, at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover of the prospectus, and after deducting underwriting discounts and commissions and estimated offering costs payable by us; and

(iii)
the payment by us of $                 to holders of Series A Convertible Preferred Stock upon the closing of this offering.

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) cash, cash equivalents and short-term investments, total assets and stockholders' equity by $             million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and estimated offering expenses payable by us.

(6)
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
41

alternative for, net income, operating income or any other performance measure presented in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments.
We believe EBITDA is useful to investors in evaluating our operating performance and liquidity 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,	 	Nine Months Ended
September 30,	 	
 	 	 	2003	 	2004	 	2005	 	2006	 	2007	 	2007	 	2008	 	
 	 	 	(Unaudited)	 	(Unaudited)	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
 	 	 	(In thousands)	 	
 	Net income (loss)	 	$	(1,895	)	$	(4,951	)	$	(8,005	)	$	(5,150	)	$	3,287	 	$	988	 	$	20,778	 	
 	Plus: interest expense	 	 	—	 	 	—	 	 	228	 	 	351	 	 	544	 	 	332	 	 	197	 	
 	Less: interest income	 	 	—	 	 	—	 	 	(38	)	 	(10	)	 	(12	)	 	(1	)	 	(195	)	
 	Plus: income tax expense	 	 	—	 	 	—	 	 	—	 	 	—	 	 	164	 	 	50	 	 	5,521	 	
 	Plus: depreciation and amortization	 	 	23	 	 	47	 	 	494	 	 	735	 	 	1,236	 	 	785	 	 	1,547	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	EBITDA	 	$	(1,872	)	$	(4,904	)	$	(7,321	)	$	(4,074	)	$	5,219	 	$	2,154	 	$	27,848	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(7)
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.
42

 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
        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 September 30, 2008, we offered over 760 courses and 41 degree programs with 37 specializations and 21 concentrations. We had 30,547 students enrolled in our institutions as of September 30, 2008, 98% of whom were attending classes exclusively online.
        In March 2005, we acquired the assets of The Franciscan University of the Prairies, located in Clinton, Iowa, and renamed it Ashford University. Founded in 1918 by the Sisters of St. Francis, a non-profit organization, The Franciscan University of the Prairies originally provided postsecondary education to individuals seeking to become teachers and later expanded to offer a broader portfolio of programs. 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.
        In September 2007, we acquired the assets of the Colorado School of Professional Psychology, located in Colorado Springs, Colorado, and renamed it the University of the Rockies. Founded as a non-profit organization in 1998 by faculty from Chapman University, the school offers master's and doctoral programs primarily in psychology. At the time of the acquisition, the school had 75 students 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.
        In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV programs administered by the 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 Department of Education and certified as an eligible institution by the Department of Education. As a result, we are subject to extensive regulation by state education agencies, our accrediting agency and the Department of Education. See "Regulation."
        Recent market conditions affecting the availability of credit have caused some lenders, including some lenders that historically have 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 Title IV loans they provide. In addition, 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, the students who utilize these loans 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. We do not believe these market and regulatory conditions have adversely affected us to date.
43

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.
        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.
        We believe that the principal factors that affect our enrollments are: (i) the number and breadth of the programs we offer; (ii) the attractiveness of our program offerings; (iii) the effectiveness of our marketing, recruiting and retention efforts, which is affected by the number and seniority of our enrollment advisors, and other recruiting and student services personnel; (iv) the quality of our academic programs and student services; (v) the convenience and flexibility of our online delivery platform; (vi) the availability and cost of federal and other funding for student financial aid; and (vii) general economic conditions.
        The following is a summary of our student enrollment at December 31, 2005, 2006 and 2007 and September 30, 2007 and 2008, by degree type and by instructional delivery method:

 	 	December 31,	 	September 30,	 	
 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
Doctoral	 	 	—	 	 	—	 	 	—	 	 	—	 	 	60	 	 	0.5	%	 	60	 	 	0.4	%	 	60	 	 	0.2	%	
Master's	 	 	236	 	 	22.2	%	 	358	 	 	8.0	%	 	905	 	 	7.2	 	 	860	 	 	6.8	 	 	2,174	 	 	7.1	 	
Bachelor's	 	 	827	 	 	77.8	 	 	3,980	 	 	89.0	 	 	11,071	 	 	87.7	 	 	11,327	 	 	89.1	 	 	25,563	 	 	83.7	 	
Associate's	 	 	—	 	 	—	 	 	68	 	 	1.5	 	 	533	 	 	4.2	 	 	401	 	 	3.2	 	 	2,554	 	 	8.4	 	
Other	 	 	—	 	 	—	 	 	65	 	 	1.5	 	 	54	 	 	0.4	 	 	68	 	 	0.5	 	 	196	 	 	0.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	1,063	 	 	100.0	%	 	4,471	 	 	100.0	%	 	12,623	 	 	100.0	%	 	12,716	 	 	100.0	%	 	30,547	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Online	 	 	
729	 	 	
68.6	
%	 	
4,111	 	 	
91.9	
%	 	
12,104	 	 	
95.9	
%	 	
12,117	 	 	
95.3	
%	 	
29,786	 	 	
97.5	
%	
Ground	 	 	334	 	 	31.4	 	 	360	 	 	8.1	 	 	519	 	 	4.1	 	 	599	 	 	4.7	 	 	761	 	 	2.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	1,063	 	 	100.0	%	 	4,471	 	 	100.0	%	 	12,623	 	 	100.0	%	 	12,716	 	 	100.0	%	 	30,547	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        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 2008-09 academic year (which began on July 1, 2008), our prices per credit range from $262 to $337 for undergraduate online courses and from $441 to $490 for graduate online courses. Based on these per credit prices, our prices for a three-credit course range from $786 to $1,011 for undergraduate online courses and $1,323 to $1,470 for graduate online courses. For the 2008-09 academic year, we charge a fixed $7,670 "block tuition" for undergraduate ground students taking between 12 and 18 credits per semester, with an additional $447 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 36 additional credits; and a doctoral degree typically requires a minimum of 63 additional credits.
44

        Tuition is reduced by the amount of scholarships we award to our students. For the years ended December 31, 2006 and 2007, revenue was reduced by $2.7 million and $5.3 million, respectively, as a result of institutional scholarships that we awarded to our students. For the nine months ended September 30, 2007 and 2008, we awarded institutional scholarships with a total value of $3.3 million and $9.2 million, respectively.
        Tuition prices for students in our online programs increased by an average of 2.1% for our 2008-09 academic year as compared to an average increase of 11.6% for our 2007-08 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 2008-09 academic year, as compared to an increase of 3.0% for the prior academic year.
        In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV programs administered by the Department of Education. Our students also utilize personal savings, military student loans and grants, employer tuition reimbursements and private loans to pay a portion of their tuition and related expenses. For the year ended December 31, 2007, Ashford University derived 1.9% and the University of the Rockies derived 0.0% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from private loans. Our future revenues could be affected if and to the extent we are unable to participate in Title IV programs. Current conditions in the credit markets have adversely affected the environment surrounding access to and cost of student loans. The legislative and regulatory environment is also changing, and new federal legislation was recently enacted pursuant to which the Department of Education is authorized to buy Title IV loans and implement a "lender of last resort" program in certain circumstances. See "Risk Factors" and "Regulation—Regulation of Federal Student Financial Aid Programs." We do not believe these market and regulatory conditions have adversely affected us to date.
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 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.
45

         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
        We have historically operated as a private company. After this offering, we will become 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 will be required to ensure that we have the ability to prepare financial statements that comply with SEC reporting requirements on a timely basis. We will also become 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 will impose significant compliance obligations upon us. As a public company, we will be required to:
•
prepare and distribute periodic reports and other shareholder 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.
        We estimate that our incremental annual costs associated with being a publicly traded company will be between $2.5 million and $4.0 million.
Stock-based compensation
        We expect to incur increased non-cash, stock-based compensation expenses in connection with existing and future issuances under our equity incentive plans.
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.
        In addition, as a private company, we were not subject to the same standards as a public company. As a public company, we will be required to file annual and quarterly reports containing our consolidated financial statements and will be subject to the requirements and standards set by the SEC, PCAOB and the NYSE. In particular, commencing with the year ending December 31, 2010, we must
46

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 the 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:
•
sufficient personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of technical accounting principles in accordance with GAAP to support our financial accounting and reporting functions; or 

•
effective controls over the selection, application and monitoring of accounting policies related to leasing transactions, revenue recognition, stock-based compensation, redeemable convertible preferred stock and purchase accounting to ensure that such transactions were accounted for in conformity with GAAP.

        In addition, we restated our consolidated financial statements for 2005 and 2006, in part due to inadequate internal controls. See Note 2, "Summary of Significant Accounting Policies—Correction of an Error," and Note 3, "Restatement of Consolidated Financial Statements," to our consolidated financial statements, which are included elsewhere 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. 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. 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. Specifically, these changes include:
•
hiring a corporate controller and a director of financial reporting, 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.
Critical Accounting Policies and 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.
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        Critical accounting policies are those that, in management's view, are most important in the portrayal of our financial condition and results of operations and include revenue recognition, allowance for doubtful accounts, impairment of long-lived assets, income taxes and accounting for stock-based compensation. Our critical accounting policies are disclosed in the footnotes to the consolidated financial statements. Those critical accounting policies that require the most significant judgments and estimates are:
Revenue recognition
        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 ground 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 the excess of tuition, fees and other student payments received as compared to amounts recognized as revenue and is reflected as current liabilities on our balance sheet. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded.
        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. Revenue also includes textbook-related income and other applicable fees and income, which are all recognized when services are delivered or when a product is sold.
Allowance for doubtful accounts
        We maintain an allowance for doubtful accounts for estimated losses resulting from students' inability to pay us. We calculate this provision based on our historical collection experience, the nature of the accounts receivable and potential changes in the economic environment. To the extent our future collections experience differs from our assumptions based on historical trends and our past experience, the amount of our bad debt and allowance recorded may be different. Bad debt expense is recorded as a component of instructional costs and services.
Impairments of long-lived assets
        We account for long-lived assets in accordance with the Statement of Financial Accounting Standards (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. An impairment loss is recognized 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 its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.
Income taxes
        On January 1, 2008, we adopted the accounting provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes . The adoption of this standard had no material effect on our consolidated financial statements and did not result in the recording of uncertain tax position liabilities. We make estimates to determine our current provision for income taxes, as well as deferred tax assets and liabilities, income taxes payable and any valuation allowances. Our estimates related to our current provision for income taxes are based on current tax laws. Changes in tax laws or our interpretation of tax laws could impact the amounts provided for income taxes in our consolidated
48

financial statements. We assess 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 against the deferred tax assets. To the extent we establish or change a valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our consolidated statement of operations.
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 (SFAS 123R), Share-Based Payments . 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 , and replaces our previous accounting for share-based awards under Accounting Principles Board Opinion No. 25 (APB 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 recognized in our consolidated statement of operations 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 estimated 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 value per common share of stock, volatility, employee stock option exercise behaviors and forfeiture rates.
        We previously accounted for stock-based compensation using the intrinsic value method as defined in APB 25 and, prior to January 1, 2006, compensation expense for stock options was measured as the excess, if any, of the fair value of our common stock at the date of grant over the exercise price of the stock option. Prior to January 1, 2006, stock-based awards were minimal and were determined to have no intrinsic value. Accordingly, no stock-based employee compensation cost was recorded under APB 25. We used the modified prospective transition method to adopt the provisions of SFAS 123R. Awards that are granted or modified after the date of adoption are measured and accounted for in accordance with SFAS 123R.
        Awards outstanding include service-based stock options, performance-based options, and options with a combination of market and performance-based conditions. As of September 30, 2008, there was $0.6 million of total unrecognized compensation cost related to stock options. This cost is expected to be recognized over a weighted average period of 3.6 years.
        Our board of directors estimated the fair value of the common stock underlying stock options granted before September 30, 2008. The intent was for all options granted to be exercisable at a price per share not less than the per share fair market value of common stock on the date of grant. As a privately held company, our board of directors made a reasonable estimate of the then-current fair value of our common stock as of the date of each option grant. Our board of directors considered numerous objective and subjective factors in determining the fair value of our common stock at each option grant date, including the following: (i) the price of the Series A Convertible Preferred Stock we issued in arm's-length transactions and the rights, preferences and privileges of such stock relative to the common stock; (ii) our performance and the status of our business plan development and marketing efforts and (iii) our stage of development and business strategy.
        In determining the fair value of our common stock, we used a combination of the income approach and the market approach to estimate our total enterprise value at each valuation date. We then used that enterprise value to estimate the fair value of the common stock in the context of our capital structure as of each valuation date.
49

        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 our 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 enterprise value calculated at each valuation date was then allocated to the shares of Series A Convertible Preferred Stock and common stock assuming the conversion of all the outstanding Series A Convertible Preferred Stock and the exercise of all outstanding options and warrants. The use of estimates other than the ones above may have resulted in different amounts assigned to the value of our common stock and the fair value of options granted during these periods. The following table sets forth information regarding the historical trend of options granted to employees and directors, the exercise price of the options and the fair value of our common stock for certain dates during 2006 and 2007:

 	 	Total Number
of Options
Granted	 	Per Share
Exercise
Price of
Options
Granted	 	Fair
Value of
Common
Stock	 	Intrinsic
Value per
Share	 	
February 15, 2006	 	 	32,562,560	 	$	0.07	 	$	0.07	 	$	—	 	
April 7, 2006	 	 	1,211,713	 	$	0.07	 	$	0.07	 	$	—	 	
February 28, 2007	 	 	198,516	 	$	0.09	 	$	0.09	 	$	—	 	
November 27, 2007	 	 	8,780,000	 	$	0.13	 	$	0.12	 	$	—	 	
50

Results of Operations
        The following table sets forth data from our consolidated statement of operations as a percentage of revenue for each of the periods indicated:

 	 	Year Ended December 31,	 	Nine Months
Ended
September 30,	 	
 	 	2005(1)	 	2006(1)	 	2007	 	2007	 	2008	 	
 	 	(Restated)	 	(Restated)	 	 	 	(Unaudited)	 	(Unaudited)	 	
Revenue	 	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	
Costs and expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional cost and services	 	 	69.1	 	 	43.7	 	 	34.8	 	 	35.1	 	 	28.2	 	
 	Marketing and promotional	 	 	51.3	 	 	42.7	 	 	42.0	 	 	45.0	 	 	36.5	 	
 	General and administrative	 	 	77.9	 	 	30.4	 	 	18.6	 	 	17.4	 	 	17.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total operating expenses	 	 	
198.3	 	 	
116.8	 	 	
95.4	 	 	
97.5	 	 	
82.4	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	
(98.3	
)	 	
(16.8	
)	 	
4.6	 	 	
2.5	 	 	
17.6	 	
Interest (income)	 	 	(0.5	)	 	—	 	 	—	 	 	—	 	 	(0.1	)	
Interest expense	 	 	2.9	 	 	1.2	 	 	0.6	 	 	0.6	 	 	0.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	
(100.7	
)	 	
(18.0	
)	 	
4.0	 	 	
1.9	 	 	
17.6	 	
Income tax expense	 	 	—	 	 	—	 	 	0.2	 	 	0.1	 	 	3.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	
(100.7	
)%	 	
(18.0	
)%	 	
3.8	
%	 	
1.8	
%	 	
13.9	
%	

(1)
Our consolidated financial statements for the periods ended December 31, 2005 and 2006 have been restated. See Note 3, "Restatement of Consolidated Financial Statements," to our consolidated financial statements, which are included elsewhere in this prospectus.
        We have experienced significant growth in enrollments and revenue since our acquisition of Ashford University in March 2005. We believe this 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.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
         Revenue.     Our revenue for the nine months ended September 30, 2008, was $149.2 million, an increase of $94.6 million, or 173.4%, as compared to $54.6 million for the nine months ended September 30, 2007. This increase was primarily due to increased enrollment and, to a lesser extent, increases in the average tuition per student as a result of tuition price increases, partially offset by an increase in institutional scholarships of $5.9 million. Student enrollment as of September 30, 2008, was 30,547, an increase of 17,831, or 140.2%, compared to 12,716 as of September 30, 2007.
         Instructional costs and services.     Our instructional costs and services for the nine months ended September 30, 2008, were $42.1 million, an increase of $22.9 million, or 119.5%, as compared to $19.2 million for the nine months ended September 30, 2007. This increase was primarily due to increases in instructional compensation costs of $12.0 million to meet the needs of a 140.2% increase in student enrollment, financial aid processing costs of $2.4 million, license fees of $1.1 million and bad debt expense of $5.6 million. Instructional costs and services decreased, as a percentage of revenue, to 28.2% for the nine months ending September 30, 2008, as compared to 35.1% for the nine months ended September 30, 2007. The decrease, as a percentage of revenue, is primarily due to operating leverage associated with instructional compensation costs. Such decrease was offset by the increase in our bad debt expense, as a percentage of revenue, to 5.9% for the nine months ended September 30,
51

2008, from 5.5% for the nine months ended September 30, 2007. The increase in bad debt expense, as a percentage of revenue, resulted from increased receivables due to greater availability of Title IV funds per student and from general deterioration of economic conditions.
         Marketing and promotional.     Our marketing and promotional expenses for the nine months ended September 30, 2008, were $54.5 million, an increase of $30.0 million, or 122.1%, as compared to $24.5 million for the nine months ended September 30, 2007. The increase was primarily due to increases in compensation costs of $17.4 million and advertising expenses of $8.1 million. Our marketing and promotional expenses, as a percentage of revenue, decreased to 36.5% for the nine months ended September 30, 2008, from 45.0% for the nine months ended September 30, 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 the nine months ended September 30, 2008, were $26.3 million, an increase of $16.8 million, or 177.0%, as compared to $9.5 million for the nine months ended September 30, 2007. The increase was primarily due to increases in compensation costs of $9.9 million, professional fees of $2.6 million and travel costs of $0.3 million. Our general and administrative expenses, as a percentage of revenue, increased slightly to 17.7% for the nine months ended September 30, 2008, from 17.4% for the nine months ended September 30, 2007.
         Interest income.     Our interest income for the nine months ended September 30, 2008, was $0.2 million, an increase of $0.2 million from less than $0.1 million for the nine months ended September 30, 2007, as a result of increased levels of cash and cash equivalents.
         Interest expense.     Our interest expense for the nine months ended September 30, 2008, was $0.2 million, a decrease of $0.1 million from $0.3 million for the nine months ended September 30, 2007. The decrease was primarily due to reductions in borrowings.
         Income tax expense.     Income tax expense for the nine months ended September 30, 2008, was $5.5 million, an increase of $5.4 million from $0.1 million for the nine months ended September 30, 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. For the nine months ended September 30, 2008, we have reduced our valuation allowance by $5.8 million, based on our belief that our net deferred tax assets will be realized in future periods. As a result, our effective income tax rate increased to 21.0% from 4.8%.
         Net income.     Our net income for the nine months ended September 30, 2008, was $20.8 million, an increase of $19.8 million, or 2,003.0%, as compared to net income of $1.0 million for the nine months ended September 30, 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, 2008, was 12,623, an increase of 8,152, or 182.3%, compared to 4,471 as of December 31, 2007.
         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 180.7% increase in student enrollment financial aid processing fees of $1.8 million and license fees of $1.0 million. Bad debt expense increased to $3.8 million for 2007 from $1.0 million for 2006 as a result of a proportional increase in revenue. As a percentage of revenue, instructional costs
52

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 3.2% 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.
         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 54.0%, 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.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
         Revenue.     Our revenue for 2006 was $28.6 million, an increase of $20.7 million, or 260.0%, as compared to $8.0 million for 2005. The increase was primarily due to increased student enrollment, partially offset by an increase in institutional scholarships of $1.8 million. Student enrollment as of December 31, 2006, was 4,471, an increase of 3,408, or 320.6%, compared to 1,063 as of December 31, 2005.
         Instructional costs and services.     Our instructional costs and services for 2006 were $12.5 million, an increase of $7.0 million, or 127.5%, as compared to $5.5 million for 2005. The increase was primarily due to increases in instructional compensation costs of $4.8 million to meet the demand of a 320.6% increase in student enrollment and financial aid processing fees of $0.5 million. Bad debt expense increased to $1.0 million for 2006 from $0.3 million for 2005 as a result of a proportional increase in revenue. As a percentage of revenue, instructional costs and services decreased to 43.7% for 2006 as compared to 69.1% for 2005. The decrease, as a percentage of revenue, was primarily due to operating leverage associated with compensation costs as well as other direct costs.
         Marketing and promotional.     Our marketing and promotional expenses for 2006 were $12.2 million, an increase of $8.1 million, or 199.5%, as compared to $4.1 million for 2005. The increase was primarily due to increases in compensation costs of $4.1 million and advertising expenses of $3.5 million. Our marketing and promotional expenses, as a percentage of revenue, decreased to 42.7% for 2006, from 51.3% for 2005. The decrease, as a percentage of revenue, is primarily due to operating leverage associated with compensation costs and advertising expenses.
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         General and administrative.     Our general and administrative expenses for 2006 were $8.7 million, an increase of $2.5 million, or 40.6%, as compared to $6.2 million for 2005. The increase was primarily due to increases in compensation costs of $1.6 million and travel costs of $0.5 million. Our general and administrative expenses, as a percentage of revenue, decreased to 30.4% for 2006 from 77.9% for 2005, primarily due to operating leverage associated with compensation costs and travel costs.
         Interest income.     Interest income for 2006 and 2005 was less than $0.1 million.
         Interest expense.     Interest expense for 2006 of $0.4 million, an increase of $0.2 million, from $0.2 million for 2005 as a result of borrowing levels and interest rates.
         Income tax expense.     We did not record an income tax benefit for 2006 and 2005 primarily due to our net operating loss from the current and prior periods and the likelihood that the tax benefit would be realized.
         Net loss.     Our net loss for 2006 was $5.2 million, an increase of $2.9 million as compared to a net loss of $8.0 million for 2005 due to the factors discussed above.
Quarterly Results and Seasonality
        The following tables set forth certain unaudited financial and operating data for each of the first three quarters of 2008 and for each quarter during 2007. We believe that the unaudited information reflects all adjustments, which include only normal and recurring adjustments, necessary to present fairly the information below.

 	 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	
 	 	(Unaudited)	 	(Unaudited)	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except enrollment 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	 	
 	 	 	 	 	 	 	 	 	 	
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	 	
 	 	 	 	 	 	 	 	 	 	
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 	 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	
 	 	(Unaudited)	 	(Unaudited)	 	(Unaudited)	 	
 	 	(In thousands, except enrollment data)	 	
2008	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	38,948	 	$	49,942	 	$	60,277	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	11,888	 	 	13,794	 	 	16,368	 	
 	Marketing and promotional	 	 	15,063	 	 	18,369	 	 	21,058	 	
 	General and administrative	 	 	7,210	 	 	7,925	 	 	11,191	 	
 	 	 	 	 	 	 	 	
 	 	Total costs and expenses	 	 	34,161	 	 	40,088	 	 	48,617	 	
 	 	Operating income	 	 	
4,787	 	 	
9,854	 	 	
11,660	 	
 	Interest (income)	 	 	(32	)	 	(59	)	 	(104	)	
 	Interest expense	 	 	
86	 	 	
97	 	 	
14	 	
 	 	 	 	 	 	 	 	
 	 	Income (loss) before income taxes	 	 	
4,733	 	 	
9,816	 	 	
11,750	 	
 	Income tax expense	 	 	(295	)	 	2,817	 	 	2,999	 	
 	 	 	 	 	 	 	 	
 	 	Net income (loss)	 	
$	
5,028	 	
$	
6,999	 	
$	
8,751	 	
 	 	 	 	 	 	 	 	
Period end enrollment	 	 	 	 	 	 	 	 	 	 	
 	Online	 	 	18,918	 	 	22,201	 	 	29,786	 	
 	Ground	 	 	591	 	 	406	 	 	761	 	
 	 	 	 	 	 	 	 	
 	Total:	 	 	19,509	 	 	22,607	 	 	30,547	 	
 	 	 	 	 	 	 	 	
        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.
Liquidity and Capital Resources
Liquidity
        We financed our operating activities and capital expenditures during 2005 and 2006 primarily through proceeds from the issuance of redeemable convertible preferred stock and from borrowings. We financed our operating activities and capital expenditures during 2007 and the first nine months of 2008 primarily through cash provided by operating activities. Our cash and cash equivalents were $0.1 million, $7.4 million and $32.0 million at December 31, 2006, December 31, 2007 and September 30, 2008, respectively. Our restricted cash was $0.7 million at September 30, 2008.
        We have a credit agreement (Credit Agreement) with Comerica Bank that provides for a maximum amount of borrowing under a revolving credit facility of $15.0 million, with a letter of credit sub-limit of $14.2 million. The Credit Agreement also provides for an equipment line of credit not to exceed $0.2 million.
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        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 most recent fiscal year end financial statements, 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 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 Department of Education in the amount of $0.7 million, remaining in effect through June 30, 2009. Additionally, we have posted an aggregate of $2.2 million in letters of credit related to our leased facilities. The letters of credit related to Ashford University and to our leased facilities are issued under our Credit Agreement. The letter of credit on behalf of the University of the Rockies is cash secured. Although we expect our universities 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 the outstanding letters of credit upon expiration, we expect to have sufficient cash on hand and availability of credit to replace or increase those letters of credit if necessary.
        Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents, will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.
         Operating Activities.     Net cash provided by operating activities for the nine months ended September 30, 2008, was $40.5 million, primarily due to our net income and increase in deferred revenue. Net cash provided by operating activities for 2007 was $10.4 million, primarily due to our net income and increased deferred revenue. Net cash used in operating activities for 2006 was $1.1 million, primarily due to our net loss of $5.1 million. Net cash used in operating activities for the year ended December 31, 2005 was $7.2 million, primarily driven by our net loss of $8.0 million.
         Investing Activities.     Net cash used in investing activities was $8.0 million, $1.4 million and $2.9 million for 2005, 2006 and 2007, respectively, and $10.9 million for the nine months ended September 30, 2008. Our cash used in investing activities is primarily related to the purchase of property and equipment and leasehold improvements. In 2005, we purchased $7.7 million of assets related to the acquisition of Ashford University. Capital expenditures were $0.3 million, $1.4 million and $3.6 million for 2005, 2006 and 2007, respectively, and $10.2 million for the nine months ended September 30, 2008. We expect our capital expenditures for 2009 to be approximately $15 million.
         Financing Activities.     Net cash provided by (used in) financing activities was $13.9 million, $0.4 million and $(0.1) million for 2005, 2006 and 2007, respectively, and $(5.0) million for the nine months ended September 30, 2008. Net cash provided by financing activities for 2005 was primarily due to proceeds from the issuance of preferred stock of $10.5 million and proceeds from borrowing of $3.6 million. Net cash used in financing activities for the nine months ended September 30, 2008, was primarily due to repayments of borrowing of $4.9 million.
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Contractual Obligations
        The following table sets forth, as of December 31, 2007, the aggregate amounts of our contractual obligations and commitments with definitive payment terms due in each of the periods presented (in millions):

 	 	Payments Due by Period	 	
 	 	Total	 	Less than
1 Year	 	Years
2-3	 	Years
4-5	 	More than
5 Years	 	
 	 	(In millions)	 	
Long term debt (1)(2)	 	$	5.1	 	$	1.6	 	$	1.0	 	$	0.9	 	$	1.6	 	
Capital lease obligations (3)	 	 	0.6	 	 	0.2	 	 	0.3	 	 	0.1	 	 	—	 	
Operating lease obligations (3)	 	 	89.7	 	 	5.7	 	 	18.2	 	 	16.9	 	 	48.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total contractual obligations	 	$	95.4	 	$	7.5	 	$	19.5	 	$	17.9	 	$	50.5	 	

(1)
As of September 30, 2008, our outstanding debt obligations are $0.4 million, of which $0.1 million is the current portion.

(2)
See Note 7, "Notes Payable and Long-Term Debt," to our consolidated financial statements, which are included elsewhere in this prospectus.

(3)
See Note 8, "Lease Obligations," to our consolidated financial statements, which are included elsewhere in this prospectus.
        In January 2008, we entered into an additional operating lease commitment with definitive payment terms through 2018. That commitment contains minimum lease payments of $4.5 million due in less than one year, $22.8 million due in two to three years, $27.4 million due in four to five years and $85.4 million due in more than five years. In October 2008, we entered into an additional operating lease commitment with definitive payment terms through 2020. That commitment contains minimum lease payments of $13.4 million due in two to three years, $18.9 million due in four to five years and $77.4 million due in more than five years. These lease payments are not reflected in the table above.
Off-Balance Sheet Arrangements
        We do not have any off-balance sheet arrangements.
Impact of Inflation
        We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2005, 2006 or 2007 or the nine months ended September 30, 2008. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Quantitative and Qualitative Disclosure About Market Risk
Market risk
        We have no derivative financial instruments or derivative commodity instruments. We invest cash in excess of current operating requirements in short term certificates of deposit and money market accounts.
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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.
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 Chief Executive Officer, 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.
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. This agreement was amended in December 2008. Under this agreement, Warburg Pincus agreed to compensate Mr. Craig from its equity ownership in us. 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 198,516 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 305,826 shares of our common stock from Warburg Pincus. For these services, Mr. Craig will receive an aggregate amount of 504,342 shares of common stock in January 2009.
        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." In 2005, we issued an unsecured subordinated convertible promissory note to Warburg Pincus. See "Certain Relationships and Related Transactions—Unsecured Subordinated Convertible Promissory Note Issued to Warburg Pincus." Additionally, in 2007, we entered into a line of credit with Warburg Pincus. See "Certain Relationships and Related Transactions—Line of Credit with Warburg Pincus." These notes are no longer outstanding.
        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."
Recent Accounting Pronouncements
        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under GAAP and expands disclosure requirements about fair value measurements. SFAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We adopted SFAS 157 on January 1, 2008, and our adoption did not have a material impact on our consolidated financial statements.
        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). This standard
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permits entities to choose to measure financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007. SFAS 159 must be applied prospectively, and the effect of the first re-measurement to fair value, if any, should be reported as a cumulative-effect adjustment to the opening balance of retained earnings. We adopted SFAS 159 on January 1, 2008, and our adoption did not have a material impact on our 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 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. We are in the process of determining the effect, if any, the adoption of SFAS 141R will have on our consolidated financial statements.
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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 September 30, 2008, we offered over 760 courses and 41 degree programs with 37 specializations and 21 concentrations. We had 30,547 students enrolled in our institutions as of September 30, 2008, 98% 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 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. At December 31, 2007 and September 30, 2008, our enrollment was 12,623 and 30,547, respectively, an increase of 182.3% and 140.2%, respectively, over our enrollment as of the comparable dates for the prior years. At September 30, 2008, our ground enrollment was 761, 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, 2007 and the nine months ended September 30, 2008, our revenue was $85.7 million and $149.2 million, respectively, an increase of 199.5% and 173.4%, respectively, over the same periods for the prior years. For the year ended December 31, 2007 and the nine months ended September 30, 2008, our operating income was $4.0 million and $26.3 million, respectively, an increase from an operating loss of $4.8 million and from operating income of $1.4 million, respectively, in the same periods for 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 Chief Executive Officer, 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 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
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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 May 2005, we introduced several new online programs through Ashford University, including four bachelor's and two master's programs. Since then, we have introduced one associate's program, 14 bachelor's programs and two master's programs, all offered exclusively 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 2008 report by the NCES, revenue of postsecondary degree-granting educational institutions exceeded $385 billion in the 2004-05 academic year. According to a September 2008 NCES report, the number of students enrolled in postsecondary institutions was 18.0 million in 2007 and is projected to grow to 18.6 million by 2010.
        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 2008 NCES report, from 1995 to 2005, private for-profit enrollments grew at a compound annual growth rate of 15.5% compared to a compound annual growth rate of 1.6% for both public and private not-for-profit enrollments. We believe this growth is due to the ability of 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 0.5 million to 1.8 million between 2002 and 2007, representing a compound annual growth rate of
61

30.4%. By comparison, according to a September 2008 NCES report, enrollment in overall postsecondary programs increased at a compound annual growth rate of 1.6% 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 2006 median incomes for individuals 25 years or older with a bachelor's, master's and doctoral degree were 70%, 103% and 186% higher, respectively, than for a high school graduate 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 2008 NCES report, 67% of all individuals 25 or older in the United States who have obtained a high school degree, or over 110 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 2008 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 2006-2007 academic year, were 81% and 60% greater, respectively, as compared to tuition prices during the 1996-1997 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 2008 NCES report, over 32 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 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
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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.   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 September 30, 2008, comprised 14% 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 enrolled students, over 78% transferred in credits and 50% 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. 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 September 30, 2008, 98% 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 have over 100 years of aggregate history between Ashford University and the University of the Rockies. We encourage our online students to follow activities on our campuses, including our 13 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
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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 2008 graduation, 69% 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 July 2008 survey we conducted, in which over 2,000 Ashford students responded, 98% 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.
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 Chief Executive Officer, 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.
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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 2008 NCES report, programs in our disciplines represent 69% of total bachelor's degrees conferred by all postsecondary institutions in 2005-2006.
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 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
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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. Of our faculty teaching graduate courses, 84% 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.
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.
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. 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 September 30, 2008, we offered 41 degree programs, 37 specializations and 21 concentrations. Specializations comprise a select number of courses offered by us within an existing program. Concentrations comprise a select number of courses a student has already taken, which we accept via credit transfers. 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.
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)	

 	
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)	

 	
Organizational
    Management	

 	 	 	 	Global Management (S)
Human Resources
    Management (S)
Organizational
    Leadership (S)	

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

 	 	 	 	English/Language Arts (S)
Math (S)
Science (S)
Social Sciences (S)
Reading (S)
Special Education—
    Instructional
    Specialist I (S)
Middle School (S)
Coaching (S)	
 	 	Secondary Education with
    endorsement areas
    in:	 	 	
 	 	 	 	Math (S)
English/Language Arts (S)
General Science (S)
Biology (S)
Chemistry (S)
American History (S)	
					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	
 	 	 	 	World History (S)
Sociology (S)
Psychology (S)
Middle School (S)
Special Education—
    instructional
    Specialist I (S)
Coaching (Authorization
    or Endorsement) (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 
English and
    Communication	

 	 	 	 	Communications (C)
English/Language
    Arts (C)
Literature (C)	

 	
Social Science	

 	 	 	 	Education (C)
Health and Human
    Services Management (C)
History (C)
Human Services (C)
Psychology (C)
Sociology (C)	

 	
Environmental Studies
Natural Science
Social and Criminal
    Justice
Sociology
Visual Art	

 	
 	
Bachelor's of Science Degree 
Computer Science and
    Mathematics	

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

 	
Natural Science	

 	 	 	 	Education (C)	

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)

Professional
    Counselor (S)
Marriage and Family
    Therapy (S)	
					
Discipline 	 	Degree Program	 	Specialization (S)
Concentration (C)	
Psychology	 	
Doctorial Degree 
Psychology (Organizational)	 	 	

Psychology (Professional)	 	Executive Coaching (S)
Organizational
    Leadership (S)

Clinical (S)
Respecialization (S)	

        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 2 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 36 additional credits and a doctoral degree typically requires a minimum of 63 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.
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
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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 1,000 active online faculty members (individuals that have taught a course for us in the last 12 months) and 50 full-time campus faculty members. All of our faculty members have earned a graduate degree, and of the faculty members teaching graduate courses, 84% have earned doctoral degrees. We also have 60 teaching assistants who support faculty members and students in certain online undergraduate courses.
        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.
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
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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 addition, we provide our students with level one 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 have grown to 686 as of September 30, 2008, as compared to 312 when we acquired the institution.
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        The University of the Rockies is located in Colorado Springs, Colorado. We have begun to develop 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.
        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. Additionally, we 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. As of September 30, 2008, 14% of our students were affiliated with the military. 

•
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.
        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.
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.
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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 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, 2006 and 2007 and September 30, 2008, we employed 149, 479 and 674 enrollment advisors, respectively. As of September 30, 2008, we also employed 30 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 (GED) 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 September 30, 2008, 75% of our online students were female, 34% were minorities and the average age was 34. We have online students from all 50 states.
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        The following summarizes our enrollments as of December 31, 2007 and September 30, 2008:

 	 	December 31, 2007	 	September 30, 2008	 	
Doctoral	 	60	 	 	0.5	%	 	60	 	 	0.2	%	
Master's	 	905	 	 	7.2	 	 	2,174	 	 	7.1	 	
Bachelor's	 	11,071	 	 	87.7	 	 	25,563	 	 	83.7	 	
Associate's	 	533	 	 	4.2	 	 	2,554	 	 	8.4	 	
Other*	 	54	 	 	0.4	 	 	196	 	 	0.6	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	12,623	 	 	100.0	%	 	30,547	 	 	100.0	%	

													
 	 	 	 	 	 	 	 	 	 	
Online	 	12,104	 	 	95.9	%	 	29,786	 	 	97.5	%	
Ground	 	519	 	 	4.1	 	 	761	 	 	2.5	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	12,623	 	 	100.0	%	 	30,547	 	 	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 2008-09 academic year (which began on July 1, 2008), our prices per credit range from $262 to $337 for undergraduate online courses and from $441 to $490 for graduate online courses. Based on these per credit prices, our prices for a three-credit course range from $786 to $1,011 for undergraduate online courses and $1,323 to $1,470 for graduate online courses. For the 2008-09 academic year, we charge a fixed $7,670 "block tuition" for undergraduate ground students taking between 12 and 18 credits per semester, with an additional $447 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 36 additional credits; and a doctoral degree typically requires a minimum of 63 additional credits.
Student Financing
        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 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.
        For the year ended December 31, 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV programs administered by the Department of Education.
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         FFEL.     Under the Family Federal 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 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.
         Pell.     Under the Pell Program, the 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.
         Federal Direct Loan Program.     We are eligible to participate in the Federal Direct Loan Program, under which the 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.
         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. For the year ended December 31, 2007, Ashford University derived 1.9% and the University of the Rockies derived 1.3% of their respective revenues (in each case calculated on a cash basis in accordance with applicable 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. For the year ended December 31, 2007, Ashford University derived 12.9% and the University of the Rockies derived 36.8% of their respective revenues (in each case calculated
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on a cash basis in accordance with applicable 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. For the year ended December 31, 2007, Ashford University derived 1.9% and the University of the Rockies derived 0.0% of their respective revenues (in each case calculated on a cash basis in accordance with applicable 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 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 platform servers are located in a third party hosting facility and at our corporate headquarters. All of our servers are linked and have redundant data backup. We currently use a combination of Microsoft-based software on Dell servers and related equipment. We have a disaster recovery system 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.
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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 2008, we hosted approximately 1,200 family members and guests of 275 attending graduates. Of the students in attendance, approximately 200 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.
Employees
        As of September 30, 2008, we had a total of 1,065 faculty members, consisting of 50 full-time campus faculty and over 1,000 adjunct online 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 September 30, 2008, we also employed 1,735 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;
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•
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.
        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
        In addition to our owned Ashford University facilities of 286,000 square feet in Clinton, Iowa, our corporate headquarters occupies 280,000 square feet in San Diego, California under a lease that expires in 2018 where we house enrollment services, student support services and corporate functions. We also lease 39,000 square feet under a lease that expires in 2014 in Clinton, Iowa to complement our California enrollment services and student services functions. We lease 21,500 square feet under a lease that expires in 2015 in Colorado Springs, Colorado for the University of the Rockies. We signed an 11 year lease in October 2008 for an additional 248,000 square feet to house enrollment services, student support services and corporate functions in San Diego scheduled for occupancy in 2009 and 2010. We believe our existing facilities, including the newly leased space, 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.
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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 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 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 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 Department of Education and be certified by the Department of Education as an eligible institution. Certification by the 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 Chief Executive Officer, 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 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 performance, curriculum, educational effectiveness, faculty, physical resources, administrative capability
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and resources, financial stability and governance. To be recognized by the 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 for the 2009-2010 academic year to review financial performance and the outcomes of the increase in transfer credits. The Commission has scheduled the university for a comprehensive evaluation during the 2016-17 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 2015-16 academic year in connection with the next regularly scheduled accreditation renewal process.
        Our accreditation by the Higher Learning Commission is important to our institutions for the following reasons:
•
it establishes comprehensive criteria designed to promote educational quality and effectiveness; 

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

•
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 

•
the 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.
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        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 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 Department of Education and (iii) be certified to participate in Title IV programs by the Department of Education. Our institutions' participation in Title IV programs subjects us to extensive oversight and review pursuant to regulations promulgated by the Department of Education. Those regulations are subject from time to time to revision and amendment by the Department of Education. The 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.
        In addition, Congress determines the funding levels for Title IV programs annually through the budget and appropriations process.
Certification procedures; provisional certification
        The 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 program participation agreement entered into between the Department of Education and the institution.
        The 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 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.
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During a period of provisional certification, however, an institution must comply with any additional conditions imposed by the Department of Education and must seek and obtain the Department of Education's advance approval before adding a new location. In addition, the 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 Department of Education determines that a provisionally certified institution is unable to meet its responsibilities under its program participation agreement, the 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 Department of Education issued Ashford University's program participation agreement in June 2005, following the change in ownership that occurred in connection with its May 2005 acquisition. Because of the change in ownership, the institution was placed on provisional certification status for a period of three years. Ashford University's participation in Title IV programs also is conditioned on its having in place a letter of credit in favor of the Department of Education and on its receiving 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 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 is also conditioned on its having in place a letter of credit in favor of the Department of Education and on its receiving certain Title IV funds under the heightened cash monitoring level one method of payment.
        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 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 most recent provisional certification for Ashford University was scheduled to expire on June 30, 2008. We timely submitted our application for recertification and were notified by the Department of Education in November 2008 that our provisional certification will be renewed with a new expiration date of June 30, 2011. Our current provisional certification is scheduled to expire for the University of the Rockies 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 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 Department of Education's ongoing monitoring of institutions' administration of Title IV programs, the Higher Education Act requires institutions to submit to the Department of Education an annual Title IV compliance audit conducted by an independent registered public accounting firm. In addition, to enable the 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 Department of Education regulations.
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Audit by Office of the Inspector General
        The OIG is responsible for, among other things, promoting the effectiveness and integrity of the Department of Education's programs and operations. With respect to educational institutions that participate in Title IV programs, the OIG conducts its work primarily through an audit services division and an investigations division. The audit services division typically conducts general audits of schools to assess their administration of federal funds in accordance with applicable rules and regulations. The investigation services division typically conducts focused investigations of particular allegations of fraud, abuse or other wrongdoing against schools by third parties, such as a lawsuit filed under seal pursuant to the federal False Claims Act.
        The OIG audit services division is currently conducting a compliance audit of Ashford University which commenced in May 2008. We are working with the OIG to facilitate this audit. The period under audit is the Title IV award year commencing on July 1, 2006. The OIG has informed us that it expects to complete its field work in January 2009. Based on our conversations with the OIG, we believe it will issue a draft audit report sometime during the first half of 2009, to which we will have the opportunity to respond. We expect that the OIG will not issue a final report until several months thereafter. The final audit report would include any findings and any recommendations to the Department of Education's Federal Student Aid office based on those findings. 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.
Administrative capability
        Department of Education regulations specify extensive criteria by which an institution must establish that it has the requisite administrative capability to participate in Title IV programs. To meet the administrative capability standards, an institution 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 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; 

•
timely submit all required reports and financial statements; and 

•
not otherwise appear to lack administrative capability.
Financial responsibility
        The Higher Education Act and Department of Education regulations establish standards of financial responsibility which an institution must satisfy to participate in Title IV programs. The 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 Department
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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 Department of Education that is a weighted average of three financial ratios:
•
equity ratio, which measures the institution's capital resources, financial viability and ability to borrow; 

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

•
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 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 not receive an adverse, qualified or disclaimed opinion by its accountants in its audited financial statements.
        Based on their most recent fiscal year end financial statements, Ashford University and the University of the Rockies did not satisfy the composite score requirement. As a result, each of our institutions has been required to post a letter of credit in favor of the 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 has posted a letter of credit in the amount of $0.7 million, which will remain in effect through June 30, 2009.
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 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 determines that 5% or more of such returns were not timely made, the institution must submit a letter of credit in favor of the 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, we are subject to the requirement 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 we had already posted a letter of credit due to our composite score which was in excess of the amount required for
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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 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. In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% of their respective revenues (calculated on a cash basis in accordance with applicable Department of Education regulations) from Title IV funds.
        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 by other provisions in the rule that allow institutions to include in their calculation as non-Title IV revenues certain non-cash revenues, such as institutional loan proceeds under certain circumstances, and to exclude (for three years) from their Title IV revenues when calculating their compliance the additional $2,000 per student in annual federal student loan amounts that became available starting in July 2008.
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 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.
        If the 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 relevant Title IV program 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 program ends 30 days after notification by the 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%, 0.0% and 0.0%, respectively.
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        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 Department of Education in 2012. 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 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 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 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 Department of Education no longer reviews and approves compensation plans prior to their implementation. Although we cannot provide any assurances that the 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 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; 

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

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

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

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

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failing to grant an 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 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.
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        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 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 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 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:
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limit schools' relationships with lenders; 

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

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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
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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:
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increases the maximum annual amount of certain student loans by $2,000; 

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authorizes the 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 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 loan funding through private lenders. These circumstances could result in our institutions' certifying loans through the Federal Direct Lending program (for which we are eligible to participate) rather than through Title IV private lending programs.
Adding teaching locations and implementing new educational programs
        The requirements and standards of accrediting agencies, state education agencies and the 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 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 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 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 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 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 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
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accrediting agencies is a necessary prerequisite to the Department of Education's certifying the acquired school to participate in Title IV programs. In addition, the 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 in control
        The Department of Education and most states and accrediting agencies require institutions of higher education to report or obtain approval of certain changes in control and changes in other aspects of institutional organization or operations. The types of and thresholds for such reporting and approval vary among the states and among accrediting agencies. The Higher Learning Commission requires that an institution obtain its approval in advance of a change in ownership in order for the institution to retain its accredited status, and it requires an onsite evaluation within six months following the change in control in order to maintain the institution's accreditation. The Higher Learning Commission does not set specific standards for determining when a transaction constitutes a change in ownership of either of our institutions.
        Under Department of Education regulations, an institution that undergoes a change in ownership resulting in a change in control loses its eligibility to participate in Title IV programs and must apply to the Department of Education in order to reestablish such eligibility. If an institution files the required application and follows other procedures, the Department of Education may temporarily certify the institution on a provisional basis following the change in control so that the institution's students retain access to Title IV program funds while the Department of Education completes its full review. In addition, the Department of Education will extend such temporary provisional certification if the institution timely files other required materials, including, the approval of the change in control by its accrediting agency and the state authorizing agency in the state in which it is physically located and an audited balance sheet showing the financial condition of the institution or its parent corporation as of the date of the change in control. If the institution fails to meet any of these deadlines, its certification will expire and its students will become ineligible to receive Title IV funds until the Department of Education completes its full review, which commonly takes several months and may take longer. If the Department of Education approves the application after a change in control, it will certify the institution on a provisional basis, typically for a period of three years.
        For corporations that are neither publicly traded nor closely held, such as us prior to this offering, Department of Education regulations describe some transactions that constitute a change in ownership resulting in a change in control, including the transfer of a controlling interest in the voting stock of the corporation or its parent corporation. For such a corporation, the Department of Education will generally find that a transaction results in a change in control if a person acquires ownership or control of 25% or more of the outstanding voting stock and control of the corporation, or if a person who owns or controls 25% or more of the outstanding voting stock and controls the corporation ceases to own or control at least 25% of the outstanding voting stock or ceases to control the corporation. With respect to this offering, Warburg Pincus will continue to own or control more than 50% of our outstanding voting stock immediately following this offering. We have submitted a description of this offering to the Department of Education, which has confirmed that this offering is not a change in ownership resulting in a change in control under Department of Education regulations. We also intend to seek confirmation from the Higher Learning Commission and applicable state agencies that this offering will not constitute a change in control under their respective standards, or to determine what is required if any such agency does consider the offering to constitute a change in control. We do not expect that this offering will result in a change in control for any of those agencies or that any of those agencies will require us to obtain their approval in connection with this offering. If any of those
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agencies deem this offering to be a change in control, we would have to apply for and obtain approval from that agency, in some cases in advance of this offering, according to its procedures.
        A change in control could also occur as a result of transactions in which we are involved following the consummation of this offering. Some corporate reorganizations and some changes in the board of directors constitute changes in control. In addition, Department of Education regulations provide that a change in control occurs for a publicly traded corporation, which we will be after this offering, 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 in 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 in the future, including a disposition of voting stock by Warburg Pincus, could be determined by the Department of Education to be a change in control under this standard, in which case 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 in control by the Higher Learning Commission or by any other accrediting agency or applicable state educational licensing agency, any required regulatory notifications and approvals would have to be made or obtained. The potential adverse effects of a change in control could influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of a change in control also could discourage bids for shares of our common stock.
Privacy of student records
        The Family Educational Rights and Privacy Act of 1974, or FERPA, and the 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 such party in that information. If an institution fails to comply with FERPA, the 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 with the Iowa Secretary of State. The University of the Rockies' campus is located in Colorado. The institution is licensed and authorized to deliver educational
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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 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	 	 	43	 	Chief Executive Officer and Director	
Daniel J. Devine	 	 	44	 	Chief Financial Officer	
Christopher L. Spohn	 	 	48	 	Senior Vice President/Chief Admissions Officer	
Jane McAuliffe	 	 	42	 	Senior Vice President/Chief Academic Officer	
Rodney T. Sheng	 	 	42	 	Senior Vice President/Chief Administrative Officer	
Ross Woodard	 	 	43	 	Senior Vice President/Chief Marketing Officer	
Charlene Dackerman	 	 	48	 	Senior Vice President of Human Resources	
Thomas Ashbrook	 	 	44	 	Senior Vice President/Chief Information Officer	
Diane Thompson	 	 	53	 	Senior Vice President/General Counsel	
Ryan Craig	 	 	36	 	Director	
Dale Crandall	 	 	67	 	Director	
Patrick T. Hackett	 	 	47	 	Director	
Robert Hartman	 	 	60	 	Director	
Adarsh Sarma	 	 	34	 	Director	
         Andrew S. Clark has served as our Chief Executive Officer and a director since November 2003. 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 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
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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 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 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 in the 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
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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. and Metavante Technologies, Inc. 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. 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 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. 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. Mr. Hartman still serves as a member of the board of directors of Universal Technical Institute. 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 after this Offering
        Upon the closing of this offering, our board of directors will consist of six members. The certificate of incorporation and bylaws in effect immediately following this offering 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. Effective upon the closing of this offering, we will divide 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; 

•
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.
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        Upon the closing of this offering, Class I shall consist of Messrs.                 and                , Class II shall consist of Messrs.                 and                 and Class III shall consist of Messrs.                 and                . 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.                         are independent for purposes of NYSE rules.
        There are no family relationships between any of our directors and executive officers.
Board Committees
        Upon the closing of this offering, we will have an audit committee, a compensation committee and a nominating and governance committee. After this offering, our board and committees will generally meet at least quarterly, and we expect the board and committees will meet on a similar schedule.
Audit Committee
        Upon the closing of this offering, we anticipate our audit committee will consist of three directors, Mr. Crandall,                 and                . The chair of the audit committee will be Mr. Crandall. 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 will meet 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. We intend for (i) at least one member of our audit committee to be independent as of the date of this prospectus, (ii) a majority of the members of our audit committee to be independent within 90 days after the date of this prospectus and (iii) all members of our audit committee to be independent no later than one year after the date of this prospectus.
Compensation Committee
        Upon the closing of this offering, we anticipate our compensation committee will consist of three directors,                 ,                 and                . The chair of the compensation committee will be                . The functions of this committee include:
•
evaluating and approving all compensation plans, policies and programs as they affect the Chief Executive Officer 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. We intend for (i) at least one member of our compensation committee to be independent as of the date of this prospectus, (ii) a majority of the members of our compensation committee to be independent within 90 days after the date of this prospectus and (iii) all members of our compensation committee to be independent no later than one year after the date of this prospectus.
Nominating and Governance Committee
        Upon the closing of this offering, we anticipate our nominating and governance committee will consist of three directors,                 ,                 and                . The chair of the nominating and governance committee will be                . 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. We intend for (i) at least one member of our nominating and governance committee to be independent as of the date of this prospectus, (ii) a majority of the members of our nominating and governance committee to be independent within 90 days after the date of this prospectus and (iii) all members of our nominating and governance committee to be independent no later than one year after the date of this prospectus.
Code of Ethics
        Upon the closing of this offering, we will adopt 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 will be 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 2007, 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.
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Compensation of Directors
        For 2007, no non-employee director received any compensation for their services as a director other than as discussed below. Directors who are 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 directors. Directors are also entitled to the protection provided by the indemnification provisions in 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, and indemnification agreements.
        The following table provides compensation information for the non-employee directors for 2007.

Name 	 	Fees earned
or paid in
cash ($)	 	Stock
Awards ($)	 	Option
Awards ($)
(1)	 	Non-Equity
Incentive Plan
Compensation ($)	 	Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)	 	All Other
Compensation ($)	 	Total ($)	 	
Robert Hartman(2)	 	 	—	 	 	—	 	$	3,855	 	 	—	 	 	—	 	$	20,000	 	$	23,855	 	
Ryan Craig(3)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	$	—	 	
Adarsh Sarma	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	$	—	 	

(1)
The amount in this column is the expense recorded in our financial statements, excluding any assumed forfeitures, for the year ended December 31, 2007 for stock option awards granted in 2007 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 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 term of the agreement currently extends through November 28, 2009. His services include 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 198,516 common shares at a per share exercise price of $0.09 which was equal to the fair market value of one of our common shares on the date of grant. This award had a SFAS 123R grant date fair value of $9,926. 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 12 months later in time. In addition, the outstanding unvested portion of the option will become fully vested upon a change in 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. 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 in us. For his director services from August 2004 to August 2008, Mr. Craig earned the right to receive 198,516 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 305,826 shares of our common stock from Warburg Pincus. Mr. Craig will receive an aggregate amount of 504,342 shares of common stock in January 2009 from Warburg Pincus. Through the date of the amendment, no compensation expense has been recorded related to Mr. Craig's agreement as vesting was not considered probable. The amended award has a grant date value of $            , which will be recorded in expense upon the date of the amendment.
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        The below table reflects the aggregate number of stock option awards held by each of the non-employee directors as of December 31, 2007. No stock awards have been granted to the non-employee directors.

Name 	 	Time-Based Vesting Nonqualified
Stock Options (#)	 	Grant Date	 	Per Share
Exercise
Price	 	Expiration
Date	 	
Robert Hartman	 	 	198,516	 	 	2/28/07	 	$	0.09	 	 	2/15/16	 	
Ryan Craig(1)	 	 	—	 	 	—	 	 	—	 	 	—	 	
Adarsh Sarma	 	 	—	 	 	—	 	 	—	 	 	—	 	

(1)
Does not reflect rights held by Mr. Craig to receive 198,516 shares of common stock from Warburg Pincus.
        On December 11, 2008, Dale Crandall was appointed to our board of directors. 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. For his services as a member of our board, Mr. Crandall will receive a $20,000 annual retainer to be paid in monthly installments for so long as he remains a member of our board. For his services on our audit committee, Mr. Crandall will receive a $5,000 annual retainer to be paid in monthly installments for so long as he remains a member of our audit committee. For his services as chair of our audit committee, Mr. Crandall will receive a $10,000 annual retainer to be paid in monthly installments for so long as he remains the audit committee chair. Additionally, per the agreement, effective with this offering, Mr. Crandall will be awarded a time-based vesting nonqualified stock option valued at $60,000. Mr. Crandall's option will 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 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.
        The board of directors expects to adopt new compensation policies for non-employee directors in connection with the offering and effective in 2009. It is anticipated that directors will earn both cash and equity compensation for their services as directors. 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 2007, the named executive officers were:
•
Andrew S. Clark, Chief Executive Officer; 

•
Daniel J. Devine, Chief Financial Officer; 

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

•
Jane McAuliffe, Senior Vice President/Chief Academic Officer; and 

•
Rodney T. Sheng, Senior Vice President/Chief Administrative Officer.
        This compensation discussion and analysis section addresses and explains the compensation practices that were followed in 2007, the numerical and related information contained in the summary compensation and related tables presented below and actions taken regarding executive compensation since December 31, 2007, that could reflect a fair understanding of a named executive officer's compensation during 2007.
Historical Compensation Decisions
        Prior to this offering, we were a privately-held company with a relatively small number of stockholders, including our principal investor, Warburg Pincus. As such, we have not been 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 2007, have been 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." 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 $85.7 million in 2007 was three times our annual revenue in 2006 and more than ten times our annual revenue in 2005. Our net income in 2007 was $3.3 million, an increase of $8.4 million as compared to a net loss of $5.2 million in 2006. We believe that the compensation amounts paid to our named executive officers for their services in 2007 were reasonable and 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 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 is currently 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. 

•
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 Bridgepoint's 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.
        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
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the surveyed peer group companies were publicly traded entities whereas we were a privately-held company.
        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 in 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 2007, 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 total compensation.
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
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discussed in the "Executive Employment Agreements" section, each of the employment agreements with the named executive officers provides that he or she 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. For each named executive officer, the annual bonus will be based on achievement of annual revenues and EBITDA goals with revenue receiving 65% of the weighting and EBITDA receiving the remaining 35%.
        The annual bonus arrangements for 2007 are further described in the "Grants of Plan-Based Awards Table" section.
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 (the "2005 Plan"). We do not have a formal policy for when we grant stock options or other equity-based awards.
        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 this offering, we will no longer make new grants under the 2005 Plan and will instead issue equity compensation awards under our new 2009 Stock Incentive Plan, or the 2009 Plan, 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.
        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
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immediately when certain events occur, including a change in control of the company, the officer's death or disability and qualifying involuntary terminations of employment. The term "change in 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.
        A total of 45,254,291 shares of common stock can be issued as stock options and stock purchase rights under the 2005 Plan and 4,939,000 shares remained available for issuance as of December 31, 2007.
        In 2007, the compensation committee granted stock options under the 2005 Plan to the named executive officers. Further details on these awards are provided in the Grants of Plan-Based Awards table below.
        On December 11, 2008, our board of directors unanimously approved a form of the 2009 Plan to replace the 2005 Plan, subject to later allocating a specific number of shares to the 2009 Plan and obtaining stockholder approval of the 2009 Plan, such that, effective with this offering, we will no longer make any new grants under the 2005 Plan. Further details of the 2009 Plan are provided below under "Post-2007 Compensation Decisions."
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 or her 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; 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. To date, we have not provided any matching contributions under the 401(k) plan.
Change in Control and Severance
        The named executive officers may receive severance benefits that are generally intended to match what is provided by our competitors and also 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 the 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 also generally provide for some or all of the unvested options to vest immediately when certain events occur, including a change in control of the company, the officer's death or disability and qualifying involuntary terminations of employment.
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Compensation of the Chief Executive Officer and Other Named Executive Officers
        The base salary, bonus and equity compensation for each of the named executive officers for 2007 is reported below under the "Summary Compensation Table." In addition, each of the named executive officers is a party to an employment agreement with us, which are described below under the "Executive Employment Agreements" section.
        The Chief Executive Officer's compensation 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 Chief Executive Officer. 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 significant amount of at-risk, performance-based compensation to the Chief Executive Officer 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 Chief Executive Officer's recommendations. In general, the base salaries, bonus opportunities and long-term equity compensation awards of the other officers are substantially similar.
2007 Compensation Decisions
        In 2006, the compensation committee approved increases in the named executive officers' salaries effective January 1, 2007 to reward them for their contributions to the many years of successful financial performance. The named executive officers were also awarded an annual discretionary performance-based bonus and a special discretionary overachievement bonus for 2007. The salaries and bonuses earned in 2007 are reported in the "Summary Compensation Table" below.
        Additionally, in November 2007, the compensation committee awarded stock options under the 2005 Plan to the named executive officers. These stock option awards are described in the "Grants of Plan-Based Awards" table below. The Chief Executive Officer also provided input in determining the number of shares subject to the options to award to each named executive officer (other than to himself). We believe that these awards of unvested options were necessary to provide the named executive officers with further incentive to remain with us.
Post-2007 Compensation Decisions
        In November 2007, the compensation committee approved increases in the named executive officers' salaries effective January 1, 2008, to reward them for their contributions to the many years of successful financial performance.
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        The following table provides the salaries for each of the named executive officers for 2008.

Name 	 	FY08 Salary	 	
Andrew S. Clark	 	$	325,000	 	
Daniel J. Devine	 	$	220,000	 	
Christopher L. Spohn	 	$	227,000	 	
Jane McAuliffe	 	$	205,000	 	
Rodney T. Sheng	 	$	227,000	 	
        In November 2007, in addition to setting 2008 salaries and granting additional stock options, the compensation committee decided to create further incentives for our management by awarding, in addition to other bonuses payable, a discretionary overachievement bonus for 2008. We do not anticipate awarding special overachievement bonuses to management after this offering.
        In December 2008, the board of directors adopted forms of the 2009 Stock Incentive Plan and Employee Stock Purchase Plan, subject to later allocating a specific number of shares to these plans and obtaining stockholder approval of these plans. Set forth below is information concerning these plans.
2009 Stock Incentive Plan
        Effective with this offering, the 2009 Plan will replace the 2005 Plan for all equity-based awards to the named executive officers. Awards granted under the 2009 Plan prior to stockholder approval of the 2009 Plan may not be exercised and no shares may be released to any participant until such stockholder approval is obtained. If our stockholders do not approve the 2009 Plan within twelve months of the board of directors' adoption of the 2009 Plan, then the 2009 Plan (and any outstanding awards granted) shall be null and void and any outstanding awards will be forfeited without consideration. The 2009 Plan will expire on the day before the tenth anniversary of the date that stockholders approve the 2009 Plan although the board of directors may earlier terminate the 2009 Plan.
        The board of directors adopted the 2009 Plan because it believed that 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 compensation philosophy and objectives adopted by the compensation committee after we are a public company will likely determine the type and structure of awards granted by the compensation committee pursuant to the new 2009 Plan.
        The 2009 Plan will be 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; 

•
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
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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    shares of our common stock under the 2009 Plan. 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 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 is shown in the table below (with the limits below doubled for a grantee's first year of employment).

Type of Award 	 	Maximum Number of Shares	 	
Stock Options	 	 	 	 	
Stock Appreciation Rights	 	 	 	 	
Stock Awards	 	 	 	 	
Stock Units	 	 	 	 	
105

        The 2009 Plan provides that in the event there is a change in 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 in 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 in control. The term "change in 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.
        We may not make any grants under the 2009 Plan after the tenth anniversary of the date that our stockholders approve the 2009 Plan. 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.
Employee Stock Purchase Plan (ESPP)
        In December 2008, the board of directors approved a form of a new employee stock purchase plan (ESPP) that will become effective after the closing of this offering subject to the board of directors establishing a number of shares to be issuable under the ESPP and obtaining stockholder approval within twelve months of the board of directors' adoption of the ESPP. The ESPP is intended to comply with the requirements of Section 423 of the Code. 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.
        We will authorize and reserve a total of    shares of our common stock for issuance under the ESPP. 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.
        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 customarily 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 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.
Senior Management Benefit Plan
        We have a Senior Management Benefit Plan, referred 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. The payments under the Benefit Plan are generally intended to be exempt from taxation.
106

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 services of the named executive officers for 2007.

 Summary Compensation Table—2007

Name and Principal Position 	 	Year	 	Salary ($)	 	Option
Awards ($)
(1)	 	Non-Equity
Incentive Plan
Compensation ($)
(2)	 	All Other
Compensation ($)
(3)	 	Total ($)	 	
Andrew S. Clark, Chief Executive Officer	 	 	2007	 	$	227,936	 	$	44,901	 	$	227,000	 	$	5,255	 	$	505,092	 	
Daniel J. Devine, Chief Financial Officer	 	 	2007	 	$	205,817	 	$	11,771	 	$	154,500	 	$	5,588	 	$	377,676	 	
Christopher L. Spohn, Senior Vice President/Chief Admissions Officer	 	 	2007	 	$	200,403	 	$	11,771	 	$	170,000	 	$	5,528	 	$	387,702	 	
Jane McAuliffe, Senior Vice President/Chief Academic Officer	 	 	2007	 	$	178,228	 	$	26,762	 	$	89,200	 	$	6,777	 	$	300,967	 	
Rodney T. Sheng, Senior Vice President/Chief Administrative Officer	 	 	2007	 	$	200,403	 	$	11,771	 	$	100,000	 	$	3,156	 	$	315,330	 	

(1)
Represents the expense recorded in our financial statements, excluding any assumed forfeitures, for the year ended December 31, 2007, according to SFAS 123R. Assumptions used to calculate these amounts are included in Note 11, "Stock-Based Compensation," to our consolidated financial statements for the year ended December 31, 2007, 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" table. The below table shows the amounts earned for 2007 under the basic annual discretionary bonus opportunity and a special overachievement bonus, respectively.

2007 	 	Annual
Discretionary Bonus	 	Special
Overachievement Bonus	 	
Andrew S. Clark	 	$	113,968	 	$	113,032	 	
Daniel J. Devine	 	 	102,908	 	 	51,592	 	
Christopher L. Spohn	 	 	100,201	 	 	69,799	 	
Jane McAuliffe	 	 	71,291	 	 	17,909	 	
Rodney T. Sheng	 	 	50,101	 	 	49,899	 	
(3)
Represents our payments for the named executive officer's medical and health insurance.
107

        The following table provides information on cash-based performance awards and stock options granted in 2007 to the named executive officers. There can be no assurance that the Grant Date Fair Value of Stock Option Awards will be the amount actually realized by the named executive officer.

 Grants of Plan-Based Awards—2007

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	All other
stock
awards:
number of
shares of
stock or
units (#)	 	All other
option
awards:
number of
securities
underlying
options (#)	 	 	 	Grant Date
Fair Value
of Stock
and Option
Awards ($)
(1)	 	
 	 	 	 	Estimated future payouts under
Non-equity incentive plan awards	 	Estimated future payouts under
Equity incentive plan awards					 	Exercise or
base price
of option
awards
($/Sh)			 	
Name 	 	Grant date	 	Threshold ($)	 	Target ($)	 	Maximum ($)	 	Threshold (#)	 	Target (#)	 	Maximum (#)									 	
Andrew S. Clark	 	 	11/27/07
11/27/07
11/27/07
 	(2)
(3)
(4)
(5)	 	

113,968	 	

$	

113,968	 	 	

227,000	 	 	
81,250
162,500	 	 	
325,000
650,000	 	 	
325,000
650,000	 	 	 	 	 	325,000	 	$
$
$	0.13
0.13
0.13	 	$
$
$	26,000
26,000
52,000	 	
Daniel J. Devine	 	 	
11/27/07
11/27/07
11/27/07
 	
(2)
(3)
(4)
(5)	 	

102,908	 	

$	

102,908	 	 	

154,500	 	 	

31,250
93,750	 	 	

125,000
375,000	 	 	

125,000
375,000	 	 	 	 	 	
125,000	 	
$
$
$	
0.13
0.13
0.13	 	
$
$
$	
10,000
10,000
30,000	 	
Christopher L. Spohn	 	 	
11/27/07
11/27/07
11/27/07

(2)
(3)
(4)
(5)
(6)	 	

100,201
150,000	 	

$
$	

100,201
150,000	 	 	

170,000
300,000	 	 	

31,250
93,750	 	 	

125,000
375,000	 	 	

125,000
375,000	 	 	 	 	 	
125,000	 	
$
$
$	
0.13
0.13
0.13	 	
$
$
$	
10,000
10,000
30,000	 	
Jane McAuliffe	 	 	
11/27/07
11/27/07
11/27/07
 	
(2)
(3)
(4)
(5)	 	

71,291	 	

$	

71,291	 	 	

89,200	 	 	

31,250
75,000	 	 	

125,000
300,000	 	 	

125,000
300,000	 	 	 	 	 	
125,000	 	
$
$
$	
0.13
0.13
0.13	 	
$
$
$	
10,000
10,000
24,000	 	
Rodney T. Sheng	 	 	
11/27/07
11/27/07
11/27/07
 	
(2)
(3)
(4)
(5)	 	

50,101	 	

$	

50,101	 	 	

100,000	 	 	

31,250
93,750	 	 	

125,000
375,000	 	 	

125,000
375,000	 	 	 	 	 	
125,000	 	
$
$
$	
0.13
0.13
0.13	 	
$
$
$	
10,000
10,000
30,000	 	

(1)
The stock option grants to acquire our common shares were awarded on November 27, 2007, under the 2005 Plan and each has a ten year term subject to continued service. Each option grant consists of (i) a time-vested portion, (ii) a performance-vested portion and (iii) an exit-based portion. The per share exercise price is equal to the fair market value of one of our common shares on the date of the option grant. The grant date fair value was determined by applying the Black-Scholes option pricing model utilizing the following assumptions: risk-free interest rate of 3.55%; volatility of 40.72%; and an expected option life of 6.1 years.
108

(2)
The 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 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 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 twelve months later in time. Further, the outstanding unvested portion of the option will become fully vested upon a termination of the named executive officer's employment within the twelve (12) month period following a "change in 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.

(3)
The performance-based options vest as follows: (i) beginning with fiscal year 2008 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 were achieved, (ii) for any fiscal year in which the annual performance targets were not achieved, such portion will vest if in any subsequent fiscal year the cumulative revenues and EBITDA targets were achieved (the cumulative targets are defined in the stock option award). The targets require significant yearly growth in revenues 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.

(4)
The exit options vest only upon (i) a change in control of the company or (ii) a "liquidity event," which is defined as a sale by Warburg Pincus of its equity securities of the company and which does not constitute a change in control (as defined in the option agreement) and (iii) the named executive officer's continued service through the date of the change in control or liquidity event. In order for the exit option to vest, Warburg Pincus must receive proceeds from such change in control or liquidity event that are equal to or greater than four times its aggregate purchase price paid for our equity securities as of the date of the transaction. The portion of the exit options that vest upon a liquidity event are 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.

(5)
Each of the named executive officers was eligible to earn a fiscal year performance-based cash bonus pursuant to his or her employment agreement as discussed below. The actual annual bonus payment may be less than or greater than the target 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 2007 annual cash bonus, these targets were a fiscal 2007 revenue target of $39.879 million and a fiscal 2007 EBITDA of $1.985 million. In addition, the named executive officers were eligible to earn a special overachievement bonus for fiscal 2007. The overachievement bonus amount was determined by having a discretionary bonus pool (capped at $400,000) equal to 20% of fiscal 2007 EBITDA earned in excess of $1.985 million. For fiscal 2007, actual EBITDA was $5.2 million and so the discretionary bonus pool amount was fully funded at $400,000. The compensation committee, after considering recommendations from the Chief Executive Officer, 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 fiscal 2007 are reported in Note 2 to the Summary Compensation Table.

(6)
As described in the Executive Employment Agreements section below, Mr. Spohn was eligible for an additional bonus based on attainment of annual revenues. No portion of this additional bonus opportunity was earned for fiscal 2007.
109

Executive Employment Agreements
        We have entered into employment agreements with each of the named executive officers. Each of the agreements are on substantially similar terms and conditions with certain differences reflected below.
         Andrew S. Clark, Chief Executive Officer.     We entered into an employment agreement with Mr. Clark in November 2003, which was later amended in January 2006. The agreement provides that Mr. Clark will serve as Chief Executive Officer and as a member of the board of directors. The term of the agreement currently extends through November 26, 2009.
         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. The agreement provides that Mr. Devine will serve as Chief Financial Officer. The term of the agreement currently extends through January 1, 2010.
         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. The agreement provides that Mr. Spohn will serve as Vice President of Admissions, although his title has been subsequently changed to Senior Vice President/Chief Admissions Officer. The term of the agreement currently extends through January 1, 2010.
         Jane McAuliffe, Senior Vice President/Chief Academic Officer.     We entered into an employment agreement with Dr. McAuliffe in July 2005. The agreement provided that Dr. McAuliffe would serve as Chancellor of Ashford University, although her title has been subsequently changed to President of Ashford University. She became our Senior Vice President/Chief Academic Officer in November 2008. The term of the agreement currently extends through July 11, 2009.
         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. The agreement provides that Mr. Sheng will serve as Vice President of Operations, although his title has been subsequently changed to Senior Vice President/Chief Administrative Officer. The term of the agreement currently extends through January 1, 2010.
        Each of the employment agreements awarded time and performance-based stock options to the named executive officer. Additionally, each of the employment agreements provides 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 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 it does want to so extend the agreement.
110

        The following table highlights certain items contained in the employment agreements.

 	 	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
upon 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)	
Jane McAuliffe	 	2 years	 	$165,000;
40%	 	(3)	 	(4)	 	5 months(5)	 	(7)	
Rodney T. Sheng	 	2 years	 	$175,000;
25%	 	(3)	 	(4)	 	5 months(5)	 	(7)	

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

(2)
Each employment agreement provides that the named executive officer will be eligible for an annual discretionary incentive bonus based on attainment of company 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. For each named executive officer, the employment agreement provides that the annual bonus will based on achievement of annual revenues 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 provides that he shall be eligible for an additional annual bonus which has 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 is based on attaining annual revenue in excess of the budgeted target.

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

(4)
In the event of a change of control of the company, the named executive officer's exit options will vest if Warburg Pincus receives proceeds from such transaction that are equal to or greater than four times their aggregate purchase price paid for our equity securities. If the named executive officer is subject to an involuntary termination within twelve (12) months after a change in control, then (i) the named executive officer's time-vested options shall fully vest and become exercisable on the date of the involuntary termination.

(5)
If we terminate 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 will receive (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
111

continue his/her COBRA health insurance following the date of termination and (c) the vesting of time-based options will accelerate as if service terminated twelve months later. We may 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 states that he will have no obligation to mitigate any post-employment amounts that are owed to him nor will such amounts be subject to offset.
(6)
We are 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 were 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. Dr. McAuliffe received a one-time nonrecurring signing bonus in connection with her hire.
112

Equity Awards
        The following table shows the number of our common shares covered by stock options held by the named executive officers as of December 31, 2007. No named executive officer held any of our unvested restricted common shares or restricted stock units as of December 31, 2007.

 Outstanding Equity Awards at Fiscal Year End—2007

 	 	Option awards	 	 	 	 	 	 	 	
Name 	 	Number of securities
underlying
unexercised
options (#)
exercisable	 	Number of securities
underlying
unexercised
options (#)
unexercisable	 	Option
exercise
price ($)	 	Option
expiration
date	 	
Andrew S. Clark	 	 	3,461,961
2,917,383
—
—
—
—	 	 	427,883
972,461
5,636,640
325,000
325,000
650,000	 	$
$
$
$
$
$	0.07
0.07
0.07
0.13
0.13
0.13	 	 	4/1/2014
4/1/2014
4/1/2014
11/27/2017
11/27/2017
11/27/2017	(1)(4)
(1)(5)
(1)(7)
(2)(4)
(2)(6)
(2)(7)	
Daniel J. Devine	 	 	
895,335
754,496
—
—
—
—	 	 	
110,659
251,498
268,411
125,000
125,000
375,000	 	
$
$
$
$
$
$	
0.07
0.07
0.07
0.13
0.13
0.13	 	 	
4/1/2014
4/1/2014
4/1/2014
11/27/2017
11/27/2017
11/27/2017	
(1)(4)
(1)(5)
(1)(7)
(2)(4)
(2)(6)
(2)(7)	
Christopher L. Spohn	 	 	
895,335
754,496
—
—
—
—	 	 	
110,659
251,498
671,029
125,000
125,000
375,000	 	
$
$
$
$
$
$	
0.07
0.07
0.07
0.13
0.13
0.13	 	 	
4/1/2014
4/1/2014
4/1/2014
11/27/2017
11/27/2017
11/27/2017	
(1)(4)
(1)(5)
(1)(7)
(2)(4)
(2)(6)
(2)(7)	
Jane McAuliffe	 	 	
362,158
603,596
—
—
—
—	 	 	
442,637
201,199
536,823
125,000
125,000
300,000	 	
$
$
$
$
$
$	
0.07
0.07
0.07
0.13
0.13
0.13	 	 	
2/15/2016
2/15/2016
2/15/2016
11/27/2017
11/27/2017
11/27/2017	
(3)(4)
(3)(5)
(3)(7)
(2)(4)
(2)(6)
(2)(7)	
Rodney T. Sheng	 	 	
895,335
754,496
—
—
—
—	 	 	
110,659
251,498
671,029
125,000
125,000
375,000	 	
$
$
$
$
$
$	
0.07
0.07
0.07
0.13
0.13
0.13	 	 	
4/1/2014
4/1/2014
4/1/2014
11/27/2017
11/27/2017
11/27/2017	
(1)(4)
(1)(5)
(1)(7)
(2)(4)
(2)(6)
(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.
113

(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)
The 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 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 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 twelve months later in time. Further, the outstanding unvested portion of the option will become fully vested upon a termination of the named executive officer's employment within the twelve (12) month period following a "change in 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)
The 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 were achieved, (ii) for any fiscal year in which the annual performance targets were not achieved, such portion will vest if in any subsequent fiscal year the cumulative revenues 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. 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 performance-based options will vest to the extent that the applicable performance targets have been satisfied. The targets for fiscal 2005 through 2007 are as shown in the below table and the target for fiscal 2008 required a significant increase in revenue and EBITDA over the fiscal 2007 targets:

 	 	Fiscal Year
2005	 	Fiscal Year
2006	 	Fiscal Year
2007	
Annual EBITDA	 	($7,430,000) or
greater	 	($238,000) or
greater	 	$3,920,000	
Annual Revenue	 	$7,871,000	 	$21,808,000	 	$39,879,000	
Cumulative EBITDA	 	($7,430,000) or
greater	 	($7,668,000) or
greater	 	($3,748,000)	
Cumulative Revenue	 	$7,871,000	 	$29,679,000	 	$69,558,000	
(6)
The performance-based options vest as described in Note 3 to the "Grants of Plan-Based Awards—2007" table.

(7)
The exit options vest as described in Note 4 to the "Grants of Plan-Based Awards—2007" table.
        No stock options were exercised by the named executive officers in 2007 and none of the named executive officers had any restricted stock that vested in 2007.
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Potential Payments Upon Termination or Change-in-Control
Payments made upon resignation or termination for cause
        If a named executive officer resigns his or her 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 company without cause or by employee for good reason or due to death, disability, or change in 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/her unvested stock options as described above in the "Executive Employment Agreements" section. If there is a change in control of the company, then the exit options may receive accelerated vesting depending on whether the applicable performance conditions are attained as described above in the "Outstanding Equity Awards at Fiscal Year End—2007" table.
        For purposes of these events, the following definitions are generally applicable:
" Change in 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/her duties under his/her employment agreement; 

•
willful or intentional act(s) that has the effect of materially injuring our reputation or business; 

•
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 application to our business; 

•
material breach of a fiduciary duty to us or any provision of the confidentiality agreement; 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) ninety consecutive days or (ii) one hundred twenty non-consecutive days during any twelve 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
115

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 in 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 in control occurred on December 31, 2007, 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 2007; 

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

•
No acceleration of performance-based options applicable because fiscal 2007 performance targets are assumed to have already been achieved as of December 31, 2007; 

•
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; and 

•
Change in control of the company occurring on December 31, 2007 at a share price of $0.13.

 	 	Involuntary
Termination by
Company without
Cause	 	Involuntary
Termination by
Company without
Cause within 12
Months of a
Change in Control
of Company	 	Involuntary
Termination by
Employee for
good reason
within 12 Months
of a Change in
Control of
Company	 	Death or
Disability	 	
Andrew S. Clark	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	227,000	 	$	227,000	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	18,000	 	$	18,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	25,673	 	$	25,673	 	$	25,673	 	$	25,673	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options	 	$	—	 	$	—	(1)	$	—	(1)	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	$	270,673	 	$	270,673	 	$	25,673	 	$	25,673	 	
 	 	 	 	 	 	 	 	 	 	
Daniel J. Devine	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	102,500	 	$	102,500	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	9,000	 	$	9,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	6,640	 	$	6,640	 	$	6,640	 	$	6,640	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options	 	$	—	 	$	—	(1)	$	—	(1)	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	$	118,140	 	$	118,140	 	$	6,640	 	$	6,640	 	
 	 	 	 	 	 	 	 	 	 	
116

														
 	 	Involuntary
Termination by
Company without
Cause	 	Involuntary
Termination by
Company without
Cause within 12
Months of a
Change in Control
of Company	 	Involuntary
Termination by
Employee for
good reason
within 12 Months
of a Change in
Control of
Company	 	Death or
Disability	 	
Christopher L. Spohn	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	100,000	 	$	100,000	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	9,000	 	$	9,000	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	6,640	 	$	6,640	 	$	6,640	 	$	6,640	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options	 	$	—	 	$	—	(1)	$	—	(1)	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	$	115,640	 	$	115,640	 	$	6,640	 	$	6,640	 	
 	 	 	 	 	 	 	 	 	 	
Jane McAuliffe	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	74,167	 	$	74,167	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	7,500	 	$	7,500	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	11,589	 	$	26,558	 	$	26,558	 	$	11,589	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options	 	$	—	 	$	—	(1)	$	—	(1)	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	$	93,256	 	$	108,225	 	$	26,558	 	$	11,589	 	
 	 	 	 	 	 	 	 	 	 	
Rodney T. Sheng	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base Salary Continuation	 	$	83,333	 	$	83,333	 	$	—	 	$	—	 	
Continuation of Health Insurance Benefits	 	$	7,500	 	$	7,500	 	$	—	 	$	—	 	
Acceleration of Vesting of Time-Based Stock Options	 	$	6,640	 	$	6,640	 	$	6,640	 	$	6,640	 	
Acceleration of Vesting of Performance-Based Stock Options	 	$	—	 	$	—	 	$	—	 	$	—	 	
Acceleration of Vesting of Exit Stock Options	 	$	—	 	$	—	(1)	$	—	(1)	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Total	 	$	97,473	 	$	97,473	 	$	6,640	 	$	6,640	 	

(1)
Based on an assumed change in control on December 31, 2007, with a price of $0.13 per share, Warburg Pincus would not have received proceeds from such change in 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 not vested.
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 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
        The following is a description of transactions since January 1, 2005, 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 will be our policy upon the closing of this offering 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.
Registration Rights Agreement
        We are a party to a registration rights agreement with Warburg Pincus, Andrew S. Clark and certain other security holders. Under this agreement, security holders are entitled to registration rights with respect to their shares of common stock (including shares of common stock issuable upon the conversion of our preferred stock and shares of common stock issuable upon the exercise of various warrants) under certain circumstances. For additional information, see "Description of Capital Stock—Registration Rights."
Indemnification Agreements
        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. 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 (1) 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 (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 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
118

officer; or (5) indemnification for 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, contains 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. Upon the closing of this offering, the stockholders agreement will be terminated.
        In December 2008, the board of directors approved a nominating agreement to be entered into between us and 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 after the closing of this offering, Warburg Pincus beneficially owns less than 15% but more than 5% of the outstanding shares of common stock, we agree to nominate and recommend to our stockholders that one individual designated by Warburg Pincus be elected to the board.
Unsecured Subordinated Convertible Promissory Note Issued to Warburg Pincus
        In July 2005, we issued to Warburg Pincus an unsecured subordinated convertible promissory note in the original principal amount of $3.5 million. Interest under the note accrued at an annual rate of eight percent. Warburg Pincus elected to convert the note on the date of issuance, and the outstanding principal and accrued but unpaid interest was converted into 3,500,000 shares of Series A Convertible Preferred Stock. Immediately prior to the closing of this offering, these shares will be converted into to 35,679,736 shares of common stock.
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 June 2006 to December 2006. Since January 2007, the maximum amount payable under the guarantee has been $0.1 million.
119

Sales of Securities
        The following table summarizes sales by us of our securities since January 1, 2005, to our executive officers, directors and holders of more than five percent of our securities, on an as converted basis, other than pursuant to compensatory arrangements. For a more detailed description of ownership, see "Principal and Selling Stockholders."

Name 	 	Date of Issuance	 	Type of Security	 	Number of Shares	 	Purchase Price Per Share	 	
Warburg Pincus Private Equity VIII, L.P.	 	 	March 2005	 	Series A Convertible Preferred Stock	 	 	7,000,000	(1)	$	1.00	 	
Warburg Pincus Private Equity VIII, L.P.	 	 	July 2005	 	Series A Convertible Preferred Stock	 	 	3,500,000	(2)	$	1.00	 	

(1)
5,500,000 of these shares were purchased on March 9, 2005, and the other 1,500,000 of these shares were purchased on March 30, 2005. Both purchases were made pursuant to the Securities Purchase Agreement dated November 26, 2003, as amended, among us and certain of our stockholders. Immediately prior to the closing of this offering, these shares will convert into 71,359,473 shares of common stock.

(2)
These shares were issued on July 27, 2005, upon the conversion of an unsecured subordinated convertible promissory note we issued to Warburg Pincus in the principal amount of $3.5 million. See "Unsecured Subordinated Convertible Promissory Note Issued to Warburg Pincus" in this section. Immediately prior to the closing of this offering, these shares will convert into 35,679,736 shares of common stock.
120

 PRINCIPAL AND SELLING STOCKHOLDERS
        The following table sets forth information regarding the beneficial ownership of our common stock as of November 1, 2008, 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.
        For the purpose of calculating the percentage of shares beneficially owned by any stockholder, (i) the number of shares of common stock deemed outstanding "prior to the offering" assumes the conversion of all outstanding shares of our Series A Convertible Preferred Stock into an aggregate of 201,624,486 shares of our common stock (resulting in a total of 216,632,420 shares of common stock outstanding after the conversion); (ii) the number of shares of common stock outstanding after this offering assumes the issuance by us of                shares of common stock to the underwriters at the closing of this offering, the issuance by us of                shares of common stock to selling stockholders upon the exercise of options and warrants at the closing of this offering, and no exercise of the underwriters' over-allotment option; and (iii) the number of shares of common stock outstanding after the over-allotment assumes that the underwriters' over-allotment option is exercised in full, and the issuance by us of                shares of common stock to selling stockholders upon the exercise of options and warrants at the closing of the over-allotment.
121

        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.

 	 	 	 	 	 	 	 	Shares
Beneficially
Owned After
this Offering	 	 	 	 	 	 	 	
 	 	Shares Beneficially
Owned Prior to
this Offering	 	Number of
Shares to
Be Sold in
this
Offering			 	Maximum
Number of
Shares to Be
Sold in Over-
Allotment	 	Shares Beneficially
Owned After
Over-Allotment	 	
Name of Beneficial Owner 	 	Number	 	%			 	Number	 	%			 	Number	 	%	 	
Principal Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Warburg Pincus Private Equity VIII, L.P.(1)
c/o Warburg Pincus LLC
466 Lexington Avenue
New York, NY 10017	 	 	197,084,670	 	 	91.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
All Directors and Executive Officers asa Group (12 Persons)	 	 	

216,261,453	 	 	

93.4	

%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Directors and Executive Officers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Andrew S. Clark(2)	 	 	8,203,230	 	 	3.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Ryan Craig	 	 	—	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Daniel J. Devine(3)	 	 	2,558,805	 	 	1.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Patrick T. Hackett(4)
c/o Warburg Pincus LLC
466 Lexington Avenue
New York, NY 10017	 	 	197,084,670	 	 	91.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Robert Hartman(5)	 	 	109,184	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Jane McAuliffe(6)	 	 	1,396,539	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Adarsh Sarma(7)
c/o Warburg Pincus LLC
466 Lexington Avenue
New York, NY 10017	 	 	197,084,670	 	 	91.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Rodney T. Sheng(8)	 	 	2,813,661	 	 	1.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Christopher L. Spohn(9)	 	 	2,528,223	 	 	1.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Ross Woodard(10)	 	 	1,420,164	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Charlene Dackerman(11)	 	 	146,977	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Dale Crandall	 	 	—	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diane Thompson	 	 	—	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

*
Represents beneficial ownership of less than 1%.

(1)
The stockholder is Warburg Pincus Private Equity VIII, L.P. ("WP VIII") and two affiliated partnerships. 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 indirect pecuniary interest therein. The address of the Warburg Pincus Entities, Mr. Kaye and Mr. Landy is 466 Lexington Avenue, New York, New York 10017.

(2)
Consists of (i) 1,308,253 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 6,894,977 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.
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(3)
Consists of (i) 764,565 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 1,794,240 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(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. 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 109,184 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(6)
Consists of (i) 203,884 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 1,192,655 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(7)
Mr. Sarma is a partner of WP and 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. 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) 1,019,421 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 1,794,240 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(9)
Consists of (i) 733,983 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 1,794,240 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(10)
Consists of (i) 203,884 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 1,216,280 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.

(11)
Consists of (i) 50,971 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock; and (ii) 96,006 shares of common stock underlying options that are exercisable within 60 days of November 1, 2008.
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 DESCRIPTION OF CAPITAL STOCK
General
        The following description of our capital stock summarizes provisions of our certificate of incorporation and our bylaws as they will be in effect upon the closing of this offering. 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 19,850,000 shares of Series A Convertible Preferred Stock, $0.01 par value per share. Immediately after the closing of this offering, after giving effect to the conversion of our outstanding Series A Convertible Preferred Stock into common stock and the effectiveness of our fifth amended and restated certificate of incorporation, our authorized capital stock will consist of              shares of common stock, $0.01 par value per share, and             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 as in effect upon the closing of this offering, which are included as exhibits to the registration statement of which this prospectus is a part.
Common Stock
        As of November 1, 2008, assuming the conversion of all outstanding Series A Convertible Preferred Stock into an aggregate of 201,624,486 shares of common stock, there were 216,632,420 shares of common stock outstanding, held of record by 26 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
        Subject to the prior rights of holders of preferred stock, for as long as such stock is outstanding, 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 and holders of our preferred stock 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
        Under the certificate of incorporation that will be in effect upon the closing of this offering, the board of directors will have authority to issue undesignated preferred stock without stockholder approval, subject to applicable law and listing exchange standards. The board of directors may also
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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.
Options and Warrants to Purchase Common Stock
        As of November 1, 2008, we had 39,739,430 shares of common stock subject to options we have issued to our directors, officers, employees and consultants. As of November 1, 2008, we also had 7,100,595 shares of common stock subject to outstanding warrants, all of which are immediately exercisable.
Registration Rights
        Pursuant to a registration rights agreement we entered into in November 2003, the holders of (i) 8,531,226 shares of common stock, (ii) 198,392,923 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock, and (iii) 4,282,595 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.
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 (or $15.0 million if such requested registration is the initial public offering). We are only required to effect two such registrations. 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.
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
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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.
Provisions of Delaware Law and our Certificate of Incorporation and Amended and Restated Bylaws with Anti-Takeover Implications
        In connection with this offering, we intend to amend and restate our fourth amended and restated certificate of incorporation and amend and restate our bylaws. Certain provisions of Delaware law, our certificate of incorporation and bylaws that will be in effect after this offering 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
        Upon the closing of this offering, we will be 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 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 in control attempts and, accordingly, may discourage attempts to acquire us.
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Certificate of Incorporation and Bylaw Provisions
        Our certificate of incorporation and bylaws will, upon the closing of this offering, 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 will have a classified board of directors upon the closing of this offering. See "Management—Board Composition after the Offering." 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 will provide that 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 will 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. Failure to satisfy any of the requirements for a stockholder meeting could delay, prevent or invalidate stockholder action.
         Meetings of Stockholders.     Our bylaws will 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 will establish an advance notice procedure for stockholders to make nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders. The bylaws will provide that 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;
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•
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.
         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 in 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 that will be in effect at the closing of this offering will 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 that will be in effect upon the closing of this offering 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
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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
        We will apply for quotation of shares of our common stock on the New York Stock Exchange under the symbol "BPI."
Transfer Agent and Registrar
        The transfer agent and registrar for our common stock is            .
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 SHARES ELIGIBLE FOR FUTURE SALE
        Upon the closing of this offering, and assuming the conversion of all outstanding shares of our Series A Convertible Preferred Stock into 201,624,486 shares of our common stock upon the closing of this offering, we will have             shares (or in the event the underwriter's over-allotment option is exercised,             shares) of our common stock outstanding. Of these shares,             shares (or in the event the underwriter's over-allotment is exercised,              shares) of our common stock sold in this offering 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 Rules 144 and 701, the restricted shares will be available for sale in the public market as follows:
•
shares will be eligible for sale upon the closing of this offering; and 

•
shares will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 180 days after the date of this prospectus.

        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             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.
Rule 701
        Rule 701 of the Securities Act, as currently in effect, permits any of our employees, officers, directors or consultants who purchased or receive shares from us pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Subject to any applicable lock-up agreements, Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 beginning 90 days after the date of this prospectus without
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complying with the holding period requirement of Rule 144 and that non-affiliates may sell such shares in reliance on Rule 144 beginning 90 days after the date of this prospectus without complying with the holding period, public information, volume limitation or notice requirements of Rule 144.
Registration on Form S-8
        We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of common stock under our equity incentive plans. These registration statements are expected to be filed soon after the date of this prospectus and will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be 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 and manner of sale and notice requirements that apply to our affiliates under Rule 144.
Lock-Up Agreements
        Holders of             shares of our common stock, on an as-converted basis, and holders of options and warrants exercisable for an aggregate of             shares of our common stock are subject to lock-up agreements under which they have agreed not to transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus, which is subject to extension in some circumstances.
        For a description of the lock-up agreements with the underwriters that restrict us, our directors, our executive officers and certain of our other stockholders, see "Underwriting."
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 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 will not apply to a payment of disposition proceeds if the transaction is effected outside the United
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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.
134

 UNDERWRITING
        Under the terms and subject to the conditions contained in an underwriting agreement dated                                    , 2009, we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC and J.P. Morgan Securities Inc. are acting as representatives (the Representatives), the following respective numbers of shares of common stock:

Underwriter 	 	Number
of Shares	 	
Credit Suisse Securities (USA) LLC	 	 	            	 	
J.P. Morgan Securities Inc. 	 	 	            	 	
 	 	 	 	
 	Total	 	 	            	 	
 	 	 	 	
        The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below.
        The selling stockholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to an aggregate of                        additional outstanding shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.
        The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $                        per share. The underwriters and selling group members may allow a discount of $                        per share on sales to other broker/dealers. After the initial public offering, the Representatives may change the public offering price and concession and discount to broker/dealers.
        The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:

 	 	Per Share	 	Total	 	
 	 	Without
Over-allotment	 	With
Over-allotment	 	Without
Over-allotment	 	With
Over-allotment	 	
Underwriting Discounts and Commissions paid by us	 	$	                	 	$	                	 	$	                	 	$	                	 	
Expenses payable by us	 	$	                	 	$	                	 	$	                	 	$	                	 	
Underwriting Discounts and Commissions paid by selling stockholders	 	$	                	 	$	                	 	$	                	 	$	                	 	
Expenses payable by the selling stockholders	 	$	                	 	$	                	 	$	                	 	$	                	 	
        The Representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered.
        We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 (the "Securities Act") relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of the Representatives for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of any "lock-up" period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of any "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of
135

any "lock-up" period, then in either case the expiration of any "lock-up" will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the Representatives waive, in writing, such an extension.
        Our officers, directors and principal stockholders have agreed that they will not, subject to certain exceptions, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the Representatives for a period of 180 days after the date of this prospectus. Furthermore, in the event that either (1) during the last 17 days of any "lock-up" period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of any "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of any "lock-up" period, then in either case the expiration of any "lock-up" will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the Representatives waive, in writing, such an extension.
        The underwriters have reserved for sale at the initial public offering price up to                        shares of the common stock for members of our boards of trustees of Ashford University and the University of the Rockies who express an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.
        We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act or contribute to payments that the underwriters may be required to make in that respect.
        We will apply to list the shares of common stock on the New York Stock Exchange under the symbol "BPI."
        Prior to this offering, there has been no market for our common stock. The initial public offering price will be determined by negotiations between us, the selling stockholders and the underwriters and will not necessarily reflect the market price of the common stock following this offering. The principal factors that will be considered in determining the initial public offering price will include:
•
the information presented in this prospectus and otherwise available to the underwriters; 

•
the history of, and the prospects for, the industry in which we will compete; 

•
the ability of our management; 

•
the prospects for our future earnings; 

•
the present state of our development and our current financial condition; 

•
the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and 

•
the general conditions of the securities markets at the time of this offering.
136

        In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934.
•
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. 

•
Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. 

•
Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the 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 over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. 

•
Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the 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. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
        A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations.
137

 INTERNATIONAL SELLING RESTRICTIONS
Notice to Canadian Residents
Resale Restrictions
        The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling stockholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
        By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling stockholders and the dealer from whom the purchase confirmation is received that:
•
the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, 

•
where required by law, that the purchaser is purchasing as principal and not as agent, 

•
the purchaser has reviewed the text above under Resale Restrictions, and 

•
the purchaser acknowledges and consents to the provision of specified information concerning its purchase of the common stock to the regulatory authority that by law is entitled to collect the information.
        Further details concerning the legal authority for this information is available on request.
Rights of Action—Ontario Purchasers Only
        Under Ontario securities legislation, certain purchasers who purchase a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us and the selling stockholders in the event that this prospectus contains a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the selling stockholders. In no case will the amount recoverable in any action exceed the price at which the common stock was offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we and the selling stockholders, will have no liability. In the case of an action for damages, we and the selling stockholders, will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
138

Enforcement of Legal Rights
        All of our directors and officers as well as the experts named herein and the Selling Shareholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
        Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.
European Economic Area
        In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter represents and agrees that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Securities to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Securities to the public in that Relevant Member State at any time:
•
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; 

•
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 €43.0 million and (3) an annual net turnover of more than €50.0 million, as shown in its last annual or consolidated accounts; 

•
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 manager for any such offer; or 

•
in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
        For the purposes of this provision, the expression an "offer of Shares 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 the Shares to be offered so as to enable an investor to decide to purchase or subscribe the Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
139

Notice to Investors in the United Kingdom
        Each of the underwriters severally represents, warrants and agrees as follows:
•
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling with Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to the company; and 

•
it has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the common stock in, from or otherwise involving the United Kingdom.

 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 Sheppard, Mullin, Richter & Hampton LLP, 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, 2006 and 2007 and for each of the three years in the period ended December 31, 2007, 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.

 CHANGE IN ACCOUNTANTS
        On January 14, 2008, we retained PricewaterhouseCoopers LLP as our independent registered public accounting firm to audit our consolidated financial statements as of December 31, 2007, and for the year then ended and to reaudit our consolidated financial statements as of December 31, 2006, and for each of the two years in the period then ended. Another auditor had previously been engaged to audit our consolidated financial statements as of December 31, 2005 and 2006 and for each of the years ended December 31, 2005 and 2006. The decision to dismiss our former auditor was approved by our board of directors on January 14, 2008.
        The reports of our former auditor on our consolidated financial statements did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles, except that the report for the year ended December 31, 2007 was modified to disclose that we had restated our financial statements for the years ended December 31, 2005 and 2006. We had no disagreements with our former auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to its satisfaction, would have caused our former auditor to make reference in connection with its opinion to the subject matter of the disagreement. During the fiscal years ended December 31, 2006 and 2007, and through January 14, 2008, there were no "reportable events" as such term is defined in Item 304(a)(1)(v) of Regulation S-K.
        During the years ended December 31, 2006 and 2007, and through our retention of PricewaterhouseCoopers LLP as our independent registered public accounting firm in January 2008, we did not consult with PricewaterhouseCoopers LLP on matters that involved the application of accounting principles to a specified transaction, the type of audit opinion that might be rendered on our financial statements or any other matter that was the subject of a disagreement or a reportable event.
140

        We have provided our former auditor with a copy of the above statements and have requested that it furnish a letter addressed to the Securities and Exchange Commission stating whether our former auditor agrees with those statements. A copy of that letter is filed as an exhibit to the registration statement of which this prospectus forms a part.
        Prior to this former auditor, another auditor had been engaged to audit our consolidated financial statements as of December 31, 2004, and for the two years then ended.

 WHERE YOU CAN FIND MORE INFORMATION
        We have filed with the SEC a registration statement on Form S-1, 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.
        Upon the closing of this offering, we will become subject to information and periodic reporting requirements of the Exchange Act and we will file annual, quarterly and current reports, proxy statements and other information with the SEC.
141

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

BRIDGEPOINT EDUCATION, INC. AND SUBSIDIARIES

 	 	Page	
Report of Independent Registered Public Accounting Firm	 	F-2	
Consolidated Balance Sheets as of December 31, 2006 (restated) and 2007 and September 30, 2008 (unaudited)	 	
F-3	
Consolidated Statements of Operations for the years ended December 31, 2005 (restated), 2006 (restated) and 2007 and for the nine month periods ended September 30, 2007 and 2008 (unaudited)	 	
F-4	
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2005 (restated), 2006 (restated) and 2007 and for the nine month period ended September 30, 2008 (unaudited)	 	
F-5	
Consolidated Statements of Cash Flows for the years ended December 31, 2005 (restated), 2006 (restated) and 2007 and for the nine month period ended September 30, 2007 and 2008 (unaudited)	 	
F-6	
Notes to Consolidated Financial Statements	 	
F-7	
F-1

 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, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 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.
        As discussed in Note 3 to the consolidated financial statements, the Company has restated its financial statements, which were previously audited by other accountants, as of December 31, 2006 and for the two years then ended. As discussed in Note 11 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation in 2006.

 	 	 	 	 	
/s/ PricewaterhouseCoopers LLP	 	 	 	 	
PricewaterhouseCoopers LLP
San Diego, California
December 21, 2008
F-2

Bridgepoint Education, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)

 	 	As of December 31,	 	As of September 30, 2008	 	
 	 	2006	 	2007	 	Actual	 	Pro forma	 	
 	 	(Restated)(1)	 	 	 	(Unaudited)	 	(Unaudited)	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	54	 	$	7,351	 	$	31,992	 	 	 	 	
 	Restricted cash	 	 	—	 	 	—	 	 	666	 	 	 	 	
 	Accounts receivable, net of allowance for doubtful accounts of $1,933 and $6,016 at December 31, 2006 and 2007, respectively, and $13,724 at September 30, 2008	 	 	5,090	 	 	14,630	 	 	30,160	 	 	 	 	
 	Inventories	 	 	209	 	 	194	 	 	273	 	 	 	 	
 	Loans receivable	 	 	277	 	 	277	 	 	277	 	 	 	 	
 	Current portion of deferred income taxes	 	 	—	 	 	—	 	 	863	 	 	 	 	
 	Prepaid expenses and other current assets	 	 	310	 	 	561	 	 	1,853	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total current assets	 	 	5,940	 	 	23,013	 	 	66,084	 	 	 	 	
Property and equipment, net	 	 	
9,037	 	 	
13,240	 	 	
21,878	 	 	 	 	
Goodwill	 	 	—	 	 	76	 	 	76	 	 	 	 	
Intangibles	 	 	1,402	 	 	1,821	 	 	1,821	 	 	 	 	
Deferred income taxes	 	 	—	 	 	—	 	 	4,191	 	 	 	 	
Other long-term assets	 	 	712	 	 	907	 	 	420	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	17,091	 	$	39,057	 	$	94,470	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	1,330	 	$	2,721	 	$	5,705	 	 	 	 	
 	Accrued liabilities	 	 	3,506	 	 	6,036	 	 	13,832	 	 	 	 	
 	Deferred revenue	 	 	5,400	 	 	16,817	 	 	46,276	 	 	 	 	
 	Other liabilities	 	 	—	 	 	75	 	 	151	 	 	 	 	
 	Current portion of leases payable	 	 	125	 	 	133	 	 	188	 	 	 	 	
 	Current maturities of notes payable	 	 	697	 	 	1,580	 	 	74	 	 	 	 	
 	U.S. Governmental refundable loan funds	 	 	221	 	 	221	 	 	221	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	11,279	 	 	27,583	 	 	66,447	 	 	 	 	
Leases payable, less current maturities	 	 	
79	 	 	
415	 	 	
241	 	 	 	 	
Notes payable, less current portion	 	 	3,292	 	 	3,545	 	 	180	 	 	 	 	
Deferred tax liability	 	 	543	 	 	556	 	 	—	 	 	 	 	
Rent liability	 	 	390	 	 	2,045	 	 	1,786	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	15,583	 	 	34,144	 	 	68,654	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
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, 2006, December 31, 2007 and September 30, 2008; none issued and outstanding on a pro forma basis at September 30, 2008	 	 	23,200	 	 	25,056	 	 	26,560	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders' equity (deficit):	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common stock, $0.01 par value:
300,000,000 shares authorized, 14,842,951 issued and outstanding at December 31, 2006, and 15,007,934 shares issued and outstanding at December 31, 2007 and September 30, 2008; 216,632,420 shares issued and outstanding on a pro forma basis at September 30, 2008	 	 	148	 	 	150	 	 	150	 	 	348	 	
 	Additional paid-in capital	 	 	354	 	 	—	 	 	–	 	 	26,362	 	
 	Retained earnings (accumulated deficit)	 	 	(22,194	)	 	(20,293	)	 	(894	)	 	(894	)	
 	 	 	 	 	 	 	 	 	 	
Total stockholders' equity (deficit)	 	 	
(21,692	
)	 	
(20,143	
)	 	
(744	
)	 	
25,816	 	
 	 	 	 	 	 	 	 	 	 	
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)	 	
$	
17,091	 	
$	
39,057	 	
$	
94,470	 	 	 	 	

(1)
See Note 3, "Restatement of Consolidated Financial Statements," to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-3

Bridgepoint Education, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

 	 	Year Ended December 31,	 	Nine Months Ended
September 30,	 	
 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
 	 	(Restated)(1)	 	(Restated)(1)	 	 	 	(Unaudited)	 	
Revenue	 	$	7,951	 	$	28,619	 	$	85,709	 	$	54,558	 	$	149,167	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	5,498	 	 	12,510	 	 	29,837	 	 	19,154	 	 	42,050	 	
 	Marketing and promotional	 	 	4,078	 	 	12,214	 	 	35,997	 	 	24,532	 	 	54,490	 	
 	General and administrative	 	 	6,190	 	 	8,704	 	 	15,892	 	 	9,503	 	 	26,326	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	 	15,766	 	 	33,428	 	 	81,726	 	 	53,189	 	 	122,866	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	(7,815	)	 	(4,809	)	 	3,983	 	 	1,369	 	 	26,301	 	
Interest (income)	 	 	(38	)	 	(10	)	 	(12	)	 	(1	)	 	(195	)	
Interest expense	 	 	228	 	 	351	 	 	544	 	 	332	 	 	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(8,005	)	 	(5,150	)	 	3,451	 	 	1,038	 	 	26,299	 	
Income tax expense	 	 	—	 	 	—	 	 	164	 	 	50	 	 	5,521	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	(8,005	)	 	(5,150	)	 	3,287	 	 	988	 	 	20,778	 	
Preferred dividends	 	 	1,344	 	 	1,718	 	 	1,856	 	 	1,392	 	 	1,503	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income available (loss attributable) to common stockholders	 	$	(9,349	)	$	(6,868	)	$	1,431	 	$	(404	)	$	19,275	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(0.66	)	$	(0.48	)	$	0.10	 	$	(0.03	)	$	1.28	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	$	(0.66	)	$	(0.48	)	$	0.01	 	$	(0.03	)	$	0.08	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding used in computing earnings (loss) per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	14,131	 	 	14,357	 	 	14,896	 	 	14,845	 	 	15,008	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	14,131	 	 	14,357	 	 	223,324	 	 	14,845	 	 	245,723	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma earnings per common share (unaudited) (Note 9):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	$	0.02	 	 	 	 	$	0.10	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	$	0.01	 	 	 	 	$	0.08	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma weighted average common shares outstanding used in computing pro forma earnings per common share (unaudited) (Note 9):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	216,520	 	 	 	 	 	216,632	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	223,324	 	 	 	 	 	245,723	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental pro forma earnings per common share (unaudited) (Note 9):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	$	 	 	 	 	 	$	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	
$		 	 	 	 	
$		 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental pro forma weighted average common shares outstanding used in computing supplemental pro forma earnings per common share (unaudited) (Note 9):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

(1)
See Note 3, "Restatement of Consolidated Financial Statements," to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-4

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, 2004	 	 	9,166,333	 	$	9,526	 	 	14,125,236	 	$	141	 	$	3,042	 	$	(9,039	)	$	(5,856	)	
Issuance of preferred stock	 	 	10,612,000	 	 	10,612	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
Issuance of warrants	 	 	—	 	 	—	 	 	—	 	 	—	 	 	7	 	 	—	 	 	7	 	
Issuance of common stock	 	 	—	 	 	—	 	 	11,749	 	 	—	 	 	1	 	 	—	 	 	1	 	
Preferred dividend accretion	 	 	—	 	 	1,344	 	 	—	 	 	—	 	 	(1,344	)	 	—	 	 	(1,344	)	
Net loss (Restated) (1)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(8,005	)	 	(8,005	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2005 (Restated) (1)	 	 	19,778,333	 	$	21,482	 	 	14,136,985	 	$	141	 	 	1,706	 	 	(17,044	)	 	(15,197	)	
Issuance of common stock	 	 	
—	 	 	
—	 	 	
705,966	 	 	
7	 	 	
43	 	 	
—	 	 	
50	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	323	 	 	—	 	 	323	 	
Preferred dividend accretion	 	 	—	 	 	1,718	 	 	—	 	 	—	 	 	(1,718	)	 	—	 	 	(1,718	)	
Net loss (Restated)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(5,150	)	 	(5,150	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2006 (Restated) (1)	 	 	19,778,333	 	$	23,200	 	 	14,842,951	 	 	148	 	 	354	 	 	(22,194	)	 	(21,692	)	
Issuance of common stock	 	 	
—	 	 	
—	 	 	
164,983	 	 	
2	 	 	
10	 	 	
—	 	 	
12	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	106	 	 	—	 	 	106	 	
Preferred dividend accretion	 	 	—	 	 	1,856	 	 	—	 	 	—	 	 	(470	)	 	(1,386	)	 	(1,856	)	
Net income	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	3,287	 	 	3,287	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	 	19,778,333	 	$	25,056	 	 	15,007,934	 	 	150	 	 	—	 	 	(20,293	)	 	(20,143	)	
Issuance of common stock	 	 	
—	 	 	
—	 	 	
—	 	 	
—	 	 	
—	 	 	
—	 	 	
—	 	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	 	—	 	 	125	 	 	—	 	 	125	 	
Preferred dividend accretion	 	 	—	 	 	1,504	 	 	—	 	 	—	 	 	(125	)	 	(1,379	)	 	(1,504	)	
Net income	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	20,778	 	 	20,778	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2008 (unaudited)	 	 	19,778,333	 	$	26,560	 	 	15,007,934	 	$	150	 	$	—	 	$	(894	)	$	(744	)	

(1)
See Note 3, "Restatement of Consolidated Financial Statements," to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-5

Bridgepoint Education, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 	 	Year Ended December 31,	 	Nine Months Ended
September 30,	 	
 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
 	 	(Restated)(1)	 	(Restated)(1)	 	 	 	(Unaudited)	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	(8,005	)	$	(5,150	)	$	3,287	 	$	988	 	$	20,778	 	
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Provision for bad debts	 	 	860	 	 	960	 	 	4,082	 	 	3,015	 	 	8,772	 	
 	Depreciation and amortization	 	 	494	 	 	735	 	 	1,236	 	 	785	 	 	1,547	 	
 	Deferred income taxes	 	 	—	 	 	—	 	 	164	 	 	—	 	 	(5,054	)	
 	Stock-based compensation	 	 	1	 	 	323	 	 	106	 	 	96	 	 	125	 	
 	Warrants issued to lender in connection with credit agreement	 	 	7	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	Gain on disposal of fixed assets	 	 	—	 	 	(3	)	 	—	 	 	—	 	 	—	 	
Changes in operating assets and liabilities, net of effects of acquisitions:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accounts receivable	 	 	(1,799	)	 	(4,183	)	 	(13,563	)	 	(6,897	)	 	(24,302	)	
 	Inventories	 	 	(122	)	 	(88	)	 	16	 	 	99	 	 	(79	)	
 	Prepaid expenses and other current assets	 	 	157	 	 	(252	)	 	(203	)	 	(265	)	 	(1,292	)	
 	Loans receivable	 	 	35	 	 	(5	)	 	—	 	 	—	 	 	—	 	
 	Other long-term assets	 	 	1	 	 	(147	)	 	(150	)	 	(251	)	 	(69	)	
 	Accounts payable	 	 	538	 	 	484	 	 	1,389	 	 	822	 	 	1,855	 	
 	Accrued liabilities	 	 	(1,212	)	 	2,063	 	 	2,854	 	 	1,102	 	 	7,797	 	
 	Deferred revenue	 	 	1,478	 	 	3,893	 	 	11,270	 	 	1,466	 	 	29,459	 	
 	U.S. Governmental refundable loan funds	 	 	217	 	 	4	 	 	—	 	 	—	 	 	—	 	
 	Other liabilities	 	 	106	 	 	284	 	 	(121	)	 	702	 	 	(184	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	 	(7,244	)	 	(1,082	)	 	10,367	 	 	1,662	 	 	39,353	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(323	)	 	(1,381	)	 	(3,571	)	 	(3,428	)	 	(9,057	)	
Proceeds from the sale of assets	 	 	—	 	 	8	 	 	—	 	 	—	 	 	—	 	
Restricted cash	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(666	)	
Acquisitions, net of cash acquired	 	 	(7,697	)	 	—	 	 	635	 	 	635	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) investing activities	 	 	(8,020	)	 	(1,373	)	 	(2,936	)	 	(2,793	)	 	(9,723	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from the issuance of preferred stock	 	 	10,612	 	 	—	 	 	—	 	 	—	 	 	—	 	
Proceeds from the exercise of stock options	 	 	—	 	 	50	 	 	12	 	 	12	 	 	—	 	
Payments on leases payable	 	 	(130	)	 	(160	)	 	(170	)	 	(57	)	 	—	 	
Net borrowings (payments) on line of credit	 	 	(49	)	 	623	 	 	414	 	 	—	 	 	(118	)	
Proceeds from notes payable	 	 	3,550	 	 	—	 	 	—	 	 	2,493	 	 	—	 	
Payments on notes payable	 	 	(126	)	 	(167	)	 	(390	)	 	—	 	 	(4,871	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	 	 	13,857	 	 	346	 	 	(134	)	 	2,448	 	 	(4,989	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	(1,407	)	 	(2,109	)	 	7,297	 	 	1,317	 	 	24,641	 	
Cash and cash equivalents at beginning of period	 	 	3,570	 	 	2,163	 	 	54	 	 	54	 	 	7,351	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	2,163	 	$	54	 	$	7,351	 	$	1,371	 	$	31,992	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid during the period for:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest	 	$	231	 	$	353	 	$	544	 	$	330	 	$	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Income taxes	 	$	—	 	$	—	 	$	—	 	$	—	 	$	4,460	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosure of noncash investing and financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchase of property and equipment through capital lease obligations	 	$	—	 	$	119	 	$	1,580	 	$	148	 	$	—	 	
Non cash purchases of property and equipment	 	$	24	 	$	201	 	$	361	 	$	352	 	$	1,128	 	

(1)
See Note 3, "Restatement of Consolidated Financial Statements," to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-6

Bridgepoint Education, Inc.

Notes to 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, 2005, 2006 and 2007 and for the nine months ended September 30, 2007 and 2008 include the results of operations of Ashford University commencing on March 10, 2005 and the results of operations of the University of the Rockies commencing on September 13, 2007. Intercompany transactions have been eliminated in consolidation.
Unaudited Interim Consolidated Financial Information
        The accompanying consolidated balance sheet as of September 30, 2008, the consolidated statements of operations and of cash flows for the nine months ended September 30, 2007 and 2008 and the consolidated statement of redeemable convertible preferred stock and stockholders' equity (deficit) for the nine months ended September 30, 2008, are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position and results of operations and cash flows for the nine months ended September 30, 2007 and 2008. The financial data and other information disclosed in these notes to the consolidated financial statements related to the nine-month periods are unaudited. The results of the nine months ended September 30, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008 or for any other interim period or for any other future year.
Unaudited Pro Forma Stockholders' Equity
        Upon the closing of the initial public offering of the Company's common stock, all of the outstanding shares of redeemable convertible preferred stock will convert into common stock. The September 30, 2008, unaudited pro forma balance sheet data have been prepared assuming the conversion of the redeemable convertible preferred stock outstanding into 201.6 million shares of common stock.
F-7

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
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 amounts 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, fees and room and board from currently enrolled and former students. Students generally 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 is 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 recorded 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.
F-8

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
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 is recorded 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.
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 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 recognized by the Company to date.
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 recognized 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 a charge 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. The Company's 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 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
F-9

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

course-by-course basis when the student first attends a class (or at the beginning of each semester for ground students), resulting in the recording of a receivable from the student and deferred tuition in the amount of the billing. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded.
        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. Revenue also includes textbook-related income, and other applicable fees and income, which are all recognized when services are delivered or when a product is sold.
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.
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 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 cost recognized includes the cost for all stock options granted or modified after January 1, 2006. The cost 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 recognized 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 and $106,000 for the years ended December 31, 2006 and 2007, respectively, and $106,000 and $125,000 for the nine months ended September 30, 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.
F-10

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
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, 2005, 2006 and 2007 were $1.5 million, $5.0 million and $15.1 million, respectively, and for the nine months ended September 30, 2007 and 2008 were $10.8 million and $18.9 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 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 " 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. 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.
Correction of an Error
        In 2008, the Company determined that in prior periods the carrying value of its redeemable convertible preferred stock was improperly presented on the consolidated balance sheet as it did not include amounts related to accreted dividends. The Company has corrected the carrying value of the redeemable convertible preferred stock for all periods presented to increase the redeemable convertible preferred stock for the accreted dividends, with a corresponding reduction of retained earnings and
F-11

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

additional paid in capital. The effect of this correction increased the carrying value of the redeemable convertible preferred stock and increased stockholders' deficit by $1.7 million, $3.4 million, and $5.3 million as of December 31, 2005, 2006 and 2007, respectively. The error did not have a material impact on the consolidated balance sheets and the consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit) as of December 31, 2006 and 2007 and did not have any impact on the consolidated statements of operations or the consolidated statements of cash flows.
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 Chief Executive Officer, 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 2010 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.
        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.
F-12

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Restatement of Consolidated Financial Statements
        The Company has restated its previously issued consolidated financial statements as of and for the years ended December 31, 2005 and 2006. The determination to restate these financial statements was made by the Company's management upon identification of errors subsequent to the issuance of the 2005 and 2006 financial statements. The nature of the related errors and adjustments are summarized as follows:
(a)    Leasing transaction:
        The Company was not properly expensing real estate lease rental payments on a straight-line basis in accordance with SFAS No. 13, Accounting for Leases . This error resulted in an understatement of rental expense and other liabilities of $390,000 in the year ended December 31, 2006.
(b)    Intangible assets and allocation of fair value of net assets purchased over purchase price to assets:
        The Company acquired The Franciscan University of the Prairies in early 2005. In connection with the purchase, the Company acquired certain intangible assets, including accreditation and Title IV participation rights, which were not previously recorded. In addition, this acquisition resulted in a fair value of net assets acquired in excess of cost. The difference between cost and fair value of net assets acquired was not properly allocated to assets purchased. This resulted in an understatement of intangible assets of $1.4 million, and an overstatement of property and equipment of $1.4 million and accounts receivable of $32,000 at December 31, 2005 and 2006. The overstatement of property and equipment for these years also resulted in the overstatement of accumulated depreciation and depreciation expense by $185,000 for the year ended December 31, 2005 and the overstatement of accumulated depreciation and depreciation expense by $428,000 and $243,000, respectively, for the year ended December 31, 2006.
(c)    Recognition of technology revenues:
        The Company incorrectly recognized revenue for technology fees at the time the fee was assessed to students. The Company determined that this one-time up-front charge to students should be deferred and recognized ratably over the average expected term of a student. This resulted in the overstatement of revenues for the years ended December 31, 2005 and 2006 of $190,000 and $234,000, respectively, and the understatement of deferred revenues of $145,000 and $423,000 at December 31, 2005 and 2006, respectively and the understatement of accounts receivable of $44,000 at December 31, 2005.
(d)    Calculation of stock-based compensation:
        The Company incorrectly recognized stock-based compensation expense on options granted to employees prior to the grant date of the options. Options were granted to employees in February 2006; however, the expense was recorded in 2005. An entry was necessary in order to remove the expense from the 2005 consolidated financial statements. This resulted in an overstatement of compensation expense and additional paid-in capital of $178,000 for the year ended December 31, 2005. The stock-based compensation expense and additional paid-in capital for the year ended December 31, 2006, was increased by $107,000.
F-13

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Restatement of Consolidated Financial Statements (Continued)
(e)    Scholarships:
        The Company offers scholarships to certain students. Tuition revenue should be shown net of the scholarships. However, in 2006 and 2005, the Company incorrectly recognized scholarships as instructional costs and services expense. Adjustments of $128,000 and $669,000 for the years ended December 31, 2005 and 2006, respectively, were necessary to properly report tuition revenues net of scholarships.
(f)     Other Non-Material Items:
        The Company recorded other adjustments that were not considered material (both individually and in the aggregate) but for which the Company believed it was appropriate to revise its previously reported consolidated financial statements in connection with the restatement. In 2005, the combined impact of these adjustments resulted in the reduction of cash and cash equivalents and the increase of general and administrative expenses of $1,000. In 2006, the combined impact of these adjustments included an increase in cash, accounts receivable, property and equipment, accrued liabilities and deferred revenue of $30,000, $33,000, $7,000, $104,000, and $77,000, respectively, and a reduction in accounts payable of $1,000. These adjustments also resulted in the increase of general and administrative expenses of $93,000.
        The following tables present the adjustments to the restatements of the Company's previously issued consolidated financial statements as of December 31, 2006, and for the years ended December 31, 2005 and 2006 (in thousands of dollars, except share and per share data):

 	 	December 31, 2006	 	
 	 	As Reported	 	Adjustments	 	As Restated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	23	 	$	31	 	$	54	 	
 	Accounts receivable, net of allowance for doubtful accounts	 	 	5,089	 	 	1	 	 	5,090	 	
 	Inventories	 	 	209	 	 	—	 	 	209	 	
 	Loans receivable	 	 	277	 	 	—	 	 	277	 	
 	Prepaid expenses and other current assets	 	 	294	 	 	16	 	 	310	 	
 	 	 	 	 	 	 	 	
 	 	Total current assets	 	 	5,892	 	 	48	 	 	5,940	 	
Property and equipment, net	 	 	
9,972	 	 	
(935	
)	 	
9,037	 	
Intangibles	 	 	—	 	 	1,402	 	 	1,402	 	
Other long-term assets	 	 	169	 	 	543	 	 	712	 	
 	 	 	 	 	 	 	 	
 	 	Total assets	 	
$	
16,033	 	
$	
1,058	 	
$	
17,091	 	
 	 	 	 	 	 	 	 	
F-14

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Restatement of Consolidated Financial Statements (Continued)

 	 	December 31, 2006	 	
 	 	As Reported	 	Adjustments	 	As Restated	 	
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDER'S DEFICIT	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	1,331	 	$	(1	)	$	1,330	 	
 	Accrued liabilities	 	 	3,403	 	 	103	 	 	3,506	 	
 	Deferred revenue	 	 	4,899	 	 	501	 	 	5,400	 	
 	Current portion of leases payable	 	 	122	 	 	3	 	 	125	 	
 	Current maturities of notes payable	 	 	697	 	 	—	 	 	697	 	
 	U.S. Governmental refundable loan funds	 	 	221	 	 	—	 	 	221	 	
 	 	 	 	 	 	 	 	
 	 	Total current liabilities	 	 	10,673	 	 	606	 	 	11,279	 	
Leases payable, less current maturities	 	 	82	 	 	(3	)	 	79	 	
Notes payable, less current portion	 	 	3,292	 	 	—	 	 	3,292	 	
Deferred tax liability	 	 	—	 	 	543	 	 	543	 	
Rent liability	 	 	—	 	 	390	 	 	390	 	
 	 	 	 	 	 	 	 	
 	 	Total liabilities	 	 	14,047	 	 	1,536	 	 	15,583	 	
Commitments and contingencies (see Note 17)	 	 	 	 	 	 	 	 	 	 	
Redeemable convertible preferred stock	 	 	
23,200	 	 	
—	 	 	
23,200	 	
Stockholders' deficit:	 	 	 	 	 	 	 	 	 	 	
Common stock	 	 	148	 	 	—	 	 	148	 	
Additional paid-in capital	 	 	425	 	 	(71	)	 	354	 	
Accumulated deficit	 	 	(21,787	)	 	(407	)	 	(22,194	)	
 	 	 	 	 	 	 	 	
 	 	Total stockholders' deficit	 	 	(21,214	)	 	(478	)	 	(21,692	)	
 	 	 	 	 	 	 	 	
 	 	Total liabilities, redeemable convertible preferred stock and stockholders' deficit	 	$	16,033	 	$	1,058	 	$	17,091	 	

 	 	December 31, 2005	 	  	 	December 31, 2006	 	
 	 	As
Reported	 	Adjustments	 	As
Restated	 	  	 	As
Reported	 	Adjustments	 	As
Restated	 	
Revenue	 	$	8,269	 	$	(318	)	$	7,951	 	  	 	$	29,521	 	$	(902	)	$	28,619	 	
Costs and expenses	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
 	Instructional costs and services	 	 	5,626	 	 	(128	)	 	5,498	 	  	 	 	13,178	 	 	(668	)	 	12,510	 	
 	Marketing and promotional	 	 	4,078	 	 	—	 	 	4,078	 	  	 	 	12,214	 	 	—	 	 	12,214	 	
 	General and administrative	 	 	6,551	 	 	(361	)	 	6,190	 	  	 	 	8,359	 	 	345	 	 	8,704	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total costs and expenses	 	 	16,255	 	 	(489	)	 	15,766	 	  	 	 	33,751	 	 	(323	)	 	33,428	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating loss	 	 	(7,986	)	 	171	 	 	(7,815	)	  	 	 	(4,230	)	 	(579	)	 	(4,809	)	
Other expense, net	 	 	(190	)	 	—	 	 	(190	)	  	 	 	(341	)	 	—	 	 	(341	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net loss	 	
$	
(8,176	
)	
$	
171	 	
$	
(8,005	
)	  	 	
$	
(4,571	
)	
$	
579	 	
$	
(5,150	
)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	(0.58	)	$	0.08	 	$	(0.66	)	  	 	$	(0.32	)	$	(0.16	)	$	(0.48	)	
 	Diluted	 	$	(0.58	)	$	0.08	 	$	(0.66	)	  	 	$	(0.32	)	$	(0.16	)	$	(0.48	)	
F-15

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Restatement of Consolidated Financial Statements (Continued)

																									
 	 	December 31, 2005	 	  	 	December 31, 2006	 	
 	 	As
Reported	 	Adjustments	 	As
Restated	 	  	 	As
Reported	 	Adjustments	 	As
Restated	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(8,177	)	$	172	 	$	(8,005	)	  	 	$	(4,571	)	$	(579	)	$	(5,150	)	
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities, net of effects of
Acquisitions:	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
 	Depreciation and amortization	 	 	679	 	 	(185	)	 	494	 	  	 	 	978	 	 	(243	)	 	735	 	
 	Provision for bad debt	 	 	762	 	 	98	 	 	860	 	  	 	 	927	 	 	33	 	 	960	 	
 	Warrants issued to lender in connection with credit agreement	 	 	8	 	 	—	 	 	8	 	  	 	 	—	 	 	—	 	 	—	 	
 	Stock-based compensation	 	 	178	 	 	(178	)	 	—	 	  	 	 	217	 	 	107	 	 	324	 	
 	Gain on disposal of fixed assets	 	 	—	 	 	—	 	 	—	 	  	 	 	(3	)	 	—	 	 	(3	)	
 	Common stock issued	 	 	—	 	 	—	 	 	—	 	  	 	 	50	 	 	(50	)	 	—	 	
 	Changes in operating assets and
liabilities:	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
 	 	Accounts receivable	 	 	(1,746	)	 	(53	)	 	(1,799	)	  	 	 	(4,073	)	 	(110	)	 	(4,183	)	
 	 	Inventories	 	 	(122	)	 	—	 	 	(122	)	  	 	 	(88	)	 	—	 	 	(88	)	
 	 	Prepaid expenses and other current assets	 	 	157	 	 	—	 	 	157	 	  	 	 	(235	)	 	(17	)	 	(252	)	
 	 	Loans receivable	 	 	35	 	 	—	 	 	35	 	  	 	 	(5	)	 	—	 	 	(5	)	
 	 	Other long-term assets	 	 	1	 	 	—	 	 	1	 	  	 	 	(147	)	 	—	 	 	(147	)	
 	 	Accounts payable	 	 	537	 	 	1	 	 	538	 	  	 	 	485	 	 	(1	)	 	484	 	
 	 	Accrued liabilities	 	 	(850	)	 	(362	)	 	(1,212	)	  	 	 	1,959	 	 	104	 	 	2,063	 	
 	 	Deferred revenue	 	 	1,320	 	 	158	 	 	1,478	 	  	 	 	3,538	 	 	355	 	 	3,893	 	
 	 	U.S. Government refundable loans funds	 	 	(28	)	 	245	 	 	217	 	  	 	 	4	 	 	—	 	 	4	 	
 	 	Other liabilities	 	 	2	 	 	104	 	 	106	 	  	 	 	(106	)	 	389	 	 	283	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Net cash provided by (used in) operating activities	 	 	(7,244	)	 	—	 	 	(7,244	)	  	 	 	(1,070	)	 	(12	)	 	(1,082	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
F-16

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Restatement of Consolidated Financial Statements (Continued)

 	 	December 31, 2005	 	  	 	December 31, 2006	 	
 	 	As
Reported	 	Adjustments	 	As
Restated	 	  	 	As
Reported	 	Adjustments	 	As
Restated	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(323	)	 	—	 	 	(323	)	  	 	 	(1,493	)	 	112	 	 	(1,381	)	
Proceeds from the sale of assets	 	 	(7,697	)	 	—	 	 	(7,697	)	  	 	 	8	 	 	—	 	 	8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Net cash provided by (used in)
investing activities	 	 	(8,020	)	 	—	 	 	(8,020	)	  	 	 	(1,485	)	 	112	 	 	(1,373	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of preferred stock	 	 	10,612	 	 	—	 	 	10,612	 	  	 	 	—	 	 	—	 	 	—	 	
Proceeds from exercise of stock options	 	 	—	 	 	—	 	 	—	 	  	 	 	—	 	 	50	 	 	50	 	
Payments on leases payable	 	 	(175	)	 	45	 	 	(130	)	  	 	 	(161	)	 	1	 	 	(160	)	
Borrowings on leases payable	 	 	(130	)	 	130	 	 	—	 	  	 	 	120	 	 	(120	)	 	—	 	
Net borrowings (payments) on line of credit	 	 	—	 	 	(49	)	 	(49	)	  	 	 	—	 	 	623	 	 	623	 	
Proceeds from notes payable	 	 	3,550	 	 	—	 	 	3,550	 	  	 	 	671	 	 	(671	)	 	—	 	
Payments on notes payable	 	 	—	 	 	(126	)	 	(126	)	  	 	 	(216	)	 	49	 	 	(167	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Net cash provided by (used in) financing activities	 	 	13,857	 	 	—	 	 	13,857	 	  	 	 	414	 	 	(68	)	 	346	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Net decrease in cash and cash equivalents	 	 	(1,407	)	 	—	 	 	(1,407	)	  	 	 	(2,141	)	 	32	 	 	(2,109	)	
Cash and cash equivalents at beginning of period	 	 	
3,570	 	 	
—	 	 	
3,570	 	  	 	 	
2,164	 	 	
(1	
)	 	
2,163	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	2,163	 	$	—	 	$	2,163	 	  	 	$	23	 	$	31	 	$	54	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow
information	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	231	 	$	—	 	$	231	 	  	 	$	353	 	$	—	 	$	353	 	
Supplemental disclosure of noncash investing and financing activities	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 	 	
Purchase of property and equipment	 	$	—	 	$	—	 	$	—	 	  	 	$	—	 	$	119	 	$	119	 	
4. 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
F-17

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
4. 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.
The Franciscan University of the Prairies
        On March 10, 2005, the Company purchased substantially all the assets and assumed certain liabilities of The Franciscan University of the Prairies for $9.0 million and renamed it Ashford University. The acquisition was accounted for as a purchase and, accordingly, the results of operations are included in the consolidated financial statements beginning March 10, 2005, the effective date of the acquisition.
F-18

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
4. Business Combinations (Continued)
        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):

 	 	(Restated)	 	
 	Cash	 	$	1,303	 	
 	Accounts receivable, net	 	 	377	 	
 	Prepaid expenses	 	 	82	 	
 	Loan receivable	 	 	306	 	
 	Building and leasehold improvements	 	 	6,815	 	
 	Land	 	 	327	 	
 	Vehicles	 	 	12	 	
 	Furniture and equipment	 	 	1,066	 	
 	Other assets	 	 	565	 	
 	Intangible assets—accreditation and Title IV program participation rights	 	 	1,402	 	
 	 	 	 	
 	 	 	Total assets acquired	 	 	12,255	 	
 	 	 	 	
 	Other current liabilities	 	 	
(2,283	
)	
 	Deferred tax liabilities	 	 	(565	)	
 	Debt assumed	 	 	(407	)	
 	 	 	 	
 	 	 	Total liabilities assumed	 	 	(3,255	)	
 	 	 	 	
 	Purchase price	 	
$	
9,000	 	
 	 	 	 	
        The following unaudited pro forma information assumes the acquisition of Ashford University had occurred as of January 1, 2005, the earliest date for which the information is presented below (in thousands except per share data):

 	 	For the year ended
December 31,	 	
 	 	2005	 	
 	 	(Unaudited)	 	
Revenue	 	$	8,990	 	
Net loss	 	 	(8,271	)	
Basic and diluted earnings per common share	 	$	(0.59	)	
Goodwill and Intangible Assets
        As a result of the purchase of the University of the Rockies, the Company recorded $76,000 in goodwill. Intangible assets were acquired in the purchase of Ashford University in 2005 and the University of the Rockies in 2007. These intangible assets consist of accreditation and Title IV program participation rights ("accreditation") and are considered to have indefinite useful lives. Intangible assets totaled $1.4 million and $1.8 million at December 31, 2006 and 2007, respectively, and $1.8 million at September 30, 2008.
F-19

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
5. Property and Equipment
        Property and equipment, net, consist of the following (in thousands):

 	 	As of December 31,	 	 	 	
 			 	As of
September 30,
2008	 	
 	 	2006	 	2007			 	
 	 	 	 	 	 	(Unaudited)	 	
Land	 	$	327	 	$	327	 	$	327	 	
Buildings	 	 	6,109	 	 	6,109	 	 	6,109	 	
Furniture, office equipment and software	 	 	2,999	 	 	6,768	 	 	16,668	 	
Leasehold improvements	 	 	905	 	 	2,543	 	 	2,825	 	
Vehicles	 	 	12	 	 	43	 	 	46	 	
 	 	 	 	 	 	 	 	
 	Total property and equipment	 	 	
10,352	 	 	
15,790	 	 	
25,975	 	
Less accumulated depreciation and amortization	 	 	(1,315	)	 	(2,550	)	 	(4,097	)	
 	 	 	 	 	 	 	 	
 	Property and equipment, net	 	
$	
9,037	 	
$	
13,240	 	
$	
21,878	 	
 	 	 	 	 	 	 	 	
        Depreciation and amortization expense associated with property and equipment, including assets under capital lease, totaled $0.5 million, $0.7 million and $1.2 million for the years ended December 31, 2005, 2006 and 2007, respectively, and $0.8 million and $1.5 million for the nine months ended September 30, 2007 and 2008, respectively.
6. Accrued Liabilities
        Accrued liabilities consist of the following (in thousands):

 	 	As of December 31,	 	 	 	
 			 	As of
September 30,
2008	 	
 	 	2006	 	2007			 	
 	 	 	 	 	 	(Unaudited)	 	
Accrued salaries and wages	 	$	1,275	 	$	2,097	 	$	4,566	 	
Accrued vacation	 	 	180	 	 	585	 	 	1,176	 	
Accrued expenses	 	 	2,051	 	 	3,190	 	 	4,767	 	
Accrued income taxes payable	 	 	—	 	 	164	 	 	3,323	 	
 	 	 	 	 	 	 	 	
 	Total accrued liabilities	 	
$	
3,506	 	
$	
6,036	 	
$	
13,832	 	
 	 	 	 	 	 	 	 	
F-20

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
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.
        As of December 31, 2006 and 2007, the Company had borrowings outstanding under the Revolving Credit Facility of $0.5 million and $1.0 million, respectively. The Company had no borrowings outstanding under the Revolving Credit Facility as of September 30, 2008. The Company caused the bank to issue letters of credit aggregating to $5.0 million as of September 30, 2008. As of December 31, 2006 and 2007, the Company had borrowings outstanding under the Equipment Line of $199,000 and $114,000, respectively. The Company had no borrowings outstanding under the Equipment Line as of September 30, 2008.
        The Company had outstanding borrowings under the Term Loan of $3.3 million and $3.1 million as of December 31, 2006 and 2007, respectively. As of September 30, 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 Company is also required to maintain compliance with a minimum tangible net worth financial covenant. As of December 31, 2006, 2007 and September 30, 2008, the Company was in compliance with the financial covenant in its Credit Agreement.
        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
F-21

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
7. Notes Payable and Long-Term Debt (Continued)

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 September 30, 2008 were $321,000 and $254,000, respectively.
        The Company has also entered into other long-term debt arrangements that are immaterial.
        At December 31, 2007 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, 2007, future annual principal payments of outstanding debt obligations are as follows (in thousands):

Years Ending December 31,	 	 	 	 	
2008	 	$	1,580	 	
2009	 	 	508	 	
2010	 	 	497	 	
2011	 	 	497	 	
2012	 	 	416	 	
Thereafter	 	 	1,627	 	
 	 	 	 	
	 	 	5,125	 	
Less: current portion	 	 	
(1,580	
)	
 	 	 	 	
	 	$	3,545	 	
 	 	 	 	
8. Lease Obligations
        The Company leases certain office facilities and office equipment under non-cancelable operating lease arrangements that expire at various dates through March 2015. 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 $0.1 million, $0.9 million and $3.0 million for the years ended December 31, 2005, 2006 and 2007, respectively. Rent expense totaled $2.2 million and $3.5 million for the nine months ended September 30, 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, 2007 (in thousands):

 	 	 	 	
Years Ending December 31,	 	 	 	 	
2008	 	$	5,682	 	
2009	 	 	9,316	 	
2010	 	 	8,895	 	
2011	 	 	8,331	 	
2012	 	 	8,584	 	
Thereafter	 	 	48,844	 	
 	 	 	 	
Total minimum payments	 	$	89,652	 	
 	 	 	 	
        In January 2008, the Company entered into a non-cancelable lease agreement to rent certain office space in San Diego, California for a ten year period through July 2018. The Company has the option to extend the term of the lease for two additional 60 month periods. Total minimum lease payments required under the lease agreement are $75.4 million.
F-22

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Lease Obligations (Continued)
        The Company also leases office equipment under capital leases expiring in various years through October 2012. The assets are included in the equipment classification of property and equipment and totaled $0.5 million, $0.9 million and $1.0 million, as of December 31, 2006 and 2007 and September 30, 2008, respectively. Accumulated depreciation on equipment under capital leases totaled $0.3 million, $0.4 million and $0.4 million at December 31, 2006 and 2007 and as of September 30, 2008, respectively.
        Future minimum lease payments under capital leases at December 31, 2007 are as follows (in thousands):

Years Ending December 31,	 	 	 	 	
2008	 	$	177	 	
2009	 	 	162	 	
2010	 	 	121	 	
2011	 	 	81	 	
2012	 	 	56	 	
 	 	 	 	
 	Total minimum payments	 	$	597	 	
Less: Amount representing interest	 	 	
(49	
)	
 	 	 	 	
 	Present value of minimum lease payments	 	
$	
548	 	
 	 	 	 	
9. Earnings Per Share
        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. Diluted earnings (loss) per common share reflects the assumed conversion or exercise of all potentially dilutive securities, consisting of redeemable convertible preferred stock, options and warrants for which the estimated fair value exceeds the exercise price, less shares which could have been purchased with the related proceeds, unless anti-dilutive.
F-23

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

 	 	Year Ended December 31,	 	Nine Months Ended
September 30,	 	
 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
 	 	 	 	 	 	 	 	(Unaudited)	 	
Numerator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income (loss)	 	
$	
(8,005	
)	
$	
(5,150	
)	
$	
3,287	 	
$	
988	 	
$	
20,778	 	
 	Effect of preferred dividends	 	 	(1,344	)	 	(1,718	)	 	(1,856	)	 	(1,392	)	 	(1,503	)	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income (loss attributable) to common stockholders	 	$	(9,349	)	$	(6,868	)	$	1,431	 	$	(404	)	$	19,275	 	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Weighted average common shares outstanding	 	 	
14,131	 	 	
14,357	 	 	
14,896	 	 	
14,845	 	 	
15,008	 	
 	Effect of dilutive redeemable convertible preferred stock	 	 	—	 	 	—	 	 	201,624	 	 	—	 	 	201,624	 	
 	Effect of dilutive options	 	 	—	 	 	—	 	 	6,804	 	 	—	 	 	24,456	 	
 	Effect of dilutive warrants	 	 	—	 	 	—	 	 	—	 	 	—	 	 	4,635	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted weighted average common shares outstanding	 	 	
14,131	 	 	
14,357	 	 	
223,324	 	 	
14,845	 	 	
245,723	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings Per Share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	(0.66	)	$	(0.48	)	$	0.10	 	$	(0.03	)	$	1.28	 	
Diluted	 	$	(0.66	)	$	(0.48	)	$	0.01	 	$	(0.03	)	$	0.08	 	
Weighted average securities that could potentially dilute earnings per share in the future that are not included in diluted weighted average common shares outstanding above as they are anti-dilutive for the periods indicated:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Redeemable convertible preferred stock	 	 	
166,579	 	 	
201,624	 	 	
—	 	 	
201,624	 	 	
—	 	
 	Options	 	 	11,043	 	 	15,827	 	 	—	 	 	4,326	 	 	—	 	
 	Warrants	 	 	7,066	 	 	7,101	 	 	7,101	 	 	7,101	 	 	173	 	
Unaudited Pro forma Earnings Per Share
        Pro forma basic and diluted earnings per share have been computed to give effect to Series A redeemable convertible preferred stock, which will convert to common stock immediately upon the closing of the Company's initial public offering for the year ended December 31, 2007 and the nine months ended September 30, 2008 as if the closing occurred as of January 1, 2007.
F-24

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Earnings Per Share (Continued)
        The following table sets forth the computation of pro forma basic and diluted earnings per share for the periods indicated and assumes that the price at which the redeemable convertible preferred stock converts to common stock is in accordance with the conversion terms:
(thousands, except per share data)

 	 	Year Ended
December 31,
2007	 	Nine Months
Ended
September 30,
2008	 	
Numerator:	 	 	 	 	 	 	 	
 	Net income	 	$	3,287	 	$	20,778	 	
 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	
 	Weighted average number of common shares outstanding	 	 	14,896	 	 	15,008	 	
 	Add: Pro forma adjustments to reflect assumed weighted average effect of conversion of redeemable convertible preferred stock	 	 	201,624	 	 	201,624	 	
 	 	 	 	 	 	
Denominator for pro forma basic earnings per share	 	 	216,520	 	 	216,632	 	
 	 	 	 	 	 	
 	Add: Pro forma adjustments to reflect assumed weighted average effect of conversion of common stock options and shares subject to repurchase	 	 	6,804	 	 	24,456	 	
 	 	 	 	 	 	
 	Add: Pro forma adjustments to reflect assumed net exercise of outstanding warrants	 	 	—	 	 	4,635	 	
 	 	 	 	 	 	
Denominator for pro forma diluted earnings per share	 	 	223,324	 	 	245,723	 	
 	 	 	 	 	 	
Pro forma earnings per share, basic	 	$	0.02	 	$	0.10	 	
 	 	 	 	 	 	
Pro forma earnings per share, diluted	 	$	0.01	 	$	0.08	 	
 	 	 	 	 	 	
Unaudited Supplemental Pro forma Earnings Per Share
        Supplemental pro forma basic and diluted earnings per share have been computed to give effect to redeemable convertible preferred stock, which will convert to common stock upon the closing of the Company's initial public offering and the portion of the net proceeds from this offering to pay the accreted value of $              on the outstanding shares of redeemable convertible preferred stock for the year ended December 31, 2007 and the nine months ended September 30, 2008 as if the closing occurred as of January 1, 2007.
        The following table sets forth the computation of supplemental pro forma basic and diluted earnings per share (in thousands, except per share data) and assumes that the price at which the redeemable convertible preferred stock converts to common stock is in accordance with the conversion terms. Additionally, the computation of supplemental pro forma basic and diluted earnings per share
F-25

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

reflect the number of common shares at the assumed offering price of $        per share necessary to fund the accreted value of $        on the outstanding shares of redeemable convertible preferred shares:

 	 	Year Ended
December 31,
2007	 	Nine Months
Ended
September 30,
2008	 	
Numerator:	 	 	 	 	 	 	 	
 	Net income	 	$	3,287	 	$	20,778	 	
 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	
 	Weighted average number of shares outstanding	 	 	14,896	 	 	15,008	 	
 	Add: Pro forma adjustments to reflect assumed weighted average effect of conversion of redeemable convertible preferred stock	 	 	201,624	 	 	201,624	 	
 	Add: Pro forma adjustments to reflect the portion of this offering and the application of the net proceeds therefrom necessary to pay the accreted value of $      on the outstanding shares of redeemable convertible preferred shares	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Denominator for supplemental pro forma basic earnings per share	 	 	 	 	 	 	 	
 	 	 	 	 	 	
 	Add: Pro forma adjustments to reflect assumed weighted average effect of conversion of common stock options and shares subject to repurchase	 	 	 	 	 	 	 	
 	 	 	 	 	 	
 	Add: Pro forma adjustments to reflect assumed net exercise of outstanding warrants	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Denominator for supplemental pro forma diluted earnings per share	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Supplemental pro forma earnings per share, basic	 	$	 	 	$	 	 	
 	 	 	 	 	 	
Supplemental pro forma earnings per share, diluted	 	$	 	 	$	 	 	
 	 	 	 	 	 	
10. Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock)
Ranking
        The redeemable convertible preferred stock ranks senior to any other future class of preferred stock and to common 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 and September 30, 2008.
F-26

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Redeemable Convertible Preferred Stock (Series A Convertible Preferred Stock) (Continued)
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.
Preferred Dividends
        In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or optional conversion, the holders of the redeemable convertible preferred stock are entitled to receive the amount of $1.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination), accreting at the rate of 8% per year, compounding annually. At December 31, 2006, 2007 and September 30, 2008, the amount of the accreted dividends was $3.4 million, $5.3 million and $6.8 million, respectively. At December 31, 2006, 2007 and September 30, 2008, the carrying value of the redeemable convertible preferred stock, including the accreted dividends, was $23.2 million, $25.0 million and $26.6 million, respectively.
Conversion Rights
        Each share of redeemable convertible preferred stock is convertible, at the option of the holder, at any time into shares of common stock by dividing 0.7135947293 (subject to adjustment of any stock dividend, stock split, stock distribution or combination with respect to the redeemable convertible preferred stock) by the conversion price then in effect. The initial conversion price is $0.07. The initial conversion rate is 10.194210419 shares of common stock per share of redeemable convertible preferred stock. The applicable conversion rate and conversion price is subject to adjustment from time to time.
        As of December 31, 2007 and September 30, 2008, the number of shares of common stock that would be issued upon conversion of all outstanding shares of redeemable convertible preferred stock is 201.6 million shares.
Redemption upon Liquidation
        In the event of a liquidation event, the holders of the redeemable convertible preferred stock shall be entitled to be paid out of the assets of the Company, an amount equal to the sum of the accreted value per share plus any dividends declared but unpaid.
        A liquidity event is defined as either (i) the consolidation with or into another corporation in which the stockholders of record of the Corporation own less than 50% or the voting securities of the surviving corporation, (ii) the sale of substantially all the assets of the Corporation, (iii) the sale of securities of the Corporation representing more than 50% of the voting securities (other than a qualified public offering) or (iv) a sale to Warburg Pincus, the majority shareholder, or its successors or assigns.
Mandatory Conversion
        Each share of the redeemable convertible preferred stock will convert into shares of common stock at its then effective conversion price upon the vote to so convert of the holders of at least a majority of the convertible preferred stock, or at any time 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
F-27

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

designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange.
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, 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 in control", as defined by the option agreements, occurs.
        All options granted in 2006, 2007 and 2008 were pursuant to the 2005 Plan, except for options to purchase an aggregate of 295,088 shares of common stock granted to certain members of management in February 2006.
        The Company has recorded $323,000 and $106,000 of compensation expense related to stock options for the years ended December 31, 2006 and 2007, and $106,000 and $125,000 for the nine months ended September 30, 2007 and 2008 respectively, in accordance with SFAS 123R. As of December 31, 2006 and 2007, there was $59,000 and $146,000, respectively, of unrecognized compensation costs related to time vested options. As of December 31, 2006 and 2007, there was $188,000 and $252,000, respectively, of unrecognized compensation costs related to performance vested options. As of December 31, 2006 and 2007, there was $365,000 and $365,000, respectively, of unrecognized compensation costs related to exit vested options. As of September 30, 2008, there was $134,000, $136,000 and $365,000 unrecognized compensation costs related to time vested options, performance vested options and exit vested options, respectively. 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
F-28

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

period of 2.59 and 3.11 years, at December 31, 2006 and 2007, and 3.63 years at September 30, 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, 2005	 	 	25,518,179	 	$	0.25	 	 	 	 	 	 	 	
 	Granted	 	 	7,044,381	 	$	0.07	 	 	 	 	 	 	 	
 	Exercised	 	 	(705,966	)	$	0.07	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(678,282	)	$	0.07	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2006	 	 	31,178,312	 	$	0.07	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Granted	 	 	8,978,516	 	$	0.13	 	 	 	 	 	 	 	
 	Exercised	 	 	(164,983	)	$	0.07	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(237,415	)	$	0.07	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	 	39,754,430	 	$	0.08	 	 	7.32	 	$	1,456,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Granted	 	 	—	 	$	—	 	 	 	 	 	 	 	
 	Exercised	 	 	—	 	$	—	 	 	 	 	 	 	 	
 	Forfeitures	 	 	(15,000	)	$	0.13	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2008	 	 	39,739,430	 	$	0.08	 	 	6.56	 	$	1,456,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Vested and expected to vest at December 31, 2007	 	 	
39,037,625	 	
$	
0.08	 	 	
5.19	 	
$	
1,436,995	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at December 31, 2007	 	 	15,860,936	 	$	0.07	 	 	6.48	 	$	791,737	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Vested and expected to vest at September 30, 2008	 	 	
39,146,229	 	
$	
0.08	 	 	
6.01	 	
$	
1,441,147	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at September 30, 2008	 	 	19,966,072	 	$	0.07	 	 	5.98	 	$	925,304	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
        The fair value of the options vested at December 31, 2007 and September 30, 2008 is $1.9 million and $2.4 million, respectively.
        The weighted average grant-date estimated fair value of options granted during the years ended December 31, 2006 and 2007 was $0.04 and $0.05 per share, respectively. No options were granted during the nine months ended September 30, 2008. As of September 30, 2008 no options issued under the plan have expired.
        During 2006 and 2007, 532,935 and 114,683 time vested options and 173,031, and 50,300 performance vested options, respectively, were exercised. These options had a total intrinsic value at the time of exercise of $14,000 and $8,000 in 2006 and 2007, respectively. The Company received $50,000 and $12,000 in cash from the exercise of options as of December 31, 2006 and 2007, respectively. No options were exercised in the nine months ended September 30, 2008. During 2006 and 2007, and the nine month period ended September 30, 2008, respectively, 678,282, 237,415 and 15,000, time and performance vested options were forfeited.
        The Company has reserved 44,383,342 shares of common stock for the exercise of existing stock options and stock options available for grant as of both December 31, 2007 and September 30, 2008.
F-29

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
11. Stock-Based Compensation (Continued)
        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	 	
 	 	(restated)	 	 	 	
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.
        No options were granted in 2005. During 2006, the Company modified certain option awards granted in previous years to 15 individuals by reducing the exercise price from $0.25 to $0.07. 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.
        Prior to adopting the provisions of SFAS 123R, the Company recorded compensation expense for employee stock options based upon their intrinsic value on the date of grant pursuant to APB Opinion No. 25. Options granted in 2003 and 2004 had no intrinsic value on the date of grant and thus no compensation cost was recorded. Had compensation expense for employee stock options been determined based on the fair value of the options on the date of grant, the Company's net loss would have been as follows (in thousands):

 	 	2005	 	
 	 	(Restated)	 	
Net loss, as reported	 	$	(8,005	)	
Stock-based employee compensation expense under the fair value method	 	 	(406	)	
 	 	 	 	
	 	$	(8,411	)	
 	 	 	 	
        Both the basic and diluted net loss per share due to the impact of this additional net loss for the year ended December 31, 2005 were $0.59.
F-30

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
11. Stock-Based Compensation (Continued)
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 common stock purchase warrants to various consultants, licensors and lenders. Each warrant represents the right to purchase one share of common stock. The Company issued 180,000 warrants in 2005. The fair value of each warrant granted in 2005 was $0.03. No warrants were granted during the years ended December 31, 2006 and 2007 or during the nine month period ended September 30, 2008.
        The following table summarizes information with respect to all warrants outstanding as of December 31, 2007 and September 30, 2008:

Exercise Price 	 	Warrants
outstanding	 	Expiration
Date	 	
$0.25	 	 	3,324,741	 	 	2013-2015	 	
$0.50	 	 	1,302,547	 	 	2013	 	
$0.63	 	 	175,000	 	 	2013	 	
$0.65	 	 	1,375,000	 	 	2013	 	
$1.00	 	 	750,000	 	 	2013	 	
$2.00	 	 	173,307	 	 	2013	 	
        As of December 31, 2007 and September 30, 2008, all 7,100,595 outstanding warrants were exercisable.
F-31

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
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,	 	For the
Nine Months
Ended September 30,	 	
 	 	2005	 	2006	 	2007	 	2007	 	2008	 	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	—	 	 	—	 	$	123	 	$	37	 	$	4,220	 	
 	State	 	 	—	 	 	—	 	 	41	 	 	13	 	 	1,301	 	
 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	—	 	 	—	 	$	164	 	$	50	 	$	5,521	 	
 	 	 	 	 	 	 	 	 	 	 	 	
        There were no deferred items in the income tax expense for the year ended December 31, 2007. No current or deferred provision was recorded for the years ended December 31, 2005 and 2006 due to net operating losses in these years.
        Deferred tax assets and liabilities are comprised of the following (in thousands):

 	 	As of December 31,	 	
 	 	2005	 	2006	 	2007	 	
 	 	(Restated)	 	(Restated)	 	 	 	
Deferred tax asset:	 	 	 	 	 	 	 	 	 	 	
 	Net operating loss	 	$	5,730	 	$	7,495	 	$	5,072	 	
 	Fixed assets	 	 	543	 	 	371	 	 	225	 	
 	Bad debt	 	 	392	 	 	377	 	 	616	 	
 	Other	 	 	29	 	 	3	 	 	14	 	
 	Vacation accrual	 	 	—	 	 	70	 	 	230	 	
 	Stock-based compensation	 	 	3	 	 	125	 	 	172	 	
 	Deferred rent	 	 	—	 	 	151	 	 	804	 	
 	Tax credits	 	 	—	 	 	—	 	 	150	 	
 	Contribution carry forward	 	 	—	 	 	12	 	 	—	 	
 	 	 	 	 	 	 	 	
 	 	Total Deferred Tax Assets	 	 	6,697	 	 	8,604	 	 	7,283	 	
 	 	Valuation allowance	 	 	(6,697	)	 	(8,604	)	 	(7,283	)	
 	 	Net deferred tax assets	 	 	—	 	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	 	 	
 	Intangibles	 	 	(565	)	 	(543	)	 	(556	)	
 	 	 	 	 	 	 	 	
 	 	Total net deferred tax liabilities	 	$	(565	)	$	(543	)	$	(556	)	
 	 	 	 	 	 	 	 	
        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
F-32

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

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 will be fully reversed by December 31, 2008, as a reduction of income tax expense. The valuation allowance has been reversed by $5.8 million as of September 30, 2008.
        At December 31, 2007, the Company had federal net operating loss carry forwards of $13.1 million and state net operating loss carry forwards of $11.5 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 2010. 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, 2007 and have determined that there is no material effect on our net operating loss carryforwards.
        A reconciliation of the income tax (benefit) expense computed using the U.S. federal statutory tax rate (34%) and the Company's provision for income taxes follows (in thousands):

 	 	As of December 31,	 	
 	 	2005	 	2006	 	2007	 	
Computed expected federal tax (benefit) expense	 	$	(2,722	)	$	(1,751	)	$	1,174	 	
State taxes, net of federal benefit	 	 	(503	)	 	(244	)	 	184	 	
Permanent differences	 	 	17	 	 	50	 	 	149	 	
Other	 	 	23	 	 	39	 	 	(24	)	
Intangible assets	 	 	(565	)	 	—	 	 	—	 	
Valuation allowance	 	 	3,750	 	 	1,906	 	 	(1,319	)	
 	 	 	 	 	 	 	 	
	 	$	—	 	$	—	 	$	164	 	
 	 	 	 	 	 	 	 	
        The Company adopted FAS Interpretation 48, " Accounting for Uncertainty in Income Taxes " ("FIN 48"), at the beginning of fiscal year 2008. The Company had no material additions to reserves for uncertain tax positions as a result of the implementation of FIN 48.
        The Company and its subsidiaries are subject to U.S. federal income tax and multiple state jurisdictions. The tax years 2003 through 2007 remain open to examination by some or all of the major taxing jurisdictions to which we are subject.
        The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company expects no material changes in its unrecognized tax benefits for tax positions taken within the next twelve months.
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
F-33

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
14. Regulatory (Continued)

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 September 30, 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 or other penalties.
        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 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. 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 regulations of 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 our 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
F-34

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
14. Regulatory (Continued)

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.
        In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% 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's having to post a letter of credit in an amount equal to 25% of its prior year Title IV returns. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit suspend or terminate its participation in Title IV programs.
        For the year ended December 31, 2007, Ashford University exceeded the 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 existing letter of credit was in excess of the amount required for late funds.
        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
        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. This agreement was amended in December 2008. Under this agreement, Warburg Pincus agreed to compensate Mr. Craig from its equity ownership in the Company. For his director services from August 2004 to August 2008, Mr. Craig earned the right to receive 198,516 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 305,826 shares of the Company's common
F-35

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
15. Related Party Transactions (Continued)

stock from Warburg Pincus. Mr. Craig will receive an aggregate amount of 504,342 shares of the Company's common stock in January 2009 from Warburg Pincus. The Company will incur an expense in December 2008, equal to the value of these shares. Based on the valuation of the Company on September 30, 2008, the Company estimates the charge will be $1.3 million.
Unsecured Subordinated Convertible Promissory Note Issued to Warburg Pincus
        In July 2005, the Company issued to Warburg Pincus, our majority stockholder, an unsecured subordinated convertible promissory note in the original principal amount of $3.5 million. Interest under the note accrued at an annual rate of 8%. Warburg Pincus elected to convert on the date of issuance, the outstanding principal and accrued but unpaid interest into 3.5 million shares of Series A redeemable convertible preferred stock. Immediately prior to the closing of this offering, these shares will be converted into to 35,679,736 shares of common stock.
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 of credit, interest accrued at the prime rate plus 1.50% per annum. 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 $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 recorded a liability for this guarantee as of December 31, 2006 or 2007.
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. Subsequent to September 30, 2008, 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 $37,000, $110,000 and $119,000 for the years ended December 31, 2005, 2006 and 2007, respectively, and were $91,000 and $21,000 for the nine months ended September 30, 2007 and 2008.
F-36

Bridgepoint Education, Inc.
Notes to Consolidated Financial Statements (Continued)
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. 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.
18. Concentration of Risk
Concentration of Credit Risk
        In 2007, Ashford University derived 83.9% and the University of the Rockies derived 61.9% 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.
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
        In October 2008, the Company entered into a non-cancelable lease commitment to rent certain office space in San Diego, California for a 12 year period through 2020. Total minimum lease payments required under the lease agreement are $109.7 million.
        As disclosed in Note 15, "Related Party Transactions," Ryan Craig's agreement with the Company's majority shareholder, Warburg Pincus, was amended in December 2008. The Company estimates it will incur an expense of $1.3 million in conjunction with this amendment in December 2008.
F-37

 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	 	$	9,039	 	
FINRA filing fee	 	 	23,500	 	
NYSE listing fee	 	 	*	 	
Transfer agent's fees and expenses	 	 	*	 	
Legal fees and expenses	 	 	*	 	
Printing fees and expenses	 	 	*	 	
Accounting fees and expenses	 	 	*	 	
Miscellaneous fees and expenses	 	 	*	 	
 	 	 	 	
Total	 	 	*	 	

*
Estimate

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 current certificate of incorporation and bylaws, as well as the certificate of incorporation and bylaws that will be in effect upon the closing of the registrant's initial public offering, will 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
II-1

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 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.
Stock Option Awards
•
As of November 1, 2008, under its 2005 Amended and Restated Stock Incentive Plan, or 2005 Plan, the registrant had outstanding stock options to directors, officers, employees and consultants to purchase an aggregate of 39,444,342 shares of common stock with a weighted average exercise price of $0.08 per share and had issued 870,949 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 November 1, 2008, the registrant had outstanding stock options issued outside of the 2005 Plan to certain employees to purchase an aggregate of 295,088 shares of common stock with an exercise price of $0.07 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.
II-2

Item 16.    Exhibits and Financial Statement Schedules
(a)
Exhibits.

Exhibit
Number 	 	Description of Document	
1.1*	 	Form of Underwriting Agreement.	
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.	
2.2*	 	Asset Purchase and Sale Agreement dated September 12, 2007 between the Colorado School of Professional Psychology and the registrant.	
3.1	 	Fourth Amended and Restated Certificate of Incorporation of the registrant as currently in effect.	
3.2	 	Form of Fifth Amended and Restated Certificate of Incorporation of the registrant to be effective upon the closing of this offering.	
3.3	 	Amended and Restated Bylaws of the registrant, as amended to date, and currently in effect.	
3.4	 	Form of Second Amended and Restated Bylaws of the registrant to be effective upon the closing of this offering.	
4.1*	 	Specimen of Stock Certificate.	
4.2	 	Registration Rights Agreement dated November 26, 2003 among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	
4.3	 	Stockholders Agreement dated November 26, 2003, as amended, among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	
5.1*	 	Opinion of Sheppard, Mullin, Richter & Hampton LLP.	
10.1	 	Amended and Restated 2005 Stock Incentive Plan.	
10.2*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.3*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.4*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.5*	 	2009 Stock Incentive Plan.	
10.6*	 	Employee Stock Purchase Plan.	
10.7	 	Independent Contractor Agreement, as amended, between Robert Hartman and the registrant.	
10.8	 	Form of Indemnification Agreement.	
10.9	 	Loan and Security Agreement dated April 12, 2004, as amended, between Comerica Bank and Bridgepoint Education Real Estate Holdings,  LLC and the registrant.	
10.10	 	Grid Note dated March 12, 2007 between Warburg Pincus and the registrant.	
10.11*	 	Nominating Agreement between Warburg Pincus and the registrant.	
16.1	 	Letter from Clifton Gunderson LLP, Independent Registered Public Accounting Firm.	
21.1	 	List of subsidiaries of the registrant.	
23.1*	 	Consent of Sheppard, Mullin, Richter & Hampton LLP.	
23.2	 	Consent of Independent Registered Public Accounting Firm.	
24.1	 	Power of Attorney (see Signature Page).	

*
To be filed by amendment.
II-3

(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 December 21, 2008 appearing in the 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Diego, California
December 21, 2008

 SCHEDULE II

Valuation and Qualifying Accounts

 	 	Balance at
Beginning of
Year	 	Charged to
Expense	 	Deductions(1)	 	Balance at
End of
Year	 	
 	 	(in thousands)	 	
Allowance for doubtful accounts receivable:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2005	 	$	113	 	 	860	 	 	—	 	$	973	 	
Year ended December 31, 2006	 	$	973	 	 	971	 	 	(11	)	$	1,933	 	
Year ended December 31, 2007	 	$	1,933	 	 	4,753	 	 	(670	)	$	6,016	 	
Nine months ended September 30, 2008	 	$	6,016	 	 	8,780	 	 	(1,072	)	$	13,724	 	
Valuation allowance for deferred tax assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended December 31, 2005	 	$	3,054	 	 	3,643	 	 	—	 	$	6,697	 	
Year ended December 31, 2006	 	$	6,697	 	 	1,907	 	 	—	 	$	8,604	 	
Year ended December 31, 2007	 	$	8,604	 	 	—	 	 	(1,321	)	$	7,283	 	
Nine months ended September 30, 2008	 	$	7,283	 	 	—	 	 	(5,848	)	$	1,435	 	

(1)
Deductions represent accounts written off, net of recoveries.
II-4

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 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.
II-5

 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 December 22, 2008.

 	BRIDGEPOINT EDUCATION, INC.	

By:	
 	
/s/ ANDREW S. CLARK

Andrew S. Clark
 Chief Executive Officer	

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

Name 	 	Title 	 	Date 	

 	

 	
/s/ ANDREW S. CLARK

Andrew S. Clark	 	Chief Executive Officer (Principal Executive Officer) and a Director	 	December 22, 2008	

/s/ DANIEL J. DEVINE

Daniel J. Devine	
 	
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	
 	
December 22, 2008	

/s/ ADARSH SARMA

Adarsh Sarma	
 	
Director	
 	
December 22, 2008	

/s/ PATRICK T. HACKETT

Patrick T. Hackett	
 	
Director	
 	
December 22, 2008	

/s/ ROBERT HARTMAN

Robert Hartman	
 	
Director	
 	
December 22, 2008	
II-6

					
Name 	 	Title 	 	Date 	

 	

 	
/s/ RYAN CRAIG

Ryan Craig	 	Director	 	December 22, 2008	

/s/ DALE CRANDALL

Dale Crandall	
 	
Director	
 	
December 22, 2008	
II-7

 INDEX TO EXHIBITS

Exhibit
Number 	 	Description of Document	
1.1*	 	Form of Underwriting Agreement.	
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.	
2.2*	 	Asset Purchase and Sale Agreement dated September 12, 2007 between the Colorado School of Professional Psychology and the registrant.	
3.1	 	Fourth Amended and Restated Certificate of Incorporation of the registrant as currently in effect.	
3.2	 	Form of Fifth Amended and Restated Certificate of Incorporation of the registrant to be effective upon the closing of this offering.	
3.3	 	Amended and Restated Bylaws of the registrant, as amended to date, and currently in effect.	
3.4	 	Form of Second Amended and Restated Bylaws of the registrant to be effective upon the closing of this offering.	
4.1*	 	Specimen of Stock Certificate.	
4.2	 	Registration Rights Agreement dated November 26, 2003 among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	
4.3	 	Stockholders Agreement dated November 26, 2003, as amended, among Warburg Pincus, Andrew S. Clark, the registrant and other persons named therein.	
5.1*	 	Opinion of Sheppard, Mullin, Richter & Hampton LLP.	
10.1	 	Amended and Restated 2005 Stock Incentive Plan.	
10.2*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.3*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.4*	 	Form of Stock Option Agreement and Notice of Option Grant.	
10.5*	 	2009 Stock Incentive Plan.	
10.6*	 	Employee Stock Purchase Plan.	
10.7	 	Independent Contractor Agreement, as amended, between Robert Hartman and the registrant.	
10.8	 	Form of Indemnification Agreement.	
10.9	 	Loan and Security Agreement dated April 12, 2004, as amended, between Comerica Bank, Bridgepoint Education Real Estate Holdings, LLC and the registrant.	
10.10	 	Grid Note dated March 12, 2007 between Warburg Pincus and the registrant.	
10.11*	 	Nominating Agreement between Warburg Pincus and the registrant.	
16.1	 	Letter from Clifton Gunderson LLP, Independent Registered Public Accounting Firm.	
21.1	 	List of subsidiaries of the registrant.	
23.1*	 	Consent of Sheppard, Mullin, Richter & Hampton LLP.	
23.2	 	Consent of Independent Registered Public Accounting Firm.	
24.1	 	Power of Attorney (see Signature Page).	

*
To be filed by amendment

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TABLE OF CONTENTS
Dealer Prospectus Delivery Obligation
 PROSPECTUS SUMMARY
 Summary Consolidated Financial and Other Data
 RISK FACTORS
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
 CAPITALIZATION
DILUTION
 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 BUSINESS
 REGULATION
 MANAGEMENT
 COMPENSATION DISCUSSION AND ANALYSIS
 Summary Compensation Table—2007
Grants of Plan-Based Awards—2007
 Outstanding Equity Awards at Fiscal Year End—2007
 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL AND SELLING STOCKHOLDERS
 DESCRIPTION OF CAPITAL STOCK
 SHARES ELIGIBLE FOR FUTURE SALE
 MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK
 UNDERWRITING
 INTERNATIONAL SELLING RESTRICTIONS
LEGAL MATTERS
EXPERTS
CHANGE IN ACCOUNTANTS
WHERE YOU CAN FIND MORE INFORMATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BRIDGEPOINT EDUCATION, INC. AND SUBSIDIARIES
 Report of Independent Registered Public Accounting Firm
 Bridgepoint Education, Inc. Consolidated Balance Sheets (In thousands, except share and per share data)
 Bridgepoint Education, Inc. Consolidated Statements of Operations (In thousands, except per share data)
 Bridgepoint Education, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (In thousands, except share data)
 Bridgepoint Education, Inc. Consolidated Statements of Cash Flows (In thousands)
 Bridgepoint Education, Inc. Notes to Consolidated Financial Statements
 PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Item 14. Indemnification of Directors and Officers
Item 15. Recent Sales of Unregistered Securities.
Item 16. Exhibits and Financial Statement Schedules
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
SCHEDULE II Valuation and Qualifying Accounts
Item 17. Undertakings
SIGNATURES
POWER OF ATTORNEY
 INDEX TO EXHIBITS

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 Exhibit 3.1

 FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRIDGEPOINT EDUCATION, INC.
        The undersigned DOES HEREBY CERTIFY as follows:
        The Certificate of Incorporation of Bridgepoint Education, Inc.(f/k/a TeleUniversity, Inc.) (the "Corporation") was filed in the office of the Secretary of State of the State of Delaware on May 21,1999, was amended by the filing of the Certificate of Amendment of Certificate of Incorporation of TeleUniversity, Inc. in such office on January 24, 2001, was amended and restated by the filing of the Amended and Restated Certificate of Incorporation of TeleUniversity Inc. in such office on November 25, 2003, was further amended by the filing of the Certificate of Amendment to the Certificate of Incorporation of TeleUniversity, Inc. in such office on February 5, 2004, was amended and restated by the filing of the Second Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. in such office on March 30, 2005, was amended and restated by the filing of the Third Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. in such office on July 27, 2005, and is hereby amended and restated pursuant to Section 242 and Section 245 of the Delaware General Corporation Law. All amendments to the Certificate of incorporation reflected herein have been duly proposed by the Board of Directors of the Corporation and duly adopted by the stockholders of the Corporation by written consent in accordance with the provisions of such Sections and Section 228 of the Delaware General Corporation Law.
        This Fourth Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of the Corporation. The text of the Certificate of Incorporation is amended to read as herein set forth in full:

 ARTICLE I.    NAME
        The name of the Corporation is Bridgepoint Education, Inc.

 ARTICLE II.    ADDRESS
        The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware, County of New Castle, 19808. The Registered Agent in charge thereof is CorpAmerica, Inc.

 ARTICLE III.    PURPOSE
        The nature of the businesses or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

 ARTICLE IV.    CAPITALIZATION
        Section 4.01.     Authorized Shares.     The total number of shares of stock which the Corporation shall have authority to issue is Three Hundred Nineteen Million Eight Hundred Fifty Thousand (319,850,000) shares which shall consist of: (i) Three Hundred Million (300,000,000) shares of Common Stock, par value of one cent ($0.01) per share (the "Common Stock") and (ii) Nineteen Million Eight Hundred Fifty Thousand (19,850, 000) shares of Series A Convertible Preferred Stock, par value of one cent ($0.01) per share (the "Series A Preferred Stock"). In the event the Corporation issues shares of Series A Preferred Stock on different dates, the Corporation shall designate such shares issued on the
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first issuance date (the "Initial Issuance Date") as the Series A-1 Preferred Stock and shall designate any such shares issued on any subsequent issuance date with a consecutive number.
        Section 4.02.     Series A Preferred Stock.     The relative powers, preferences and rights of, and the qualifications, limitations and restrictions granted to and imposed upon, the Series A Preferred Stock, are as follows:
        (a)     Dividends.     
          (i)  In the event the Corporation shall declare, set aside or pay any dividend on the Common Stock (other than dividends payable solely in additional shares of Common Stock), the holders of Series A Preferred Stock shall be entitled to receive, when and as such dividends are declared, set aside or paid, by the Board of Directors of the Corporation (the "Board of Directors"), out of funds legally available therefor, dividends per share equal to the amount such holders would have received had such holder converted his or its Series A Preferred Stock into Common Stock pursuant to Section 4.02(d) hereof immediately prior to the record date for determining the stockholders eligible to receive such dividends.
         (ii)  Except as set forth in Section 4.02(a)(i) hereof, (i) the holders of Series A Preferred Stock shall not be entitled to any dividends and (ii) the Corporation shall not declare, set aside or pay any dividends to the holders of the Common Stock or any other stock ranking with respect to dividends or on liquidation junior to the Series A Preferred Stock (such stock being referred to hereinafter collectively as "Junior Stock").
        (b)     Liquidation, Dissolution or Winding Up.     
          (i)  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required be distributed to the holders of any other Preferred Stock of the Corporation ranking on liquidation prior and in preference to the Series A Preferred Stock (such Preferred Stock being referred to hereinafter as "Senior Preferred Stock") upon such liquidation, dissolution or winding up, but before any payment shall be made to the holders of Junior Stock, an amount (the "Liquidation Preference") equal to the sum of (A) the Accreted Value (as defined below) per share plus (B) any dividends declared but unpaid on the shares of Series A Preferred Stock. For purposes hereof, the term "Accreted Value" shall mean an amount equal to the sum of the Stated Value plus 8% per annum of the Stated Value (which shall commence to accrue on the date of issuance of such share and shall be cumulative and compound annually, computed on a daily basis of the actual number of days elapsed in a 360-day year), and the term "Stated Value" shall mean $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 Series A Preferred Stock. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Preferred Stock shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock, and any class of stock ranking on liquidation on a parity with the Series A Preferred Stock, stall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect to the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. At the option of the holder of shares of Series A Preferred Stock, the Accreted Value shall be payable in shares of Common Stock or cash.
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         (ii)  After the payment of all preferential amounts required to be paid to the holders of Senior Preferred Stock and Series A Preferred Stock and any other series of Preferred Stock upon the dissolution, liquidation or winding up of the Corporation, the remaining assets and funds of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Series A Preferred Stock, Common Stock and any other class or series of stock entitled to participate in liquidation distributions with the holders of Common Stock, pro rata based on the number of shares of Common Stock held by each (assuming, to the extent applicable, conversion into Common Stock of all such shares).
        (iii)  The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in either case in which the stockholders of record of the Corporation shall own less than 50% of the voting securities of the surviving corporation), the sale of all or substantially all the assets of the Corporation or the sale of securities of the Corporation representing more than 50% of the voting securities of the Corporation (other than pursuant to a Qualified Public Offering (defined below) or a sale to Warburg Pincus Private Equity VIII, L.P. or its successors or assigns (collectively, "Warburg Pincus")) shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.02(b) (each, a "Liquidity Event"). Upon payment of all amounts due under this Section 4.02(b), the holder of any shares of Series A Preferred Stock shall have no further rights in respect of such shares.
        (iv)  In the event a holder of shares of Series A Preferred Stock elects to receive the Accreted Value in shares of Common Stock pursuant to the terms of Section 4.02(b)(i), the number of shares of Common Stock to be issued in payment of the Accreted Value with respect to each outstanding share of Series A Preferred Stock shall be determined by dividing the Accreted Value per share that would have been payable had such Accreted Value been paid in cash by the Fair Market Value (as defined below) of a share of Common Stock. To the extent that any such issuance would result in the issuance of a fractional share of Common Stock (which shall be, determined with respect to the aggregate number of shares of Common Stock held of record by each holder) then the amount of such fraction multiplied by the Fair Market Value of a share of Common Stock shall be paid in cash (unless there are no legally available funds with which to make such cash payment, in which event such cash payment shall be made as soon as possible). For purposes hereof, the term "Fair Market Value" with respect to Common Stock shall mean (1) if the Common Stock is listed on any national securities exchange, on the basis of the last sales price of the Common Stock on such exchange (or the quoted closing bid price if there shall have been no sales) on the date of conversion, or (2) if the Common Stock shall not be listed, on the basis of the mean between the closing bid and asked prices for the Common Stock on the date of conversion as reported by NASDAQ, or its successor, and if there are not such closing bid and asked prices, on the basis of the fair market value per share as determined by the Board of Directors.
        (c)     Voting.     
          (i)  Each issued and outstanding share of Series A 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 Series A Preferred Stock is convertible (as adjusted from time to time pursuant to Section 4.02(d) hereof), at each meeting of stockholders of the Corporation (or pursuant to any action by written consent) with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration. Except as provided by law, by the provisions of Sections 4.02(c)(ii), 4.02(c)(iii) and 4.02(c)(iv) below or by the provisions establishing any other series of Preferred Stock, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.
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         (ii)  In addition to any other rights provided by law, until a Qualified Public Offering, the Corporation shall not, nor permit any of its subsidiaries to, without first obtaining the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock:
        (A)  amend or repeal any provision of this Fourth Amended and Restated Certificate of Incorporation (thus "Restated Certificate") or by-laws, including without limitation a change in the number of members of the Board of Directors;
        (B)  authorize or effect the payment of dividends or other distributions on any Junior Stock or the capital stock of any subsidiary (other than the payment of dividends by a wholly owned subsidiary of the Corporation to the Corporation or to another wholly owned subsidiary of the Corporation), or the redemption or repurchase of any capital stock or debt security of the Corporation or any subsidiary or rights to acquire capital stock or debt securities of the Corporation or any subsidiary (other than the repurchase of stock from employees of the Corporation or any subsidiaries pursuant to repurchase rights under vesting provisions related to the length of period of employment of such employees at purchase prices initially paid by such employees for such shares);
        (C)  authorize or effect the issuance by the Corporation or any subsidiary (other than to the Corporation) of any shares of capital stock or rights to acquire capital stock other than (1) pursuant to options, warrants, conversion or subscription rights in existence on the Initial Issuance Date, (2) pursuant to stock option, stock bonus or other employee stock plans for the benefit of the employees of the Corporation or any subsidiaries in existence as of such date or thereafter approved with the consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock or (3) shares of Common Stock issued upon conversion of any outstanding shares of Series A Preferred Stock;
        (D)  authorize or effect (1) any merger or consolidation or other reorganization of the Corporation or any subsidiary with or into another corporation, (2) the acquisition by the Corporation or any subsidiary of another entity by means of a purchase of all or substantially all of the capital stock or assets of such entity having an aggregate consideration of more than $500,000 or (3) a liquidation, winding up, dissolution or adoption of any plan for the same of the Corporation or any subsidiary;
        (E)  spend or commit to spend in excess of the amounts specified in the budget approved for each year by the Board of Directors in expenditures that are or should be classified as "capital expenditures" under U.S. generally accepted accounting principles;
        (F)  authorize or effect any sale, lease, transfer or other disposition of any assets of the Corporation or any subsidiary outside of the Corporation's or any subsidiary's ordinary course of business;
        (G)  enter into any joint venture, strategic alliance or partnership with a third party which requires an investment or expenditure of funds by the Company or any of its subsidiaries in excess of $100,000 in the aggregate or the granting of any exclusive license, including without limitation any intellectual property licenses, which has not been approved by the affirmative vote of the Board of Directors;
        (H)  approve any annual operating or capital budgets; provided however, such approval shall not be unreasonably withheld;
        (I)   approve any annual business or marketing plan; provided however, such approval shall not be unreasonably withheld;
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        (J)   approve or effect any change in the Corporation's or any subsidiary's auditors;
        (K)  incur indebtedness in excess of $500,000 in the aggregate;
        (L)  authorize or effect the appointment, removal or any change in the terms of employment of the Chief Executive Officer, Chief Financial Officer, President, Vice President or any other executive officer of the Company, including Andrew Clark, Daniel Devine, Scott Turner, Wayne Clugston or David Vande Pol;
        (M) authorize or effect the institution or settlement of any litigation involving amounts in excess of $50,000; or
        (N)  commit to do any of the foregoing.
        (iii)  In the event (a "Default") that the Corporation fails for any reason to make any redemption payment required pursuant to Section 4.02(g) hereof, then, in any such case, upon written notice to the Corporation given at any time following and during the continuance of a Default, the holders of Series A Preferred Stock shall as a class become entitled to Special Voting Rights (as hereinafter defined). Failure by the holders of Series A Preferred Stock, to exercise their Special Voting Rights promptly upon the occurrence of a given Default shall not be deemed to be a waiver of such rights, such rights being exercisable at any time that a Default shall have occurred or be continuing.
        For purposes of this Section 4.02(c)(iii), the term "Special Voting Rights" shall mean the right to elect, upon the occurrence and during the continuance of a Default as provided in the foregoing paragraph, that number of additional directors (the "Default Directors") that will constitute a majority of the Board of Directors as it will be constituted following the election of such Default Directors.
        Immediately upon the accrual of the Special Voting Rights, the number of directors of the Corporation shall, ipso facto , be increased by the requisite number of Default Directors and each of the Default Directors shall be elected only by the vote of the holders of a majority of the Series A Preferred Stock, voting as a class. The holders of a majority of the Series A Preferred Stock may at their option at any time exercise the Special Voting Rights to elect each of the Default Directors either at a special meeting of the holders of Series A Preferred Stock or by written consent without a meeting in accordance with the Delaware General Corporation Law. Each Default Director shall serve for a term of one year and until his or her successor is elected and qualified. Upon the election of the Default Directors, the presence of a majority of the Default Directors shall be required for them to be a quorum at all meetings of the Board of Directors, and of any committees of the Board of Directors. Any vacancy in the position of a Default Director may be filled only by the holders of a majority of the Series A Preferred Stock. Each Default Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Series A Preferred Stock called for such purpose, or the written consent, of the holders of a majority of the then outstanding shares of Series A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent.
        (iv)  The Corporation shall not amend, alter or repeal the preferences, special rights or other powers of the Series A Preferred Stock so as to affect adversely the Series A Preferred Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For this purpose, the authorization or issuance of any series of Preferred Stock with preference or priority over, or being on a parity with the Series A Preferred Stock as to the right to receive either dividends
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or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed so to affect adversely the Series A Preferred Stock.
        (d)     Optional Conversion.     
          (i)  Each share of Series A Preferred Stock may be converted at any time, at the option of the holder thereof, into the number of fully-paid and nonassessable shares of Common Stock obtained by dividing 0.7135947293 (subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to the Series A Preferred Stock) by the Conversion Price then in effect (the "Conversion Rate"), provided, however, that on any redemption of any Series A Preferred Stock or any liquidation of the Corporation, the right of conversion shall terminate at the close of business on the full business day next preceding the date fixed for such redemption or for the payment of any amounts distributable on liquidation to the holders of Series A Preferred Stock.
         (ii)  The initial conversion price, subject to adjustment as provided herein, is equal to $0.07 (the "Conversion Price"). The initial Conversion Rate for the Series A Preferred Stock shall be 10.194210419. The applicable Conversion Rate and Conversion Price from time to time in effect is subject to adjustment as hereinafter provided.
        (iii)  The Corporation shall not issue fractions of shares of Common Stock upon conversion of Series A Preferred Stock or scrip in lieu thereof. If any fraction of a share of Common Stock would, except for the provisions of this Section 4.02(d)(iii), be issuable upon conversion of any Series A Preferred Stock, the Corporation shall in lieu thereof pay to the person entitled thereto an amount in cash equal to the current value of such fraction, calculated to the nearest one-hundredth (1/100) of a share, based on the Fair Market Value of a share of Common Stock at the time of conversion.
        (iv)  Whenever the Conversion Rate and Conversion Price shall be adjusted as provided in Section 4.02(e) hereof, the Corporation shall forthwith file at each office designated for the conversion of Series A Preferred Stock, a statement, signed by the Chairman of the Board, the President, any Vice President or Treasurer of the Corporation, showing in reasonable detail the facts requiring such adjustment and the Conversion Rate that will be effective after such adjustment. The Corporation shall also cause a notice setting forth any such adjustments to be sent by mail, first class, postage prepaid, to each record bolder of Series A Preferred Stock at his or its address appearing on the stock register. If such notice relates to an adjustment resulting from an event referred to in Section 4.02(e)(vii) hereof, such notice shall be included as part of the notice required to be mailed under the provisions of Section 4.02(e)(vii) hereof.
         (v)  In order to exercise the conversion privilege, the holder of any Series A Preferred Stock to be converted shall surrender his or its certificate or certificates therefore to the principal office of the transfer agent for the Series A Preferred Stock (or if no transfer agent be at the time appointed, then the Corporation at its principal office), and shall give written notice to the Corporation at such office that the holder elects to convert the Series A Preferred Stock represented by such certificates, or any number thereof. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, subject to any restrictions on transfer relating to shares of the Series A Preferred Stock or shares of Common Stock upon conversion thereof if so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly authorized in writing. The date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of the certificates and notice shall be the conversion date. As soon as
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practicable after receipt of such notice and the surrender of the certificate or certificates for Series A Preferred Stock as aforesaid, the Corporation shall cause to be issued and delivered at such office to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, cash as provided in Section 4.02(d)(iii) hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion and, if less than all shares of Series A Preferred Stock represented by the certificate or certificates so surrendered are being converted, a residual certificate or certificates representing the shares of Series A Preferred Stock not converted.
        (vi)  The Corporation shall at all times when the Series A Preferred Stock shall be outstanding reserve and keep available out of its authorized but unissued stock, for the purposes of effecting the conversion of the Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be, sufficient to effect the conversion of all outstanding Series A Preferred Stock. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully-paid and non-assessable shares of such Common Stock at such adjusted conversion price.
       (vii)  Upon any such conversion, the holder of any converted Series A Preferred Stock shall be entitled to receive an amount in cash equal to the Liquidation Preference with respect to such converted shares; provided, however, at the option of the holder of such converted Series A Preferred Stock, the Accreted Value of such converted shares shall be payable in shares of Common Stock or cash. In the event a holder of Series A Preferred Stock elects to receive the Accreted Value in shares of Common Stock pursuant to the terms of this 4.02(d)(vii), the number of shares of Common Stock to be issued in payment of the Accreted Value small be determined in accordance with Section 4.02(b)(iv).
      (viii)  All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right of the holder thereof to receive shares of Common Stock in exchange therefor and payment of any accrued but unpaid dividends thereon (whether or not declared). Any sharers of Series A Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series A Preferred Stock accordingly.
        (e)     Anti-Dilution Provisions     
          (i)  The Conversion Price shall be subject to adjustment from time to time in accordance with this Section 4.02(e). For purposes of this Section 4.02(e), the term "Number of Common Shares Deemed Outstanding" at any given time shall mean the number of shares of Common Stock outstanding at such time on a fully diluted basis (including (x) all options, warrants and securities convertible into or exchangeable for shares of Common Stock and (y) without duplication, the number of shares of the Common Stock deemed to be outstanding under paragraphs 4.02(e)(ii)(1) to (9), inclusive, at such time).
         (ii)  Except as provided in Section 4.02(e)(iii) or 4.02(e)(v) hereof, if and whenever after July 27, 2005 (the "Series A Date"), the Corporation shall issue or sell, or shall in accordance with paragraphs 4.02(e)(ii)(1) to (9), inclusive, be deemed to have issued or sold any shares of its Common Stock for a consideration per share less than the Conversion Price in effect
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immediately prior to the time of such issue or sale, then forthwith upon such issue or sale (the "Triggering Transaction"), the Conversion Price shall, subject to paragraphs (1) to (9) of this Section 4.02(e)(ii), be reduced to the Conversion Price (calculated to the nearest tenth of a cent) determined by dividing:
        (A)  an amount equal to the sum of (x) the product derived by multiplying the Number of Common Shares Deemed Outstanding immediately prior to such Triggering Transaction by the Conversion Price then in effect, plus (y) the consideration, if any, received by the Corporation upon consummation of such Triggering Transaction, by
        (B)  an amount equal to the sum of (x) the Number of Common Shares Deemed Outstanding immediately prior to such Triggering Transaction plus (y) the number of shares of Common Stock issued (or deemed to be issued in accordance with paragraphs 4.02(e)(ii)(1) to (9)) in connection with the Triggering Transaction.
        For purposes of determining the adjusted Conversion Price under this Section 4.02(e)(ii), the following paragraphs (1) to (9), inclusive, shall be applicable:
        (1)   In case the Corporation at any time shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable and the price per share for which the Common Stock is issuable upon exercise, conversion or exchange (determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (y) the total maximum number of shines of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities) shall be less than, the Conversion Price in effect immediately prior to the time of the granting of such Option, then the total maximum amount of Common Stock issuable upon the exercise of such Options or in the case of Options for Convertible Securities, upon the conversion or exchange of such Convertible Securities shall (as of the date of granting of such Options) be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. No adjustment of the Conversion Price shall be made upon the actual issue of such shares of Common Stock or such Convertible Securities upon the exercise of such Options or the exchange or conversion of such Convertible Securities, except as otherwise provided in paragraph (3) below.
        (2)   In case the Corporation at any time shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (x) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall
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be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. No adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon exercise of the rights to exchange or convert under such Convertible Securities, except as otherwise provided in paragraph (3) below.
        (3)   If the purchase price provided for in any Options referred to in paragraph (1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in paragraphs (1) or (2) or the rate at which any Convertible Securities referred to in paragraphs (1) or (2) are convertible into or exchangeable for Common Stock shall change at any time (including by reason of provisions designed to protect against dilution of the type set forth in this Section 4.42(e)), the Conversion Price in effect at the time of such change shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold.
        (4)   On the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued.
        (5)   In case any Options shall be issued in connection with the issue or sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration.
        (6)   In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration as determined in good faith by the Board of Directors. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the nonsurviving corporation as shall be attributable to such Common Stock, Options or Convertible Securities, as the case may be.
        (7)   The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock for the purpose of this Section 4.02(e).
        (8)   In case the Corporation shall declare a dividend or make any other distribution upon the stock of the Corporation payable in Options or Convertible Securities, then in such case any Options or Convertible Securities, as the case may be, issuable in payment
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of such dividend or distribution shall be deemed to have been issued or sold without consideration.
        (9)   For purposes of this Section 4.02(e), in case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (x) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities, or (y) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right or subscription or purchase, as the case may be.
        (iii)  In case the Corporation shall at any time (i) subdivide the outstanding Common Stock or (ii) issue a dividend on its outstanding Common Stock payable in shares of Common Stock, the Conversion Rate in effect immediately prior to such dividend or combination shall be proportionately increased by the same ratio as the subdivision or dividend (with appropriate adjustments to the Conversion Price in effect immediately prior to such subdivision or dividend). In case the Corporation shall at any time combine its outstanding Common Stock, the Conversion Rate in effect immediately prior to such combination shall be proportionately decreased by the same ratio as the combination (with appropriate adjustments to the Conversion Price in effect immediately prior to such combination).
        (iv)  If any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash or other property with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of the Series A Preferred Stock shall have the right to acquire and receive upon conversion of the Series A Preferred Stock, which right shall be prior to the rights of the holders of Junior Stock (but after and subject to the rights of holders of Senior Preferred Stock, if any), such shares of stock, securities, cash or other property issuable or payable (as part of the reorganization, reclassification, consolidation, merger or sale) with respect to or in exchange for such number of outstanding shares of Common Stock as would have been received upon conversion of the Series A Preferred Stock at the Conversion Price then in effect. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument mailed or delivered to the holders of the Series A Preferred Stock at the last address of each such holder appearing on the books of the Corporation, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase.
         (v)  If a purchase, tender or exchange offer is made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock, the Corporation shall not effect any consolidation, merger or sale with the person having made such offer or with any Affiliate of such person, unless prior to the consummation of such consolidation, merger or sale the holders of the Series A Preferred Stock shall have been given a reasonable opportunity to then elect to receive upon conversion of the Series A Preferred Stock either the stock, securities or assets then issuable with respect to the Common Stock or the stock, securities or assets, or the equivalent, issued to previous holders of the Common Stock in accordance with
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such offer. For purposes hereof the term "Affiliate" with respect to any given person shall mean any person controlling, controlled by or under common control with the given person.
        (vi)  The provisions of this Section 4.02(e) shall not apply to any Common Stock issued, issuable or deemed outstanding under paragraphs 4.02(e)(ii)(1) to (9) inclusive: (i) to any person pursuant to any stock option, stock purchase or similar plan or arrangement for the benefit of employees of the Corporation or its subsidiaries in effect on the Series A Date or thereafter adopted by the Board of Directors and the holders of a majority of the Series A Preferred Stock, (ii) pursuant to options, warrants and conversion rights in existence on the Series A Date, or (iii) on conversion of the Series A Preferred Stock or the sale of any additional shares of Series A Preferred Stock.
       (vii)  In the event that:
        (A)  the Corporation shall declare any cash dividend upon its Common Stock,
        (B)  the Corporation shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock,
        (C)  the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights,
        (D)  there shall be any capital reorganization or reclassification of the capital stock of the Corporation, including any subdivision or combination of its outstanding shares of Common Stock, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation, or
        (E)  there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders of the Series A Preferred Stock:
        (1)   at least twenty (20) days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to votes in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up; and
        (2)   in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least twenty (20) days prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (1) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (2) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification consolidation, merger, sale, dissolution, liquidation or winding up, as the case maybe. Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of the Series A Preferred Stock at the address of each such holder as shown on the books of the Corporation.
      (viii)  If at any time or from time to time on or after the Series A Date, the Corporation shall grant, issue or sell any Options, Convertible Securities or rights to purchase property (the "Purchase Rights') pro rata to the record holders of any class of Common Stock and such
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grants, issuances or sales do not result in an adjustment of the Conversion Price under Section 4.02(e)(ii) hereof, then each holder of Series A Preferred Stock shall be entitled to acquire (within thirty (30) days after the later to occur of the initial exercise date of such Purchase Rights or receipt by such holder of the notice concerning Purchase Rights to which such holder shall be entitled under Section 4.02(e)(vii)) and upon the terms applicable to such Purchase Rights either:
        (A)  the aggregate Purchase Rights which such holder could have acquired if it had held the number of shares of Common Stock acquirable upon conversion of the Series A Preferred Stock immediately before the grant, issuance or sale of such Purchase Rights; provided that if any Purchase Rights were distributed to holders of Common Stock without the payment of additional consideration by such holders, corresponding Purchase Rights shall be distributed to the exercising holders of the Series A Preferred Stock as soon as possible after such exercise and it shall not be necessary for the exercising holder of the Series A Preferred Stock specifically to request delivery of such rights; or
        (B)  in the event that any such Purchase Rights shall have expired or shall expire prior to the end of said thirty (30) day periods, the number of shares of Common Stock or the amount of property which such holder could have acquired upon such exercise at the time or times at which the Corporation granted, issued or sold such expired Purchase Rights.
        (ix)  If any event occurs as to which, in the opinion of the Board of Directors, the provisions of this Section 4.02(e) are not strictly applicable or if strictly applicable would not fairly protect the rights of the holders of the Series A Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights as aforesaid, but in no event shall any adjustment have the effect of increasing the Conversion Price as otherwise determined pursuant to any of the provisions of this Section 4.02(e) except in the case of a combination of shares of a type contemplated in Section 4.02(e)(iii) hereof and then in no event to an amount larger than the Conversion Price as adjusted pursuant to Section 4.02(e)(iii) hereof.
        (f)     Mandatory Conversion.     
          (i)  Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Price at any time upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public generally in which the net proceeds to the Corporation are not less than $25 million, and in which the shares of Common Stock are designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange (heroin referred to as a "Qualified Public Offering"). In addition, each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such shares upon the vote to so convert of the holders of at least a majority of the shares of Series A Preferred Stock than outstanding.
         (ii)  All holders of record of shares of Series A Preferred Stock will be given at least 10 days' prior written notice of the date fixed and the place designated for mandatory conversion of all of such shares of Series A Preferred Stock pursuant to this Section 4.02(f). Such notice will be sent by mail, first class, postage prepaid, to each record holder of shares of Series A Preferred Stock at such holder's address appearing on the stock register. On or before the date fixed for conversion, each holder of shares of Series A Preferred Stock shall
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surrender his or its certificate or certificates for all such shares to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 4.02(f). On the date fixed for conversion, all rights with respect to the Series A Preferred Stock so converted will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Series A Preferred Stock has been converted and payment of any accrued but unpaid dividends thereon (whether or not declared). If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorneys duly authorized in writing. All certificates evidencing shares of Series A Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date such certificates are so required to be surrendered, be deemed to have been retired and canceled and the shares of Series A Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. As soon as practicable after the date of such mandatory conversion and the surrender of the certificate or certificates for Series A Preferred Stock as aforesaid, the Corporation shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 4.02(d)(iii) hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.
        (g)     Redemption.     
          (i)  In the event the Corporation has not consummated a Liquidity Event or a Qualified Public Offering by the seven year anniversary of the Initial Issuance Date, following such anniversary date until the occurrence of such an event, the holders of a majority of the outstanding shares of Series A Preferred Stock may, by written notice given to the Corporation (a "Redemption Notice") require the Corporation to redeem any or all shares of Series A Preferred Stock held by such holders (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price in cash equal to the Liquidation Preference with respect to such share (such amount is hereinafter referred to as the "Redemption Price"). Such redemption shall occur within thirty (30) days of the date on which the Corporation receives the Redemption Notice (the "Redemption Date"). If the Corporation is unable at any Redemption Date to redeem any shares of Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. Any failure to redeem the shares of Series A Preferred Stock on the applicable Redemption Date in accordance with this Section 4.02(g) (whether or not such redemption would violate the applicable laws of the State of Delaware) shall constitute a Default for purposes of Section 4.02(c)(iii) hereof:
         (ii)  In the event of any redemption of only a part of the then outstanding Series A Preferred Stock, the Corporation shall effect such redemption pro rata among the holders thereof (based on the number of shares of Series A Preferred Stock held on the date of notice of redemption).
        (iii)  At least thirty (30) days prior to each Redemption Date, written notice shall be mailed, postage prepaid, to each holder of record of Series A Preferred Stock to be redeemed, at his or its post office address last shown on the records of the Corporation, notifying such holder of the number of shares so to be redeemed, specifying the Redemption
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Date and the date on which such holder's conversion rights (pursuant to Section 4.02(d) hereof) as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his or its certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or prior to each Redemption Date, each holder of Series A Preferred Stock to be redeemed shall surrender his or its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Series A Preferred Stock designated for redemption in the Redemption Notice as holders of Series A Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
        (iv)  Except as provided in Section 4.02(g)(i) hereof the Corporation shall have no right to redeem the shares of Series A Preferred Stock. Any shares of Series A Preferred Stock so redeemed shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Series A Preferred Stock accordingly. Nothing herein contained shall prevent or restrict the purchase by the Corporation, from time to time either at public or private sale, of the whole or any part of the Series A Preferred Stock at such price or prices as the Corporation may determine, subject to the provisions of applicable law.
        Section 4.03.     Common Stock.     The Common Stock shall be entitled to such rights and subject to such qualifications, limitations and restrictions as are, and shall be from time to time, provided in the Delaware General Corporation Law. Notwithstanding the foregoing or Section 242(b)(2) of the Delaware General Corporation Law, the holders of Common Stock and Preferred Stock shall vote together as one class on any amendment to Section 4.01 hereof to increase the number of authorized shares of Common Stock.
        Section 4.04.     Adjustments.     Any share number or dollar amount (including the dividend rate) set forth in this Article IV shall be appropriately adjusted in the event of any stock dividend, stock split, stock distribution or combination with respect to the Series A Preferred Stock.

 ARTICLE V.    INCORPORATOR
        The name and mailing address of the incorporator is as follows:
CorpAmerica, Inc.
30 Old Rudnick Lane
Dover, DE 19901

 ARTICLE VI.    BY-LAWS
        In furtherance and not in limitation of the powers conferred by statute, the bylaws of the Corporation may be made, altered, amended or repealed by the stockholders or by a majority of the entire Board of Directors.
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 ARTICLE VII.    ELECTION OF THE DIRECTORS
        Elections of directors need not be by written ballot.

 ARTICLE VIII.    INDEMNIFICATION OF DIRECTORS
          (i)  The Corporation shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful.
         (ii)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all due circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
        (iii)  Expenses incurred in defending a civil or criminal action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Corporation) or may (in the case of any action, suit or proceeding against an officer, trustee, employee or agent) be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII.
        (iv)  The indemnification and other rights set forth in this Article VIII shall not be exclusive of any provisions with respect thereto in the by-laws of the Corporation or any other contract or agreement between the Corporation and any officer, director, employee or agent of the Corporation.
         (v)  Neither the amendment nor repeal of this Article VIII, nor the adoption of any provision of this Restated Certificate inconsistent with Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of action, suit or claim relating to any such matter
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which would have given rise to a right of indemnification or right to receive expenses pursuant to this Article IX if such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted.
        (vi)  No director shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, provided however , that the foregoing shall not eliminate or limit the liability of a director:
        (A)  for any breach of the directors duty of loyalty to the Corporation or its stockholders;
        (B)  for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
        (C)  under Section 174 of the Delaware General Corporation Law; or
        (D)  for any transaction from which the director derived an improper personal benefit.
       (vii)  If the Delaware General Corporation Law is amended alter the 27 th  of July, 2005 to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
*********
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        IN WITNESS WHEREOF, Bridgepoint Education, Inc. has caused this Fourth Amended and Restated Certificate of Incorporation to be duly executed by its Chief Executive Officer this 29th day of July, 2005.

 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ ANDREW CLARK

Name: Andrew Clark
Title: Chief Executive Officer	
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QuickLinks
Exhibit 3.1
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BRIDGEPOINT EDUCATION, INC.
ARTICLE I. NAME
ARTICLE II. ADDRESS
ARTICLE III. PURPOSE
ARTICLE IV. CAPITALIZATION
ARTICLE V. INCORPORATOR
ARTICLE VI. BY-LAWS
ARTICLE VII. ELECTION OF THE DIRECTORS
ARTICLE VIII. INDEMNIFICATION OF DIRECTORS

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 Exhibit 3.2

 FORM OF
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRIDGEPOINT EDUCATION, INC.
Reflecting all amendments through                        , 2009
        The undersigned, Andrew S. Clark and Steve Isbister, hereby certify that:
         FIRST:     They are duly elected and acting Chief Executive Officer and Secretary, respectively, of Bridgepoint Education, Inc. (f/k/a TeleUnversity, Inc.), a Delaware corporation.
         SECOND:     The Certificate of Incorporation of TeleUniversity, Inc. was originally filed in the Office of the Secretary of the State of Delaware on May 21, 1999.
         THIRD:     A Certificate of Amendment to the Certificate of Incorporation of TeleUniversity, Inc. was filed in the Office of the Secretary of the State of Delaware on January 21, 2001; the Amended and Restated Certificate of Incorporation of TeleUniversity, Inc. was filed in the Office of the Secretary of the State of Delaware on November 25, 2003; a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of TeleUniversity, Inc. was filed in the Office of the Secretary of the State of Delaware on February 5, 2004; the Second Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. was filed in the Office of the Secretary of the State of Delaware on March 30, 2005; the Third Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. was filed in the Office of the Secretary of the State of Delaware on July 27, 2005; the Fourth Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. was filed in the Office of the Secretary of the State of Delaware on July 29, 2005.
         FOURTH:     The Fourth Amended and Restated Certificate of Incorporation of Bridgepoint Education, Inc. is hereby amended and restated to read in its entirety as follows:

 ARTICLE 1
NAME
        The name of this corporation is Bridgepoint Education, Inc.

 ARTICLE 2
REGISTERED OFFICE AND RESIDENT AGENT
        The address of this corporation's registered office in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware, County of New Castle, 19808. The name of the registered agent at such address is CorpAmerica, Inc.

 ARTICLE 3
CORPORATE PURPOSES
        The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
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 ARTICLE 4
CAPITAL STOCK
        A.    This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of stock which this corporation is authorized to issue is            shares,            of which shall be Common Stock with a par value of $0.01 per share, and            of which shall be Preferred Stock with a par value of $0.01 per share.
        B.    The Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more classes or series, without further stockholder approval. Subject to the provisions hereof and the limitations prescribed by law, the Board of Directors is expressly authorized, by adopting resolutions providing for the issuance of shares of any particular class or series and, if and to the extent from time to time required by law, by filing with the Delaware Secretary of State a certificate setting forth the resolutions so adopted pursuant to the Delaware General Corporation Law, to establish the number of shares to be included in each such class or series and to fix the designation and relative powers, including voting powers (which may be full, limited or nonvoting powers), preferences, rights, qualifications and limitations and restrictions thereof, relating to the shares of each such class or series. The rights, privileges, preferences and restrictions of any such additional class or series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. The Board of Directors is also authorized to increase or decrease the number of authorized shares of any class or series of Preferred Stock prior or subsequent to the issue of that class or series, but not below the number of shares of such class or series then outstanding. In case the number of shares of any class or series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such class or series.
        The authority of the Board of Directors with respect to each class or series shall include, but not be limited to, determination of the following:
          (i)  the distinctive class or serial designation of such class or series and the number of shares constituting such class or series;
         (ii)  the annual dividend rate on shares of such class or series, if any, whether dividends shall be cumulative and, if so, from which date or dates;
        (iii)  whether the shares of such class or series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
        (iv)  the obligation, if any, of this corporation to retire shares of such class or series pursuant to a sinking fund;
         (v)  whether shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and terms of adjustment, if any;
        (vi)  whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights;
       (vii)  the rights of the shares of such class or series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; and
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      (viii)  any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such class or series.

 ARTICLE 5
STOCKHOLDER ACTION BY WRITTEN CONSENT
        A.    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. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

 ARTICLE 6
AMENDMENT OF BYLAWS AND ELECTION OF DIRECTORS
        In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of this corporation is expressly authorized to make, alter or repeal the Bylaws of this corporation. Elections of directors need not be by written ballot.

 ARTICLE 7
INDEMNIFICATION OF DIRECTORS
        A.    To the fullest extent permitted by the law of the State of Delaware as it now exists or may hereafter be amended, no director or officer of this corporation shall be liable to this corporation or its stockholders for monetary damages arising from a breach of fiduciary duty owed by such director or officer, as applicable, to this corporation or its stockholders; provided, however, that liability of any director or officer shall not be eliminated or limited for acts or omissions which involve any breach of a director's or officer's duty of loyalty to this corporation or its stockholders, intentional misconduct, fraud or a knowing violation of law, under Section 174 of the General Corporation Law of the State of Delaware or for transaction from which the officer or director derived an improper personal benefit.
        B.    This corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and hold harmless and upon request shall advance expenses to any person (and heirs, executors or administrators of such person) who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this corporation or while such a director or officer is or was serving at the request of this corporation as a director, officer, partner, trustee, employee or agent of another corporation or any partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require this corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any by law, agreement, vote of directors or stockholders or otherwise an shall inure to the benefit of the heirs and legal representatives of such person. Any person seeking indemnification under this Article 6 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of the foregoing provisions of this Article 6 shall not adversely affect any right or protection of a director or officer of this corporation with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification.
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        C.    This corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of this corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by the law of the State of Delaware.
        D.    This corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not this corporation would have the power to indemnify him against such liability under the law of the State of Delaware.
        E.    The rights and authority conferred in this Article 6 shall not be exclusive of any other right which any person may otherwise have or hereafter acquire.
        F.     Neither the amendment nor repeal of this Article 6, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of this corporation, nor, to the fullest extent permitted by the law of the State of Delaware any modification of law, shall eliminate or reduce the effect of this Article 6 in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification.

 ARTICLE 8
DIRECTOR RELIANCE
        A director shall be fully protected in relying in good faith upon the books of account or other records of this corporation or statements prepared by any of its officers or by independent public accountants or by an appraiser selected with reasonable care by the Board of Directors as to the value and amount of the assets, liabilities and/or net profits of this corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which this corporation's capital stock might properly be purchased or redeemed.
* * *
         FIFTH:     This Fifth Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of this corporation in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law.
         SIXTH:     This Fifth Amended and Restated Certificate of Incorporation has been duly approved, in accordance with Sections 228, 242 and 245 of the Delaware General Corporation Law, by the written consent of the holders of the requisite number of the shares of outstanding Common Stock and the requisite number of the shares of outstanding stock of each class of stock entitled to vote thereon as a class and the requisite number of the shares of outstanding stock of each series of Preferred Stock, and written notice of such action will be given to the holders of such shares who did not so consent, in each case in accordance with Section 228 of the Delaware General Corporation Law.
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        IN WITNESS WHEREOF, Bridgepoint Education, Inc. has caused this Fifth Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer and Secretary on this            day of                        , 2009.

 	 	By:	 	/s/

Andrew S. Clark,
Chief Executive Officer	

 	
By:	
 	
/s/

Steve Isbister,
Secretary	
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QuickLinks
Exhibit 3.2
FORM OF FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BRIDGEPOINT EDUCATION, INC.
Reflecting all amendments through , 2009
ARTICLE 1 NAME
ARTICLE 2 REGISTERED OFFICE AND RESIDENT AGENT
ARTICLE 3 CORPORATE PURPOSES
ARTICLE 4 CAPITAL STOCK
ARTICLE 5 STOCKHOLDER ACTION BY WRITTEN CONSENT
ARTICLE 6 AMENDMENT OF BYLAWS AND ELECTION OF DIRECTORS
ARTICLE 7 INDEMNIFICATION OF DIRECTORS
ARTICLE 8 DIRECTOR RELIANCE

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 Exhibit 3.3

 AMENDED AND RESTATED
BYLAWS
OF
TELEUNIVERSITY, INC.
A Delaware Corporation

ARTICLE 1—SHAREHOLDERS
        1.1     Annual Meeting.     A meeting of shareholders shall be held each year for the election of directors and for the transaction of any other business that may come before the meeting. The time and place of the meeting shall be designated by the Board of Directors.
        1.2     Special Meeting.     Special meetings of the shareholders, for any purpose or purposes, shall be held when directed by the Chairperson of the Board of Directors, or at the request of the holders of not less than one tenth of all outstanding shares of the corporation entitled to vote at the meeting.
        1.3     Place of Meeting.     The Board of Directors may designate any place, either within or outside the state of Delaware, as the place of meeting for any annual or special meeting of the shareholders. If no designation is made, the place of meeting shall be the principal office of the corporation.
        1.4     Action Without a Meeting.     Unless otherwise provided in the articles of incorporation, action required or permitted to be taken at any meeting of the shareholders may be taken without a meeting, without prior notice, and without a vote if the action is taken by the holders of outstanding shares of each voting group entitled to vote on it having not less than the minimum number of votes with respect to each voting group that would be necessary to authorize or take such action at a meeting at which all voting groups and shares entitled to vote were present and voted. In order to be effective, the action must be evidenced by one or more written consents describing the action taken, dated and signed by approving shareholders having the requisite number of votes of each voting group entitled to vote, and delivered to the corporation at its principal office or its principal place of business, or to the corporate secretary or another officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. No written consent shall be effective to take corporate action unless, within 50 days of the date of the earliest dated consent delivered in the manner required by this section, written consents signed by the number of holders required to take action are delivered to the corporation.
        Any written consent may be revoked before the date that the corporation receives the required number of consents to authorize the proposed action. No revocation is effective unless in writing and until received by the corporation at its principal office or its principal place of business, or received by the corporate secretary or other officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded.
        Within 10 days after obtaining authorization by written consent, notice must be given to those shareholders who have not consented in writing or who are not entitled to vote on the action. The notice shall fairly summarize the material features of the authorized action and, if the action is one for which dissenters' rights are provided under the articles of incorporation or by law, the notice shall contain a clear statement of the right of shareholders dissenting therefrom to be paid the fair value of their shares on compliance with applicable law.
        A consent signed as required by this section has the effect of a meeting vote and may be described as such in any document.
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        Whenever action is taken as provided in this section, the written consent of the shareholders consenting or the written reports of inspectors appointed to tabulate such consents shall be filed with the minutes of proceedings of shareholders.
        1.5     Notice of Meeting.     Except as provided in Delaware Law, written or printed notice stating the place, day, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by first-class mail, by, or at the direction of, the chief executive officer or the secretary, or the officer or other persons calling the meeting, to each shareholder of record entitled to vote at the meeting. If the notice is mailed at least 30 days before the date of the meeting, it may be effected by a class of United States mail other than first-class. If mailed, the notice shall be effective when mailed, if mailed postage prepaid and correctly addressed to the shareholder's address shown in the current record of shareholders of the corporation.
        When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. At the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in this section to each shareholder of record on the new record date entitled to vote at such meeting.
        1.6     Waiver of Notice of Meeting.     Whenever any notice is required to be given to any shareholder, a waiver in writing signed by the person or persons entitled to such notice, whether signed before, during, or after the time of the meeting and delivered to the corporation for inclusion in the minutes or filing with the corporate records, shall be equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of (a) lack of or defective notice of the meeting, unless the person objects at the beginning of the meeting to the holding of the meeting or the transacting of any business at the meeting, or (b) lack of defective notice of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the person objects to considering the matter when it is presented.
        1.7     Fixing of Record Date.     In order that the corporation may determine the shareholders entitled to notice of; or to vote at, any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to demand a special meeting, the board of directors may fix, in advance, a record date, not more than 70 days before the date of the meeting or any other action. A determination of shareholders of record entitled to notice of, or to vote at, a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
        If no prior action is required by the board, the record date for determining shareholders entitled to take action without a meeting is the date the first signed written consent is delivered to the corporation under Section 1.4 of this Article.
        1.8     Voting Record.     After fixing a record date for a meeting of shareholders, the corporation shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the meeting, arranged by voting group with the address of, and the number, class, and series, if any, of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder for a period of 10 days before the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the corporation's transfer agent or registrar. Any shareholder of the corporation or the shareholder's agent or attorney is
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entitled on written demand to inspect the shareholders' during regular business hours and at the shareholder's expense, during the period it is available for inspection.
        The corporation shall make the shareholders' list available at the meeting of shareholders, and any shareholder or the shareholder's agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
        1.9     Voting Per Share.     Except as otherwise provided by Delaware law, each shareholder is entitled to one vote for each outstanding share held by him or her on each matter voted at a shareholders' meeting.
        1.10     Voting of Shares.     A shareholder may vote at any meeting of shareholders of the corporation, either in person or by proxy.
        Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of the corporate shareholder or, in the absence of any applicable bylaw, by a person or persons designated by the board of directors of the corporate shareholder. In the absence of any such designation or, in case of conflicting designation by the corporate shareholder, the chairperson of the board, the chief executive officer, any vice president, the secretary, and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote the shares.
        Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name or the name of his or her nominee.
        Shares held by, or under the control of, a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer into his or her name.
        If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entireties, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one of the persons votes, in person or by proxy, that act binds all; (b) if more than one votes, in person or by proxy, the act of the majority so voting binds all; (c) if more than one votes, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest. The principles of this paragraph shall apply, as far as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum.
        1.11     Proxies.     Any shareholder of the corporation, other person entitled to vote on behalf of a shareholder, or attorney-in-fact for such persons, may vote the shareholder's shares in person or by proxy. Any shareholder may appoint a proxy to vote or otherwise act for him or her by signing an appointment form, either personally or by an attorney-in-fact. An executed telegram, or cablegram appearing to have been transmitted by such person, or a photographic, photostatic, or equivalent reproduction of an appointment form, shall be deemed a sufficient appointment form.
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        An appointment of a proxy is effective when received by the secretary of the corporation or such other officer or agent authorized to tabulate votes, and shall be valid for up to 11 months, unless a longer period is expressly provided in the appointment form.
        The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises authority under the appointment.
        An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest.
        1.12     Quorum.     Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Except as otherwise provided in the articles of incorporation or by law, a majority of the shares entitled to vote on the matter by each voting group, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, but in no event shall a quorum consist of less than one third of the shares of each voting group entitled to vote. If less than a majority of outstanding shares entitled to vote is represented at a meeting, a majority of the shares so represented may adjourn the meeting from tinge to time without further notice. After a quorum has been established at any shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof.
        Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
        1.13     Manner of Action.     If a quorum is present, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater or lesser number of affirmative votes is required by the articles of incorporation or by law.
        1.14     Voting for Directors.     Unless otherwise provided in the articles of incorporation, directors will be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
        1.15     Inspectors of Election.     Before each shareholders' meeting, the board of directors or chief executive officer shall appoint one or more Inspectors of Election. On appointment, each inspector shall take and sign an oath to faithfully execute the duties of inspector at the meeting with strict impartiality and to the best of his or her ability. Inspectors shall determine the number of shares outstanding, the number of shares present at the meeting, and whether a quorum is present. The inspectors shall receive votes and ballots and determine all challenges and questions as to the right to vote. The inspectors shall count and tabulate all votes and ballots and determine the result. Inspectors shall perform other duties as are proper to conduct elections of directors and votes on other matters with fairness to all shareholders. Inspectors shall make a certificate of the results of elections of directors and votes on other matters. No inspector shall be a candidate for election as a director of the corporation.

 ARTICLE 2—BOARD OF DIRECTORS
        2.1     General Powers.     Except as provided in the articles of incorporation and by law, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, its board of directors.
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        2.2     Number, Terms, Classification, and Qualification.     The board of directors of the corporation shall consist of four (4) persons. The 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, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. A director must be a natural person of at least 18 years of age, but need not be a citizen of the United States of America, a resident of the state of Delaware, or a shareholder of the corporation. Each director shall hold office until a successor has been elected and qualified or until an earlier resignation, removal from office, or death.
        2.3     Regular Meetings.     An annual regular meeting of the board of directors shall be held without notice immediately after, and at the same place as, the annual meeting of the shareholders and at such other time and place as may be determined by the board of directors. The board may, at any time and from time to time, provide by resolution the time and place, either within or without the state of Delaware, for the holding of the annual regular meeting or additional regular meeting of the board without other notice than the resolution.
        2.4     Special Meetings.     The chief executive officer or secretary may, and on written request of the chairperson of the board or any two directors shall, call special meetings of the board of directors. Notice of any special meeting of the board may be given by any reasonable means, oral or written, and at any reasonable time before the meeting. The reasonableness of notice given in connection with any special meeting of the board shall be determined in light of all pertinent circumstances. Notice shall be deemed reasonable if given to each director personally or by facsimile, overnight courier, telegram or telephone not less than two day's before a meeting or if given to each director by deposit in U.S. mail not less than five days' before a meeting.
        The person or persons authorized to call special meetings of the board may designate any place, either within or without the state of Delaware, as the place for holding any special meeting of the board called by them. If no designation is made, the place of the meeting shall be the principal office of the corporation.
        Neither the business to be transacted at, nor the purpose or purposes of, any special meeting need be specified in the notice or in any written waiver of notice of the meeting.
        2.5     Waiver of Notice of Meeting.     Notice of a meeting of the board of directors need not be given to any director who signs a written waiver of notice before, during, or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of the meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly on arrival at the meeting, any objection to the transaction of business because the meeting is not law fully called or convened.
        2.6     Quorum.     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.
        2.7     Manner of Action.     The act of a majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors.
        2.8     Presumption of Assent.     A director of the corporation who is present at a meeting of the board of directors or a committee of the board when corporate action is taken shall be presumed to have assented to the action, unless he or she objects at the beginning of the meeting, or promptly on arrival to holding the meeting or transacting specific business at the meeting, or he or she votes against or abstains from the action taken.
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        2.9     Action Without a Meeting.     Any action required or permitted to be taken at a meeting of the board of directors or a committee of the board may be taken without a meeting if a consent in writing, stating the action so taken, is signed by all the directors, or all the members of the committee, as the case may be. Action taken under this section is effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. A consent signed tinder this section shall have the effect of a meeting vote and may be described as such in any document.
        2.10     Meetings by Means of Conference Telephone Call or Similar Electronic Equipment.     Members of the board of directors, or any committee thereof, may participate in a meeting of the board or such committee by means of a conference telephone call or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation by such means constitutes presence in person at a meeting.
        2.11     Resignation.     Any director may resign at any time by giving written notice to the corporation, the board of directors, or its chairperson. The resignation of any director shall take effect when the notice is delivered unless the notice specifies a later effective date, in which event the board may till the pending vacancy before the effective date if it provides that the successor does not take office until the effective date.
        2.12     Removal.     Any director, or the entire board of directors, may be removed at any time, with or without cause, by action of the shareholders, unless the articles of incorporation provide that directors may be removed only for cause. If a director was elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that director. The notice of the meeting at which a vote is taken to remove a director must state that the purpose or one of the purposes of the meeting is the removal of the director or directors.
        2.13     Vacancies.     Any vacancy in the board of directors, including any vacancy created by an increase in flit: number of directors, may be filled by the affirmative vote of a majority of the remaining director, though less than a quorum of the board of directors, or by the shareholders.
        2.14     Compensation.     Each director may be paid the expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as a director or a fixed sum for attendance at each meeting of the board of directors or both, as may from time to time be determined by action of the board of directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

 ARTICLE 3—COMMITTEES OF THE BOARD OF DIRECTORS
        The board of directors, by resolution adopted by a majority of the full board, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution, shall have and may exercise all the authority of the board of directors, except as prohibited by Delaware law.
        Each committee must have two or more members who serve at the pleasure of the board. The board of directors, by resolution adopted in accordance with this article, may designate one or more directors as alternate members of any committee, who may act in the place and stead of any absent member or members at any meeting of the committee.

 ARTICLE 4—OFFICERS
        4.1     Officers.     The officers of the corporation shall be a chief executive officer, a vice president, a secretary, a treasurer, and any other officers and assistant officers as may be deemed necessary, and as shall be approved, by the board of directors. Any two or more offices may be held by the same person.
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        4.2     Appointment and Term of Office.     The officers of the corporation shall be appointed annually by the board of directors at the first meeting of the board held after the shareholders' annual meeting. If the appointment of officers does not occur at this meeting, the appointment shall occur as soon thereafter as practicable. Each officer shall hold office until a successor has been duly appointed and qualified, or until an earlier resignation, removal from office, or death.
        4.3     Resignation.     Any officer of the corporation may resign from his or her respective office or position by delivering notice to the corporation. The resignation is effective when delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, the board of directors may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.
        4.4     Removal.     Any officer of the corporation may be removed from his or her respective office or position at any time, with or without cause, by the board of directors.
        4.5     Chief Executive Officer.     The chief executive officer shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, generally supervise and control all of the business and affairs of the corporation, and preside at all meetings of, the shareholders, the board of directors, and all committees of the board of directors on which he or she may serve. In addition, the chief executive officer shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him or her by the board of directors, and as are incident to the offices of president and chief executive officer.
        4.6     Vice Presidents.     Each vice president shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him or her by the board of directors.
        4.7     Secretary.     The secretary shall keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; be custodian of the corporate records and the seal of the corporation; and keep a register of the post office address of each shareholder of the corporation. In addition, the secretary shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him or her by the board of directors and as are incident to the office of secretary.
        4.8     Treasurer,     The treasurer shall have charge and custody of, and be responsible for, all funds and securities of the corporation; receive and give receipts for money due and payable to the corporation from any source whatsoever; and deposit all such money in the name of the corporation in such banks, trust companies, or other depositories as shall be used by the corporation. In addition, the treasurer shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him or her by the board of directors and as are incident to the office of treasurer.
        4.9     Other Officers, Employees, and Agents.     Each and every other officer, employee, and agent of the corporation shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him or her by the board of directors, the officer appointing him or her, and such officer or officers who may from time to time be designated by the hoard to exercise supervisory authority.
        4.10     Compensation.     The compensation of the officers of the corporation shall be fixed from time to time by the board of directors.
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 ARTICLE 5—CERTIFICATES OF STOCK
        5.1     Certificates for Shares.     The board of directors shall determine whether shares of the corporation shall he uncertificated or certificated. If certificated shares are issued, certificates representing shares in the corporation shall be signed (either manually or by facsimile) by the chief executive officer or vice president and the secretary or an assistant secretary and may be sealed with the seal of the corporation or a facsimile thereof. A certificate that has been signed by an officer or officers who later cease to be such officers shall be valid.
        5.2     Transfer of Shares; Ownership of Shares.     Transfers of shares of stock of the corporation shall he made only on the stock transfer books of the corporation, and only after the surrender to the corporation of the certificates representing such shares. Except as provided by Delaware law, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes, and the corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person, whether or not it shall have express or other notice thereof.
        5.3     Lost Certificates.     The corporation shall issue anew stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that the certificate has been lost, destroyed, or wrongfully taken; (b) requests the issuance of a new certificate before the corporation has notice that the lost, destroyed, or wrongfully taken certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) at the discretion of the board of directors, gives bond in such form and amount as the corporation may direct, to indemnify the corporation, the transfer agent, and the registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the corporation.

 ARTICLE 6—ACTIONS WITH RESPECT TO SECURITIES OF
OTHER CORPORATIONS
        Unless otherwise directed by the board of directors, the chief executive officer or a designee of the chief executive officer shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of shareholders of, or with respect to any action of shareholders of, any other corporation, in which this corporation may hold securities and to otherwise exercise any and all rights and powers that the corporation may possess by reason of its ownership of securities in other corporations.

 ARTICLE 7—AMENDMENTS
        These bylaws may be altered, amended, or repealed, and new bylaws may be adopted, by action of the board of directors, subject to the limitations of Delaware law. The shareholders of the corporation may alter, amend, or repeal these bylaws or adopt new bylaws, even though these bylaws also may be amended or repealed by the board of directors.

 ARTICLE 8—CORPORATE SEAL
        The board of directors shall provide for a corporate seal which shall be circular and shall have the name of the corporation, the year of its incorporation, and the state of incorporation inscribed on it.

 ARTICLE 9—INDEMNIFICATION
        The corporation shall indemnify any officer or director, or any former officer or director of the corporation to the fullest extent permitted by law.
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 CERTIFICATE OF AMENDMENT OF
THE AMENDED AND RESTATED BYLAWS OF
BRIDGEPOINT EDUCATION, INC.
        The undersigned hereby certifies that:
        1.     He is the duly elected, qualified and acting secretary of Bridgepoint Education, Inc., a Delaware corporation (the " Corporation "), and in charge of the minute book and records of the Corporation.
        2.     On July 30, 2004, the board of directors of the Corporation duly adopted resolutions (i) approving an amendment to the Amended and Restated Bylaws of the Corporation, as then in effect (the " Bylaws ") and (ii) recommending said amendment for approval by the holders of a majority of the Corporation's outstanding Series A Convertible Preferred Stock, par value $0.01 per share (the " Series A Preferred Stock ").
        3.     On July 30, 2004, the holders of a majority of the Corporation's outstanding Series A Preferred Stock of the Corporation duly approved the proposed amendment to the Bylaws by written consent.
        4.     Accordingly, the first sentence of Section 2.2 of the Bylaws is hereby amended and restated to read in its entirety as follows:
"The board of directors of the corporation shall consist of five (5) persons."
[SIGNATURE PAGE FOLLOWS]
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        IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of this 30th day of July 2004.

 	 	/s/ Scott Turner

Scott Turner, Secretary	
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 CERTIFICATE OF AMENDMENT OF
THE AMENDED AND RESTATED BYLAWS OF
BRIDGEPOINT EDUCATION, INC.
        The undersigned hereby certifies that:
        1.     He is the duly elected, qualified and acting secretary of Bridgepoint Education, Inc., a Delaware corporation (the " Corporation "), and in charge of the minute book and corporate records of the Corporation.
        2.     On August 30, 2004, the board of directors of the Corporation duly adopted resolutions (i) approving an amendment to the Amended and Restated Bylaws of the Corporation, as then in effect (the " Bylaws ") and (ii) recommending said amendment for approval by the holders of a majority of the Corporation's outstanding Series A Convertible Preferred Stock, par value $0.01 per share (the " Series A Preferred Stock ").
        3.     On August 30, 2004, the holders of a majority of the Corporation's outstanding Series A Preferred Stock of the Corporation duly approved the proposed amendment to the Bylaws by written consent.
        4.     Accordingly, the first sentence of Section 2.2 of the Bylaws is hereby amended and restated to read in its entirety as follows:
"The board of directors of the corporation shall consist of six (6) persons."
[SIGNATURE PAGE FOLLOWS]
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        IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of this 31st, day of August 2004.

 	 	/s/ Scott Turner

Scott Turner, Secretary	
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QuickLinks
Exhibit 3.3
AMENDED AND RESTATED BYLAWS OF TELEUNIVERSITY, INC. A Delaware Corporation ARTICLE 1—SHAREHOLDERS
ARTICLE 2—BOARD OF DIRECTORS
ARTICLE 3—COMMITTEES OF THE BOARD OF DIRECTORS
ARTICLE 4—OFFICERS
ARTICLE 5—CERTIFICATES OF STOCK
ARTICLE 6—ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS
ARTICLE 7—AMENDMENTS
ARTICLE 8—CORPORATE SEAL
ARTICLE 9—INDEMNIFICATION
 CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED BYLAWS OF BRIDGEPOINT EDUCATION, INC.
 CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED BYLAWS OF BRIDGEPOINT EDUCATION, INC.

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 Exhibit 3.4

 FORM OF
SECOND AMENDED AND RESTATED BYLAWS
OF
BRIDGEPOINT EDUCATION, INC.
a Delaware corporation
ARTICLE I
OFFICES
        The registered office of Bridgepoint Education, Inc. (the "Corporation") in the State of Delaware will be as provided for in the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"). The Corporation will have offices at such other places as the Board of Directors may from time to time determine.

 ARTICLE II
STOCKHOLDERS
        2.1     Location of Meetings; Remote Communication.     
        (a)   Meetings of stockholders may be held at such place, either within or without the State of Delaware, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 2.1(b).
        (b)   If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication:
        (1)   Participate in a meeting of stockholders; and
        (2)   Be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder, (B) the Corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
        2.2     Annual Meeting.     
        Unless Directors are elected by written consent in lieu of an annual meeting, the Board of Directors shall fix a date for the annual meeting of stockholders for the election of Directors on a date and at a time designated by or in the manner provided in these Bylaws, provided that the date of the annual meeting shall be within 13 months following the date of the last annual meeting or the last action by written consent to elect Directors in lieu of an annual meeting (or if no such meeting has been held or if no such consent has been signed, within 13 months of the date of incorporation). Stockholders may, unless the Certificate of Incorporation otherwise provides, act by written consent to elect Directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the Directorships to which Directors
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could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.
        2.3     Special Meeting.     
        Special meetings of the stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors or the Chief Executive Officer. Special meetings of stockholders may not be called by any other person. The business to be transacted at a special meeting shall be confined to the purposes specified in the notice thereof. Special meetings shall be held at such place, on such date, and at such time as the majority of the Board of Directors or the Chief Executive Officer shall fix.
        2.4     Stockholder Proposals and Nominations.     
        (a)   At an annual meeting of the stockholders, only such business shall be conducted and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting. To be properly brought before an annual meeting, business must be: (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (3) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or, in the event a public announcement of the date of such annual meeting is first made by the Corporation fewer than 70 days prior to the date of such annual meeting, the close of business on the tenth 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation.
        (b)   A stockholder's notice to the Secretary with respect to a proposal to be brought before an annual meeting other than the nomination of one or more persons for election to the Board of Directors, shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (1) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the annual meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made: (A) the name and address of such stockholder, as it appears in the Corporation's books, and of such beneficial owner, (B) the class or series and number of shares of capital stock of the Corporation which are beneficially owned and of record by such stockholder and such beneficial owner, (C) a description of any agreement, arrangement or understanding with respect to the proposal between or among such stockholder and such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, (D) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder's notice by, or on behalf of, such stockholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or
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benefit of share price changes for, or increase or decrease the voting power of, such stockholder and such beneficial owner, with respect to shares of stock of the Corporation, (E) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business, and (F) a representation whether the stockholder or beneficial owner, if any, intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to approve or adopt the proposal and/or (ii) otherwise to solicit proxies from stockholders in support of such proposal. The notice procedures set forth in this paragraph (b) shall not be deemed to affect any rights of stockholders to request inclusion of s proposal in the Corporation's proxy statement pursuant to, and in compliance with the requirements of, Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act").
        Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with this paragraph (b); and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.
        (c)   Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote in the election of Directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors or a duly authorized committee thereof, shall be made pursuant to timely notice in writing to the Secretary of the Corporation in accordance with the provisions of paragraph (a) of this Section 2.4. Such stockholder's notice to the Secretary with respect to the nomination of one or more persons for election to the Board of Directors, shall set forth (1) as to each person whom the stockholder proposes to nominate for election or re-election as a Director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Corporation that are beneficially owned by such person, (D) 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 nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a Director if elected); and (2) as to such stockholder giving notice and the beneficial owner, if any, on whose behalf the nomination is made, the information required to be provided pursuant to paragraph (b) of this Section 2.4. At the request of the Board of Directors, any person nominated by a stockholder for election as a Director shall furnish to the Secretary of the Corporation the information required to be set forth in the stockholder's notice of nomination which pertains to the nominee or any other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder's understanding of the independence, or lack thereof, of such nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.
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        (d)   For purposes of this Section 2.4, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
        2.5     Notice of Meetings.     
        (a)   Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the information required to gain access to the list of stockholders entitled to vote, if such list is to be open for examination on a reasonably accessible electronic network, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by the Delaware General Corporation Law (the "DGCL"), the written notice of any meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation.
        (b)   Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (1) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent; and (2) such inability becomes known to the Secretary or an assistant secretary of the Corporation or to the transfer agent or other person responsible for giving the notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 2.5 shall be deemed given: (A) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive, (B) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (C) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice, and (D) if by any other form of electronic transmission, when directed to the stockholder. For purposes of these Bylaws, "electronic transmission" means any form of communication not directly involving the physical transmission of paper that creates a record the recipient may retain, retrieve and review and reproduce in paper form through an automated process.
        (c)   Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any stockholder who fails to object in writing to the Corporation, within 60 days of having been given written notice by the Corporation of its intention to send the single notice described in the preceding sentence, shall be deemed to have consented to receiving such single written notice.
        2.6     Waiver of Notice.     
        Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of
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notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.
        2.7     Adjourned Meetings.     
        Any meeting of the stockholders may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
        2.8     Voting, Quorum and Required Vote.     
        (a)   Unless provided in the Certificate of Incorporation and subject to Section 6.7, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. If the Certificate of Incorporation provides for more or less than one vote for any share, on any matter, every reference in these Bylaws to a majority or other proportion of stock, voting stock or shares shall refer to such majority or other proportion of the votes of such stock, voting stock or shares.
        (b)   Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presence, in person or by proxy, of the holders of a majority of the outstanding shares entitled to vote shall constitute a quorum at a meeting of stockholders. The stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
        (c)   When a quorum is present at any meeting of stockholders, in all matters other than the election of Directors, the affirmative vote of the majority of shares present in person or represented by proxy and entitled to vote thereon shall decide the matter brought before such meeting, unless otherwise provided by the Certificate of Incorporation, these Bylaws, the rules and regulations of any stock exchange applicable to the Corporation or applicable law or regulation. Notwithstanding the foregoing, where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series.
        2.9     Proxies.     
        (a)   Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:
        (1)   A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such
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stockholder's authorized officer, director, employee or agent signing such writing or causing such person's signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or
        (2)   A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
        (b)   Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to Section 2.9(a)(2) may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
        (c)   A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.
        2.10     Voting Rights of Fiduciaries, Pledgors and Joint Owners of Stock.     
        (a)   Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation such person has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or such pledgee's proxy, may represent such stock and vote thereon.
        (b)   If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (1) if only one votes, such person's act binds all; (2) if more than one vote, the act of the majority so voting binds all; (3) if more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or any person voting the shares, or a beneficiary, if any, may apply to the Court of Chancery or such other court as may have jurisdiction to appoint an additional person to act with the persons so voting the shares, which shall then be voted as determined by a majority of such persons and the person appointed by the Court. If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even split for the purpose of this subsection shall be a majority or even split in interest.
        2.11     Voting Procedures and Inspectors.     
        (a)   If the Corporation has a class of voting stock that is: (1) listed on a national securities exchange; (2) authorized for quotation on an interdealer quotation system of a registered national securities association; or (3) held of record by more than 2,000 stockholders, the procedures set forth in this Section 2.11 shall apply to any meeting of stockholders.
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        (b)   The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. The inspectors shall: (1) ascertain the number of shares outstanding and the voting power of each; (2) determine the shares represented at a meeting and the validity of proxies and ballots; (3) count all votes and ballots; (4) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and (5) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
        (c)   The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
        2.12     List of Stockholders Entitled to Vote.     
        (a)   The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation is not required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (1) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (2) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
        (b)   The stock ledger shall be the only evidence considered in determining which stockholders are entitled to examine the list of stockholders or to vote in person or by proxy at any meeting of stockholders.
        2.13     Organization and Conduct of Business at Stockholder Meetings.     
        (a)   Unless otherwise determined by the Board of Directors, one of the following shall preside over each meeting of stockholders, in the following order of precedent: (1) the Chairman of the Board of Directors; (2) the Chief Executive Officer; (3) the President; or (4) a chairman of the meeting chosen by a majority of the stockholders present at the meeting.
        (b)   Unless otherwise determined by the Board of Directors, at each meeting of the stockholders, the Secretary, or an Assistant Secretary, shall act as secretary of the meeting and keep the minutes thereof. In the absence of the Secretary, or an Assistant Secretary, the chairman of the meeting shall appoint a person to act as secretary of the meeting and keep the minutes thereof.
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        (c)   The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, (1) establishing an agenda or order of business for the meeting; (2) rules and procedures for maintaining order at the meeting and the safety of those present; (3) limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit; (4) restrictions on entry to the meeting after the time fixed for the commencement thereof; (5) limitations on the time allotted for questions or comments by participants; and (6) regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
        2.14     No Stockholder Action by Written Consent.     
        Subject to the rights of any holders of preferred stock to act by written consent instead of a meeting as permitted in the Certificate of Incorporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders 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.

 ARTICLE III
BOARD OF DIRECTORS
        3.1     Powers.     The powers of the Corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
        3.2     Number.     
        Subject to any limitations imposed by the Certificate of Incorporation, the authorized number of Directors of the Corporation shall be fixed from time to time by the Board of Directors by resolution duly adopted by the Board of Directors, except that in the absence of such resolution, such number shall be one.
        3.3     Election and Term of Office.     
        (a)   Except as provided below in Section 3.4, the Directors shall be elected by a plurality vote of the shares represented in person or by proxy at each annual meeting of the stockholders, but if any such annual meeting is not held or the Directors are not elected thereat, the Directors may be elected at any special meeting of stockholders held for that purpose. All elections of Directors shall be by written ballot unless otherwise provided in the Certificate of Incorporation. If authorized by the Board of Directors, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder. No person entitled to vote at an election for Directors may cumulate votes.
        (b)   The Directors of the Corporation shall be divided into three classes, as nearly equal in number as reasonably possible, with the Directors in each class to hold office until their successor are elected and qualified. At each annual meeting of stockholders, the successor to the class of Directors whose term shall then expire shall be elected to hold office for a three-year term. If the number of
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Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. A Director shall hold office until the annual meeting for the year in which his or her term expires or until his or her successor shall be elected and shall qualify, subject however, to prior death, resignation, retirement, disqualification or removal from office.
        (c)   Directors need not be stockholders of the Corporation. Notwithstanding the foregoing, no person shall be elected to serve as a Director if such person is in a management position with or a director of a direct competitor of the Corporation.
        3.4     Vacancies.     
        (a)   Unless otherwise provided in the Certificate of Incorporation: (1) vacancies and newly created directorships resulting from any increase in the authorized number of Directors elected by all of the stockholders having the right to vote as a single class may be filled only by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director; and (2) whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more Directors by the Certificate of Incorporation, vacancies and newly created Directorships of such class or classes or series may be filled only by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected.
        (b)   Unless otherwise provided in the Certificate of Incorporation, when one or more Directors shall resign from the board, effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office as provided in this section in the filling of other vacancies.
        (c)   If at any time, by reason of death or resignation or other cause, the Corporation should have no Directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
        3.5     Resignation.     
        Any Director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall take effect at the time of its receipt by the Corporation unless another time is fixed in the resignation in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective.
        3.6     Removal.     
        Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the Directors of the Corporation may be removed from office by the stockholders at any annual or special meeting of stockholders of the Corporation, the notice of which shall state that the removal of a Director or Directors is among the purposes of the meeting, but only for cause, by the affirmative vote of at least a majority of the outstanding shares of common stock of the Corporation.
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        3.7     Meetings.     
        (a)   Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all Directors. A notice of each regular meeting shall not be required.
        (b)   Special meetings of the Board of Directors may be called by one-third ( 1 / 3 ) of the Directors then in office (rounded up to the nearest whole number) or by the Chief Executive Officer and shall be held at such place, on such date, and at such time as they or he or she shall fix.
        (c)   Notice of the time and place of special meetings shall be (1) delivered personally by hand, by courier or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages; (2) sent by United States first-class mail, postage prepaid; (3) sent by facsimile; or (4) sent by electronic mail or other means of electronic transmission, directed to each Director at that Director's address, telephone number, facsimile number, electronic mail address or other means of contact through electronic transmission, as the case may be, as shown on the Corporation's records. If the notice is (A) delivered personally by hand, by courier or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, (B) sent by facsimile or (C) sent by electronic mail or other means of electronic transmission, it shall be sent in a manner designed to be delivered at least 24 hours before the time of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least three days before the time of the meeting. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation's principal executive office) nor the purpose of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
        3.8     Organization.     
        (a)   At every meeting of the Directors, the Chairman of the Board of Directors, or in the absence of the Chairman of the Board of Directors, a chairman of the meeting chosen by a majority of the Directors present, shall preside over the meeting. The Secretary, or in the absence of the Secretary, an Assistant Secretary, or in the absence of an Assistant Secretary, a secretary of the meeting chosen by the chairman of the meeting, shall act as secretary of the meeting and take the minutes thereof.
        (b)   To promote the free exchange of ideas and candid discussions, only Directors are entitled to be present at meetings of the Board of Directors, provided that the Board of Directors may invite non-Directors to attend such meetings. Any non-Director shall be excluded from a meeting of the Board of Directors at any time by a majority vote of the Directors present at the meeting.
        3.9     Participation by Conference Telephone or Electronic Video Screen Communication.     
        The Board of Directors of the Corporation may hold its meetings, and have an office or offices, within or without the State of Delaware. Members of the Board of Directors of the Corporation, or any committee designated by the board, may participate in a meeting of such board or committee by means of conference telephone or electronic video screen communication or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.9 shall constitute presence in person at the meeting.
        3.10     Quorum.     
        A majority of the total number of Directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. The vote of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater
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number is required by law or by the Certificate of Incorporation. Whether or not a quorum is present, a majority of the Directors present at a meeting may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.
        3.11     Action by Unanimous Written Consent.     
        Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors, or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
        3.12     Compensation of Directors.     
        The Board of Directors shall have the authority to fix the compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of committees of the Board of Directors.

 ARTICLE IV
COMMITTEES
        4.1     Committees of the Board of Directors.     
        (a)   The Board of Directors may designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
        (b)   Any such committee, to the extent permitted by law and provided in the resolution of the Board of Directors or these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matter: (1) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of Directors) expressly required by the DGCL to be submitted to stockholders for approval; or (2) adopting, amending or repealing any bylaw of the Corporation.
        (c)   Unless otherwise provided in the Certificate of Incorporation or the resolutions establishing a committee, or in the charter of a committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
        4.2     Organization.     
        (a)   Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law: adequate provision shall be made for notice to members of all meetings; one-third ( 1 / 3 ) of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof
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consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.
        (b)   To promote the free exchange of ideas and candid discussions, only committee members are entitled to be present at committee meetings, provided that the committee may invite non-committee members to attend such meetings. Any non-committee member shall be excluded from a meeting of the committee at any time by a majority vote of the committee members present at the meeting.

 ARTICLE V
OFFICERS
        5.1     Officers.     
        The officers of the Corporation shall consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, and a Chief Financial Officer. The Board of Directors may also appoint a Chairman of the Board (who shall be a Director), one or more Assistant Secretaries, Assistant Chief Financial Officers, and such other officers and agents with such powers and duties as it shall deem necessary from time to time in accordance with this Article V. Any number of offices may be held by the same person.
        5.2     Election of Officers, Vacancies.     
        The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3, shall be elected by the Board of Directors, and each shall hold office until such officer resigns, is removed or otherwise disqualified to serve, or such officer's successor is elected and qualified. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office.
        5.3     Subordinate Officers.     
        The Board of Directors may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers as the business of the Corporation may require, each of whom shall have such powers and perform such duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. Each officer appointed pursuant to this Section 5.3 shall hold office until such officer resigns, is removed or otherwise disqualified to serve, or such officer's successor is appointed and qualified.
        5.4     Removal and Resignation.     
        (a)   Any officer may be removed either with or without cause, by the Board of Directors, at any regular or special meeting thereof. Any officer appointed pursuant to Section 5.3 by the Chief Executive Officer or the President may be removed by the Chief Executive Officer, or in the absence of a Chief Executive Officer, the President, unless such power of removal is expressly withheld by the Board of Directors.
        (b)   Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
        5.5     Delegation of Authority.     
        The Board of Directors may from time to time delegate the powers or duties of any officer of the Corporation to any other officers, agents, or Directors, notwithstanding any provision hereof.
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        5.6     Chief Executive Officer.     
        Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the Chief Executive Officer of the Corporation shall have general supervision, direction and control of the business and officers of the Corporation. The Chief Executive Officer shall, in the absence of the Chairman of the Board, or if there be none, preside at all meetings of the Board of Directors. The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors.
        5.7     Chairman of the Board.     
        The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the Board of Directors.
        5.8     President.     
        The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation, other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, and shall perform all duties and have all powers that are commonly incident to the office of president of a corporation or that are delegated to the President by the Board of Directors.
        5.9     Vice President.     
        Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One Vice President shall be designated by the board to perform the duties and exercise the powers of the President in the event of the President's absence or disability.
        5.10     Chief Financial Officer.     
        (a)   Unless otherwise designated by the Board of Directors, the Chief Financial Officer shall be the Treasurer of the Corporation and shall be deemed to perform all the functions of the "Treasurer" as contemplated by the DGCL. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any Director.
        (b)   The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Corporation as are authorized, shall render to the Chief Executive Officer, the President and Directors, whenever they request it, an account of the transactions by the Corporation and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe.
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        5.11     Secretary.     
        (a)   The Secretary shall keep or cause to be kept, at a principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of Directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
        (b)   The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
        (c)   The Secretary shall give, or cause to be given, notice of all meetings of stockholders and of the Board of Directors required by these Bylaws or by law to be given, and shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe.
        5.12     Other Elected Officers.     
        The other officers elected by the Board of Directors pursuant to Section 5.2 shall, respectively, have such powers and perform such duties as may from time to time be prescribed for them by the Board of Directors, the Chief Financial Officer or the President.
        5.13     Action with Respect to Securities of Other Corporations.     
        Unless otherwise directed by the Board of Directors, the Chief Executive Officer or any officer of the Corporation authorized by the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

 ARTICLE VI
STOCK
        6.1     Stock Certificates.     
        (a)   The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or, if such certificate has been lost, stolen or destroyed, the procedures required by the Corporation in Section 6.6 shall have been followed). Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chief Executive Officer, or the President or Vice-President, and by the Chief Financial Officer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Corporation shall not have power to issue a certificate in bearer form.
        (b)   If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional, or other
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special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 6.3, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. In the case of uncertificated shares, within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Section 6.1 or Sections 6.2(b), 6.3 and 6.4, with respect to this section a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
        6.2     Issuance of Stock; Lawful Consideration.     
        (a)   Shares of stock may be issued for such consideration, having a value not less than the par value thereof, as determined from time to time by the Board of Directors. Treasury shares may be disposed of by the Corporation for such consideration as may be determined from time to time by the Board of Directors. The consideration for subscriptions to, or the purchase of, the capital stock to be issued by the Corporation shall be paid in such form and in such manner as the Board of Directors shall determine. The Board of Directors may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the Corporation, or any combination thereof. In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such consideration shall be conclusive. The capital stock so issued shall be deemed to be fully paid and nonassessable stock upon receipt by the Corporation of such consideration; provided, however, nothing contained herein shall prevent the Board of Directors from issuing partly paid shares in accordance with Section 6.2(b).
        (b)   The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
        6.3     Restrictions on Transfer and Ownership of Securities.     
        A written restriction or restrictions on the transfer or registration of transfer of a security of the Corporation, or on the amount of the Corporation's securities that may be owned by any person or group of persons, if permitted by the DGCL and noted conspicuously on the certificate or certificates representing the security or securities so restricted or, in the case of uncertificated shares, contained in the notice or notices sent pursuant to Section 6.1, may be enforced against the holder of the restricted security or securities or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate or certificates representing the security or securities so restricted or, in the case of uncertificated shares, contained in the notice or notices sent pursuant to Section 6.1, a restriction, even though permitted by this section, is ineffective except against a person with actual knowledge of the restriction.
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        6.4     Voting Trusts and Voting Agreements.     
        (a)   One stockholder or two or more stockholders may by agreement in writing deposit capital stock of an original issue with or transfer capital stock to any person or persons, or entity or entities authorized to act as trustee, for the purpose of vesting in such person or persons, entity or entities, who may be designated voting trustee, or voting trustees, the right to vote thereon for any period of time determined by such agreement, upon the terms and conditions stated in such agreement.
        (b)   The agreement may contain any other lawful provisions not inconsistent with such purpose. After the filing of a copy of the agreement in the registered office of the Corporation in the State of Delaware, which copy shall be open to the inspection of any stockholder of the Corporation or any beneficiary of the trust under the agreement daily during business hours, certificates of stock or uncertificated stock shall be issued to the voting trustee or trustees to represent any stock of an original issue so deposited with such voting trustee or trustees, and any certificates of stock or uncertificated stock so transferred to the voting trustee or trustees shall be surrendered and cancelled and new certificates or uncertificated stock shall be issued therefore to the voting trustee or trustees. In the certificate so issued, if any, it shall be stated that it is issued pursuant to such agreement, and that fact shall also be stated in the stock ledger of the Corporation.
        (c)   The voting trustee or trustees may vote the stock so issued or transferred during the period specified in the agreement. Stock standing in the name of the voting trustee or trustees may be voted either in person or by proxy, and in voting the stock, the voting trustee or trustees shall incur no responsibility as stockholder, trustee or otherwise, except for their own individual malfeasance. In any case where two or more persons or entities are designated as voting trustees, and the right and method of voting any stock standing in their names at any meeting of the Corporation are not fixed by the agreement appointing the trustees, the right to vote the stock and the manner of voting it at the meeting shall be determined by a majority of the trustees, or if they be equally divided as to the right and manner of voting the stock in any particular case, the vote of the stock in such case shall be divided equally among the trustees.
        6.5     Transfers of Shares.     
        (a)   Registration of transfer of shares of stock of the Corporation shall be effected on the books of the Corporation as follows:
        (1)     Certificated Shares.     In the case of certificated shares, upon authorization by the registered holder of share certificates representing such shares of stock, or by his attorney authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or with a designated transfer agent or certificate being transferred, which certificate shall be properly and fully endorsed or accompanied by a duly executed stock transfer power, and otherwise in proper form for transfer, and the payment of all transfer taxes thereon. Whenever a certificate is endorsed by or accompanied by a stock power executed by someone other than the person or persons named in the certificate, evidence of authority to transfer shall also be submitted with the certificate. Notwithstanding the foregoing, such surrender, proper form for transfer or payment of taxes shall not be required in any case in which the officers of the Corporation determine to waive such requirement.
        (2)     Uncertificated Shares.     In the case of uncertificated shares of stock, upon receipt of proper and duly executed transfer instructions from the registered holder of such shares, or by his attorney authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or with a designated transfer agent or transfer clerk, the payment of all transfer taxes thereon, and compliance with appropriate procedures for transferring shares in uncertificated form. Whenever such transfer instructions are executed by someone other than the person or persons named in the books of the Corporation as the holder thereof, evidence of authority to transfer
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shall also be submitted with such transfer instructions. Notwithstanding the foregoing, such payment of taxes or compliance shall not be required in any case in which the officers of the Corporation determine to waive such requirement.
        (b)   No transfer of shares of capital stock shall be made on the books of this Corporation if such transfer is in violation of a lawful restriction noted conspicuously on the certificate. No transfer of shares of capital stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
        6.6     Lost, Stolen or Destroyed Certificates.     
        The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
        6.7     Fixing Date for Determination of Stockholders of Record.     
        (a)   In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
        (b)   In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 ARTICLE VII
MISCELLANEOUS
        7.1     Form of Records.     
        Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records under the DGCL.
        7.2     Reliance upon Books, Reports and Records.     
        A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such member's duties, be fully protected in relying in good faith
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upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
        7.3     Facsimile Signatures.     
        In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
        7.4     Corporate Seal.     
        The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Chief Financial Officer or by an Assistant Secretary or Assistant Chief Financial Officer.
        7.5     Fiscal Year.     
        The fiscal year of the Corporation shall be as fixed by the Board of Directors.
        7.6     Time Periods.     
        In applying any provision of these Bylaws which requires that an act be done or not be done in a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
        7.7     Construction and Definitions.     
        Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of the foregoing the masculine gender include the feminine and neuter, the singular number includes the plural and the plural number includes the singular,

 ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
        8.1     Indemnification—Third Party Proceedings.     
        The Corporation shall indemnify any person (the "Indemnitee") who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a Director or officer of the Corporation, or any subsidiary of the Corporation, and the Corporation may indemnify a person who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that such person is or was an employee or other agent of the Corporation (the "Indemnitee Agent") by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, Director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 8.19, attorneys' fees and any expenses of establishing a right to indemnification pursuant to this ARTICLE VIII or under the DGCL), judgments, fines, settlements (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) and other amounts
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actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with such proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, if Indemnitee or Indemnitee Agent had no reasonable cause to believe Indemnitee's or Indemnitee Agent's conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee or Indemnitee Agent did not act in good faith and in a manner which Indemnitee or Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the Corporation, or with respect to any criminal proceedings, would not create a presumption that Indemnitee or Indemnitee Agent had reasonable cause to believe that Indemnitee's or Indemnitee Agent's conduct was unlawful.
        8.2     Indemnification—Proceedings by or in the Right of the Corporation.     
        The Corporation shall indemnify Indemnitee and may indemnify Indemnitee Agent if Indemnitee, or Indemnitee Agent, as the case may be, was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Corporation or any subsidiary of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee or Indemnitee Agent is or was a Director, officer, employee or other agent of the Corporation, or any subsidiary of the Corporation, by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, Director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 8.19, attorneys' fees and any expenses of establishing a right to indemnification pursuant to this ARTICLE VIII or under the DGCL) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with the defense or settlement of the proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent believed to be in or not opposed to the best interests of the Corporation and its stockholders, except that no indemnification shall be made with respect to any claim, issue or matter to which Indemnitee or Indemnitee Agent shall have been adjudged to have been liable to the Corporation in the performance of Indemnitee's or Indemnitee Agent's duty to the Corporation and its stockholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee or Indemnitee Agent is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.
        8.3     Successful Defense on Merits.     
        To the extent that Indemnitee or Indemnitee Agent without limitation has been successful on the merits in defense of any proceeding referred to in Section 8.1 and Section 8.2 above, or in defense of any claim, issue or matter therein, the Corporation shall indemnify Indemnitee or Indemnitee Agent against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection therewith.
        8.4     Certain Terms Defined.     
        For purposes of this ARTICLE VIII, references to "other enterprises" shall include employee benefit plans, references to "fines" shall include any excise taxes assessed on Indemnitee or Indemnitee Agent with respect to an employee benefit plan, and references to "proceeding" shall include any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. References to "Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee, or other agent of such a constituent corporation or who, being or having been such a director, officer, employee or other agent of another corporation, partnership, joint
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venture, trust or other enterprise shall stand in the same position under the provisions of this ARTICLE VIII with respect to the resulting or surviving corporation as such person would if he or she had served the resulting or surviving corporation in the same capacity.
        8.5     Advancement of Expenses.     
        The Corporation shall advance all expenses incurred by Indemnitee and may advance all or any expenses incurred by Indemnitee Agent in connection with the investigation, defense, settlement (excluding amounts actually paid in settlement of any action, suit or proceeding) or appeal of any civil or criminal action, suit or proceeding referenced in Section 8.1 and Section 8.2 above. Indemnitee or Indemnitee Agent hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that Indemnitee or Indemnitee Agent is not entitled to be indemnified by the Corporation as authorized hereby. The advances to be made hereunder shall be paid by the Corporation (i) to Indemnitee within 20 days following delivery of a written request therefor by Indemnitee to the Corporation; and (ii) to Indemnitee Agent within 20 days following the later of a written request therefor by Indemnitee Agent to the Corporation and determination by the Corporation to advance expenses to Indemnitee Agent pursuant to the Corporation's discretionary authority hereunder.
        8.6     Notice of Claim.     
        Indemnitee shall, as a condition precedent to his or her right to be indemnified under this ARTICLE VIII, and Indemnitee Agent shall, as a condition precedent to his or her ability to be indemnified under this ARTICLE VIII, give the Corporation notice in writing as soon as practicable of any claim made against Indemnitee or Indemnitee Agent, as the case may be, for which indemnification will or could be sought under this ARTICLE VIII. Notice to the Corporation shall be given by hand delivery or by mail and shall be directed to the Secretary of the Corporation at the principal business office of the Corporation (or such other address as the Corporation shall designate in writing to Indemnitee). In addition, Indemnitee or Indemnitee Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's or Indemnitee Agent's power.
        8.7     Enforcement Rights.     
        Any indemnification provided for in Section 8.1, 8.2 or 8.3 shall be made no later than 60 days after receipt of the written request of Indemnitee. If a claim or request under this ARTICLE VIII, under any statute, or under any provision of the Certificate of Incorporation providing for indemnification is not paid by the Corporation, or on its behalf, within 60 days after written request for payment thereof has been received by the Corporation, Indemnitee may, but need not, at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or request, and subject to Section 8.19, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Corporation to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Corporation, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 8.5 unless and until such defense may be finally adjudicated by court order or judgment for which no further right of appeal exists. The parties hereto intend that if the Corporation contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be a decision for the court, and no presumption regarding whether the applicable standard has been met will arise based on any determination or lack of determination of such by the Corporation (including its Board or any subgroup thereof, independent legal counsel or its stockholders). The Board of Directors may, in its discretion, provide by resolution for similar or identical enforcement rights for any Indemnitee Agent.
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        8.8     Assumption of Defense.     
        In the event the Corporation shall be obligated to pay the expenses of any proceeding against the Indemnitee or Indemnitee Agent, as the case may be, the Corporation, if appropriate, shall be entitled to assume the defense of such proceeding with counsel approved by Indemnitee or Indemnitee Agent, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee or Indemnitee Agent of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee or Indemnitee Agent and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee or Indemnitee Agent under this ARTICLE VIII for any fees of counsel subsequently incurred by Indemnitee or Indemnitee Agent with respect to the same proceeding, unless (1) the employment of counsel by Indemnitee or Indemnitee Agent is authorized by the Corporation, (2) Indemnitee or Indemnitee Agent shall have reasonably concluded that there may be a conflict of interest of such counsel retained by the Corporation between the Corporation and Indemnitee or Indemnitee Agent in the conduct of such defense, or (3) the Corporation ceases or terminates the employment of such counsel with respect to the defense of such proceeding, in any of which events then the fees and expenses of Indemnitee's or Indemnitee Agent's counsel shall be at the expense of the Corporation. At all times, Indemnitee or Indemnitee Agent shall have the right to employ other counsel in any such proceeding at Indemnitee's or Indemnitee Agent's expense.
        8.9     Approval of Expenses.     
        No expenses for which indemnity shall be sought under this ARTICLE VIII, other than those in respect of judgments and verdicts actually rendered, shall be incurred without the prior consent of the Corporation, which consent shall not be unreasonably withheld.
        8.10     Subrogration.     
        In the event of payment under this ARTICLE VIII, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee or Indemnitee Agent, who shall do all things that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.
        8.11     Exceptions.     
        Notwithstanding any other provision herein to the contrary, the Corporation shall not be obligated pursuant to this ARTICLE VIII:
        (a)     Excluded Acts.     To indemnify Indemnitee (i) as to circumstances in which indemnity is expressly prohibited pursuant to the DGCL, or (ii) for any acts or omissions or transactions from which a Director may not be relieved of liability pursuant to the DGCL; or
        (b)     Claims Initiated by Indemnitee.     To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this ARTICLE VIII or any other statute or law or as otherwise required under the DGCL, but such indemnification or advancement of expenses may be provided by the Corporation in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or
        (c)     Lack of Good Faith.     To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this ARTICLE VIII, if a court of competent jurisdiction determines that such proceeding was not made in good faith or was frivolous; or
        (d)     Insured Claims.     To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
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amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Corporation; or
        (e)     Claims Under Section 16(b).     To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the 1934 Act, as amended, or any similar successor statute.
        8.12     Partial Indemnification.     
        If Indemnitee is entitled under any provision of this ARTICLE VIII to indemnification by the Corporation for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.
        8.13     Coverage.     
        This ARTICLE VIII shall, to the extent permitted by law, apply to acts or omissions of (1) Indemnitee which occurred prior to the adoption of this ARTICLE VIII if Indemnitee was a Director or officer of the Corporation or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred; and (2) Indemnitee Agent which occurred prior to the adoption of this ARTICLE VIII if Indemnitee Agent was an employee or other agent of the Corporation or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise at the time such act or omission occurred. All rights to indemnification under this ARTICLE VIII shall be deemed to be provided by a contract between the Corporation and the Indemnitee in which the Corporation hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the Certificate of Incorporation, these Bylaws or by statute. Any repeal or modification of these Bylaws, the DGCL or any other applicable law shall not affect any rights or obligations then existing under this ARTICLE VIII. The provisions of this ARTICLE VIII shall continue as to Indemnitee and Indemnitee Agent for any action taken or not taken while serving in an indemnified capacity even though the Indemnitee or Indemnitee Agent may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. This ARTICLE VIII shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee Agent and Indemnitee's and Indemnitee Agent's estate, heirs, legal representatives and assigns.
        8.14     Non-Exclusivity.     
        Nothing herein shall be deemed to diminish or otherwise restrict any rights to which Indemnitee or Indemnitee Agent may be entitled under the Certificate of Incorporation, these Bylaws, any agreement, any vote of stockholders or disinterested Directors, or under the laws of the State of Delaware.
        8.15     Severability.     
        Nothing in this ARTICLE VIII is intended to require or shall be construed as requiring the Corporation to do or fail to do any act in violation of applicable law. If this ARTICLE VIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee or Indemnitee Agent to the fullest extent permitted by any applicable portion of this ARTICLE VIII that shall not have been invalidated.
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        8.16     Mutual Acknowledgement.     
        Both the Corporation and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Corporation from indemnifying its Directors and officers under this ARTICLE VIII or otherwise. Indemnitee understands and acknowledges that the Corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Corporation's right under public policy to indemnify Indemnitee.
        8.17     Officer and Director Liability Insurance.     
        The Corporation shall, from time to time, make the good faith determination whether or not it is practicable for the Corporation to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and Directors of the Corporation with coverage for losses from wrongful acts, or to ensure the Corporation's performance of its indemnification obligations under this ARTICLE VIII. Among other considerations, the Corporation will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. Notwithstanding the foregoing, the Corporation shall have no obligation to obtain or maintain such insurance if the Corporation determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Corporation.
        8.18     Notice to Insurers.     
        If, at the time of the receipt of a notice of a claim pursuant to Section 8.6 hereof, the Corporation has director and officer liability insurance in effect, the Corporation shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
        8.19     Attorneys' Fees.     
        In the event that any action is instituted by Indemnitee under this ARTICLE VIII to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that the action was not instituted in good faith or was frivolous. In the event of an action instituted by or in the name of the Corporation under this ARTICLE VIII, or to enforce or interpret any of the terms of this ARTICLE VIII, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that Indemnitee's defenses to such action were not made in good faith or were frivolous. The Board of Directors may, in its discretion, provide by resolution for payment of such attorneys' fees to any Indemnitee Agent.

 ARTICLE IX
AMENDMENTS
        These Bylaws may be amended or repealed by the Board of Directors at any meeting or by the stockholders at any meeting.
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 CERTIFICATE OF SECRETARY
        The undersigned hereby certifies that:
        1.     He is the secretary of BRIDGEPOINT EDUCATION, INC., a Delaware corporation; and
        2.     The foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by the Board of Directors on                                    , 2009.
        IN WITNESS WHEREOF, I have executed this Certificate of Secretary as of                                    , 2009.

 	 	/s/

[                                    ]	
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QuickLinks
Exhibit 3.4
FORM OF SECOND AMENDED AND RESTATED BYLAWS OF BRIDGEPOINT EDUCATION, INC. a Delaware corporation
ARTICLE I OFFICES
ARTICLE II STOCKHOLDERS
ARTICLE III BOARD OF DIRECTORS
ARTICLE IV COMMITTEES
ARTICLE V OFFICERS
ARTICLE VI STOCK
ARTICLE VII MISCELLANEOUS
ARTICLE VIII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
 ARTICLE IX AMENDMENTS
CERTIFICATE OF SECRETARY

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 Exhibit 4.2

 TELEUNIVERSITY, INC.
REGISTRATION RIGHTS AGREEMENT
        REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of November 26, 2003, among Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership, and its successors and assigns ("Warburg Pincus"), the Persons who appear on Schedule I hereto (the "Other Holders", and together with Warburg Pincus, the "Holders") and TeleUniversity, Inc., a Delaware corporation (d/b/a Chatter Learning) (the "Company").

 R E C I T A L S
        WHEREAS, Warburg Pincus has, pursuant to the terms of the Securities Purchase Agreement, dated as of November 26, 2003, with the Company (the "Purchase Agreement"), agreed to purchase shares of Series A Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Series A Preferred Stock");
        WHEREAS, the shares of Series A Preferred Stock are convertible into shares of common stock, par value $0.01 per share, of the Company (the "Common Stock");
        WHEREAS, the Other Holders, pursuant to the terms of certain agreements (collectively, the "Prior Agreements") have acquired shares of Common Stock or were granted rights to acquire shares of Common Stock and were granted certain registration rights with respect to such shares;
        WHEREAS, it is a condition to the obligations of Warburg Pincus under the Purchase Agreement that the parties hereto enter into this Agreement in its entirety; and
        WHEREAS, the Company and the Holders desire to define the registration rights of the Holders on the terms and subject to the conditions herein set forth.
        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;
         Exchange Act:     shall mean the Securities Exchange Act of 1934, as amended;
         Initial Public Offering:     shall mean the initial public offering of shares of Common Stock pursuant to a registration under the Securities Act;
         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 (A) shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock, (B) any shares of Common Stock acquired by the Holders, other than those acquired upon the exercise of employee stock options, and (C) any stock of the Company
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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;
         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, 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, 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 disbursements of counsel for each of the Holders other than fees and expenses of one counsel for all the Holders in an amount not to exceed $25,000.

 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 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; 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
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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, 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 President 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.
        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.     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).
        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. 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 shares held by such Other Holder), 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. 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
3

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.
        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 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 after receipt 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. In the event any Holder requests inclusion in a registration pursuant to this Section 2(B) 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, and (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). 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 officers, directors and 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
4

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 shares held by such holder), by such minimum number of shares as is necessary to comply with such limitation. If any of the participating equity holders of the Company disapprove of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.
        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 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 shall provide a reasonable opportunity for other Holders to 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
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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 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,
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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 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
7

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.
        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 securityholders. 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
8

        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.
        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, provided that:
        1.     such agreement only applies to the Initial Public Offering; and
        2.     all 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 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 (without giving effect to the provisions of Rule 144(k)) 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.

 SECTION 3. COVENANTS OF THE PARTIES
        Each of the Other Holders who are parties to the Prior Agreements set forth on Schedule II hereto 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 Agreements set forth on Schedule II, and that the provisions of such Prior Agreements related to such subject matter and set forth on Schedule II 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.     
        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.
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        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 466 Lexington Avenue, New York, NY 10017 (facsimile: (212) 716-5142), Attention: Ryan Craig, 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 I hereto, or at such other address or facsimile number as may have been furnished the Company and Warburg Pincus in writing; and
        (c)   if to the Company, at 4350 E. Camelback Road, B-240, Phoenix, AZ 85018 (facsimile: (602) 553-2728), 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 Lewis and Roca LLP, 40 N. Central Ave., Phoenix, AZ 85004 (facsimile: (602) 734-3745), Attention: Scott DeWald, 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.
        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) sand 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.
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        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.

 	 	TELEUNIVERSITY, INC.	

 	
By:	
 	
/s/ Scott Turner

Name: Scott Turner
Title: Chief Executive Officer	

					
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

By:	
 	
WARBURG PINCUS & CO.,
General Partner	

By:	
 	
/s/ MIMI H. STROUSE

Name: Mimi H. Strouse
Title: Managing Director	

OTHER HOLDERS:	

By:	
 	
/s/ Andrew Clark

Name: Andrew Clark
Title:	

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Exhibit 4.2
TELEUNIVERSITY, INC. REGISTRATION RIGHTS AGREEMENT
R E C I T A L S
SECTION 1. DEFINITIONS
SECTION 2. REGISTRATION RIGHTS
SECTION 3. COVENANTS OF THE PARTIES
SECTION 4. MISCELLANEOUS

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 Exhibit 4.3
TELEUNIVERSITY, INC.

STOCKHOLDERS AGREEMENT
        Stockholders Agreement ("Agreement"), dated as of this 26th day of November, 2003, among the institutional investors listed on Schedule I hereto (the "New Investors"); the Persons whose names and addresses appear from time to time on Schedule II hereto (the "Management Investors"); the Persons whose names and addresses appear from time to time on Schedule III hereto (the "Other Investors"); and TeleUniversity Inc., Delaware corporation (the "Company"). The New Investors, the Management Investors and the Other Investors are hereinafter collectively referred to as the "Investors".

 R E C I T A L S
        WHEREAS, the New Investors have, pursuant to the terms of Securities Purchase Agreement, dated November 26, 2003, with the Company (the "Purchase Agreement") agreed to purchase shares of Series A Convertible Preferred Stock, par value $0.01 per share of the Company (the "Preferred Stock");
        WHEREAS, the Management Investors and Other Investors Own, pursuant to the terms of certain agreements (collectively, the "Prior Agreements" and, together with the Purchase Agreement, the "Subscription Agreements") or the Purchase Agreement shares of Preferred Stock and/or common stock, par value $0.0l per share, of the Company (the "Common Stock" and together with the Preferred Stock, the "Shares") or other Equity Securities of the Company (collectively, the "Securities");
        WHEREAS, it is condition to the obligations of the New Investors under the Purchase Agreement that the parties hereto enter into this Agreement in its entirety; and
        WHEREAS, the Investors and the Company desire to promote their mutual interests by agreeing to certain matters relating to the operations of the Company and the disposition and voting of the Shares.
        NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained the parties hereto hereby agree as follows:
1.     COVENANTS OF THE PARTIES.
        (a)     Legends.     The certificates evidencing the Securities acquired by the Investors pursuant to the Subscription Agreements will bear the following legend reflecting the restrictions on the transfer of such securities contained in this Agreement.
"The securities evidenced hereby are subject to the terms of that certain Stockholders Agreement, dated as of November 26, 2003, as amended, by and among the Company and certain investors identified therein (the "Agreement"), including certain restrictions on transfer. A copy of the Agreement has been filed with the Secretary of the Company and is available upon request."
        As promptly as practicable after the date hereof, the Investors shall deliver all certificates representing any Securities held beneficially and of record by such Investor to the Company to enable the Company to place the foregoing legend on such certificates.
        (b)     Additional Investors.     The parties hereto acknowledge that certain employees of the Company and other Persons may become stockholders or Security holders of the Company after the date hereof, pursuant to the exercise of options or otherwise. As a condition to the issuance of shares of capital stock of the Company or Securities to them, such Persons shall, and the shares of capital stock of the Company and Securities shall, immediately become subject to the terms and provisions of this Agreement, by executing and delivering to the Company a joinder agreement in substantially the form
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attached hereto as Exhibit A (a "Joinder Agreement"), pursuant to which the such Persons will thereupon become a party to, and be bound by and obligated to comply with the terms and provisions of this Agreement.
        (c)     Prior Agreements.     Each of the Management Investors and the Other Investors who are parties to the Prior Agreements set forth on Schedule IV hereto hereby acknowledges and agrees that this Agreement and the Registration Rights Agreement (as defined in the Purchase Agreement) constitute the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior understandings relating to such subject matter, including the Prior Agreements, and that the provisions of such Prior Agreements related to such subject matter and set forth on Schedule IV are terminated and all rights thereunder waived as of the date hereof, with no further liabilities or obligations relating thereto on the part of any party thereto.
        (d)     Chief Executive Officer.     Following the Initial Closing (as defined in the Purchase Agreement), in the event the Board (as herein defined) does not approve Warburg Pincus' nominee for Chief Executive Officer of the Company, Warburg Pincus shall retain an executive search firm acceptable to Warburg Pincus in its own discretion, at its own expense, to identify additional candidates for such position.
2.     BOARD OF DIRECTORS.
        (a)     Election of Directors.     
        (i)     Initial Closing —As of the date hereof, the Board of Directors of the Company (the "Board") will consist of Scott Turner, Wayne Clugston and Ryan Craig. From and until the Second Closing (as defined in the Purchase Agreement) of the first issuance of the Second Closing Shares (as defined in the Purchase Agreement), the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, required to cause the Board to consist of up to three (3) members or such other number as the Board may from time to time establish, and at all times throughout such period to include (x) one (1) representative designated by Warburg Pincus (a "Warburg Pincus Director"), (y) Scott Turner and (z) Wayne Clugston.
        (ii)    Second Closing —Following the Second Closing of the first issuance of the Second Closing Shares until the Second Closing of the second issuance of the Second Closing Shares, the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, required to cause the Board to consist of up to four (4) members or such other number as the Board may from time to time establish, and at all times throughout such period to include (x) two (2) Warburg Pincus Directors, (y) Scott Turner and (z) the Chief Executive Officer of the Company. Following the Second Closing relating to the second issuance of the Second Closing Shares until the Third Closing (as defined in the Purchase Agreement), the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, required to cause the Board to consist of up to five (5) members or such other number as the Board may from time to time establish, and at all times throughout such period to include (x) the individuals specified in the foregoing sentence and (y) one (1) representative mutually designated by Warburg Pincus and the Management Investors (an "Independent Director").
        (iii)   Third Closing —From and after the Third Closing, the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, required to cause the Board to consist of up to six (6) members or such other number as the Board may from time to time establish, and at all times throughout such period to include (i) three (3) Warburg Pincus Directors, (ii) Scott Turner,
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(iii) the Chief Executive Officer of the Company and (iv) one (1) Independent Director. Upon the New Investors and the Subsequent Investors (as defined in the Purchase Agreement) purchasing 6,333,333 shares of Preferred Stock in the aggregate, Warburg Pincus shall have the right to designate a majority of the members of the Board and the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, required to cause the Warburg Pincus Directors to constitute a majority of the Board, including increasing the number of members of the Board.
        (iv)   Qualified Public Offering —From the date on which the Company completes a Qualified Public Offering for shares of Common Stock pursuant to a registration under the Securities Act, and for as long as Warburg Pincus Owns at least twenty percent (20%) of the Common Stock, the Company will nominate and use its best efforts to have two individuals designated by Warburg Pincus and reasonably acceptable to the Company elected to the Board. From the date on which the Company completes its Qualified Public Offering and for as long as Warburg Pincus Owns at least ten percent (10%) of the outstanding shares of Common Stock, the Company will nominate and use its best efforts to have one individual designated by Warburg Pincus and reasonably acceptable to the Company elected to the Board.
        (b)     Replacement Directors.     In the event that any Warburg Pincus Director, Scott Turner, the Chief Executive Officer of the Company or Independent Director designated in the manner set forth in Section 2(a) hereof is unable to serve, or once having commenced to serve, is removed or withdraws from the Board (a "Withdrawing Director"), such Withdrawing Director's replacement (the "Substitute Director") will be designated by Warburg Pincus in the case of any Warburg Directors, the Management Investors in the case of Scott Turner or the Chief Executive Officer of the Company, or mutually by Warburg Pincus and the Management Investors in the case of an Independent Director. The Investors and the Company agree to take all action within their respective power, including but not limited to, the voting of capital stock of the Company Owned by them, (i) to cause the election of such Substitute Director promptly following his or her nomination pursuant to this Section 2(b), (ii) upon the written request of Warburg Pincus, to remove, with or without cause, the Warburg Pincus Director, (iii) upon the written request of the Management Investors, to remove, with or without cause, a Substitute Director designated by the Management Investors or (iv) upon the written request of Warburg Pincus and the Management Investors, to remove, with or without cause, Scott Turner, the Chief Executive Officer of the Company or the Independent Director. Notwithstanding the foregoing, in the event Scott Turner is no longer employed by the Company, the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, to remove Scott Turner from the Board and replace him pursuant to this Section 2(b).
        (c)     Board Observers.     
        (i)    (w) Warburg Pincus shall have the right to appoint two (2) observers (the "Warburg Pincus Observers"), (x) from the date hereof until the 30-month anniversary of such date, Scott Turner and Wayne Clugston shall have the right to appoint themselves observers (each, a "Management Observer"), (y) from the date hereof until the New Investors and the Subsequent Investors purchase 15,333,333 shares of Preferred Stock in the aggregate, the Other Investors Owning a majority of those shares of Common Stock Owned by such Other Investors shall have the right to appoint one (1) observer (the "Other Investor Observer") and (z) Roberts Wesleyan College shall have the right to appoint one (1) observer subject to the terms and conditions of the Consent of Roberts Wesleyan College Including Amendment to License, dated November 12, 2003, between Roberts Wesleyan College and the Company (the "RWC Observer" and, together with the Warburg Pincus Observers, the Management Observers and the Other Investor Observer, the "Observers"), who, subject to their entering into a confidentiality agreement substantially similar to Section 4 hereof, may attend and participate in all meetings of the Board or the board of any
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subsidiary of the Company, and, in the case of the Warburg Pincus Observers, any committees thereof; provided that the aforementioned Investors will notify the Company from time to time of the identity of their respective Observers and such Observer's address (including facsimile) for communications; and further provided that any Observer may be excluded from any such meeting (unless such Observer is also a director serving on the board in question at such time or, in the case of a Warburg Pincus Observer, the committee in question) to the extent the board or committee in question determines in good faith that such exclusion is required to preserve any evidentiary privilege, or any portion of any such meeting during which the respective interests of the Company or the subsidiary in question and those of one or more of the Investors who appointed the Observer in question conflict as to the matter(s) to be discussed or actions to be taken (in the good faith judgment of the board or committee in question).
        (ii)   The Observers shall receive each of the following items at the same time and in the same manner as such items are delivered to the members of the Board and each subsidiary board, and, in the case of the Warburg Pincus Observers, the members of the committees of such boards:
        (A)  notice of each meeting of the Board and each subsidiary board, and, in the case of the Warburg Pincus Observers, the committees thereof;
        (B)  minutes of each meeting of the Board and each subsidiary board, and, in the case of the Warburg Pincus Observers, the committees thereof; and
        (C)  the agenda and all other documents and materials distributed to the members of the Board and each subsidiary board, and, in the case of the Warburg Pincus Observers, the committees thereof, in connection with any action to be taken by the Board or such subsidiary board, and, in the case of the Warburg Pincus Observers, the committees thereof, as applicable.
        (d)     Board Committees.     
        (i)    From the date hereof, the Board shall create and maintain a Compensation Committee and an Audit Committee of the Board.
        (ii)   From the date hereof, in the event the Board establishes any committee thereof, including the Compensation Committee and Audit Committee, (i) such committee shall have at least one (1) Warburg Pincus Director as a member and (ii) following the Third Closing, a majority of the members of such committee shall be Warburg Pincus Directors.
        (iii)  From the date hereof, in the event the Board and its Compensation Committee establish a management equity plan under which options to purchase shares of Common Stock shall be issued to management of the Company, such plan shall contain customary vesting and other provisions; provided however the strike price for such options shall not be less than the quotient of $3,545,000 divided by the number of shares of issued and outstanding Common Stock immediately prior to the Initial Closing, excluding any and all issued and outstanding options and warrants.
        (e)     Board Meetings.     From and after the date hereof, the Company shall cause the Board to hold meetings no less frequently than once every two months; provided however, following the Third Closing and upon the majority of the Board consisting of Warburg Pincus Directors, subject to the approval of Warburg Pincus, such meetings shall be held no less frequently than once every three months.
        (f)     Director Compensation.     The parties hereto agree and acknowledge that no Warburg Pincus Director shall receive any compensation or expense reimbursement, including without limitation director fees and reimbursement of out-of-pocket expenses, related to his services as a director of the Company.
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3.     TRANSFER OF STOCK.
        (a)     Resale of Securities.     No Investor shall Transfer any Securities, including any rights thereunder, other than in accordance with the provisions of this Section 3. Any Transfer or purported Transfer made in violation of this Section 3 shall be null and void and of no effect.
        (b)     Restrictions on Transfer.     
        (i)    Unless approved by the Board, no Management Investor or Other Investor shall be permitted to Transfer, directly or indirectly, any Securities Owned by him or it except to a Permitted Transferee, provided that in each instance such Permitted Transferee agrees in writing to be bound by the provisions of this Agreement as if such Permitted Transferee were an original signatory hereto.
        (ii)   Notwithstanding the foregoing subsection (i), (x) Louis Falcigno shall have the right to Transfer up to 200,000 shares of Common Stock Owned by him in the aggregate to Vecki Merila, provided that in such instance Ms. Merila agrees in writing to be bound by the provisions of this Agreement as if she were an original signatory hereto, (y) Michael Clifford shall have the right to Transfer up to 600,000 shares of Common Stock Owned by him in the aggregate to Mr. Falcigno pursuant to the terms of a Pledge Agreement, dated November 1, 2003, by and among such persons and (z) William C. Turner, Trustee of the Turner Trust, dated January 7, 1982, as amended, shall have the right-to transfer any and all shares of Common Stock Owned by such trust in his capacity as Trustee of said trust to Scott C. Turner.
        (c)     Tag-Along Rights.     
        (i)    Following the Third Closing, so long as Warburg Pincus Owns at least 50% of the outstanding Common Stock, in the event Warburg Pincus intends to Transfer more than 25% of any of its Shares (other then Transfers to any Permitted Transferee or to the Company), Warburg Pincus shall notify the other Investors (the "Tag-Along Investors"), in writing, of such proposed Transfer and its terms and conditions. Within ten (10) business days of the date of such notice, each other Tag-Along Investor shall notify Warburg Pincus if it elects to participate in such Transfer. Any Tag-Along Investor that fails to notify Warburg Pincus within such ten (10) business day period shall be deemed to have waived its rights hereunder.
        (ii)   Each Tag-Along Investor that so notifies Warburg Pincus shall have the right to sell, (x) in the case of a proposed sale of Common Stock, at the same price per share and on the same terms and conditions as Warburg Pincus, a number of shares of Common Stock equal to the number of shares of Common Stock the third party actually proposes to purchase multiplied by a fraction, the numerator of which shall be the number of Shares Owned by such Tag-Along Investor and the denominator of which shall be the aggregate number of Shares Owned by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c) (assuming full conversion of all shares of Preferred Stock held by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c)) and (y) in the case of a proposed sale of Preferred Stock, (1) Tag-Along Investors holding shares of Preferred Stock shall have the right to sell such stock at the same price per share and on the same terms and conditions as Warburg Pincus, a number of shares of Preferred Stock which convert into the number of shares of Common Stock equal to the number of shares of Preferred Stock the third party actually proposes to purchase multiplied by a fraction, the numerator of which shall be the number of Shares Owned by such Tag-Along Investor and the denominator of which shall be the aggregate number of Shares Owned by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c) (assuming full conversion of all shares of Preferred Stock proposed to be sold and all shares of Preferred Stock held by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c)) and (2) Tag-Along Investors holding shares of Common Stock, shall have the right to sell such stock at a price per share equal to the proposed price per share of Preferred Stock multiplied by a fraction, the
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numerator of which shall be one and the denominator of which shall be the number of shares of Common Stock into which each share of Preferred Stock converts, and on the same terms and conditions as Warburg Pincus, a number of shares of Common Stock equal to the number of shares of Preferred Stock the third party actually proposes to purchase multiplied by a fraction, the numerator of which shall be the number of Shares Owned by such Tag-Along Investor and the denominator of which shall be the aggregate number of Shares Owned by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c) (assuming full conversion of all shares of Preferred Stock proposed to be sold and all shares of Preferred Stock held by Warburg Pincus and each Tag-Along Investor exercising its rights under this Section 3(c)). Tag-Along Investors holding both Preferred and Common Stock who elect to participate in a sale of Preferred Stock shall be able to include such number of Shares (assuming full conversion of all shares of Preferred Stock being included in such sales by the Tag-Along Investor) as calculated pursuant to (2) above with the Preferred Stock being included having the same price per share of Preferred Stock as Warburg Pincus, provided however, that such Tag-Along Investors shall only transfer shares of Common Stock to the extent the number of Shares allowed to be included in such Preferred Stock sale by such an Investor exceeds the number of shares of Common Stock into which such Investor's Preferred Stock converts at such price per share calculated pursuant to (2) above.
        (iii)  Notwithstanding anything contained in this Section 3(c), in the event that all or a portion of the purchase price consists of securities and the sale of such securities to the Tag-Along Investors would require either a registration under the Securities Act or the preparation of a disclosure document pursuant to Regulation D under the Securities Act (or any successor regulation) or a similar provision of any state securities law, then, at the option of Warburg Pincus, any one or more of the Tag-Along Investors may receive, in lieu of such securities, the fair market value of such securities, as determined in good faith by the Board, in cash from Warburg Pincus or the respective transferee.
        (d)     Drag Along Right.     
        (i)    Following the Third Closing, so long as Warburg Pincus Owns at least 50% of the outstanding Common Stock, if at any time and from time to time after the date of this Agreement, Warburg Pincus wishes to (x) Transfer in a bona fide arms' length sale all of its Shares to any Person or Persons who are non-Affiliates of the Company or Warburg Pincus, (y) approve any merger of the Company with or into any other Person who is a non-Affiliate of the Company or Warburg Pincus, or (z) approve any sale of all or substantially all of the Company's assets to any Person or Persons who are non-Affiliates of the Company or Warburg Pincus (for purposes of this Section 3(d), such Person or Persons are referred to as the "Proposed Transferee"), Warburg Pincus shall have the right (for purposes of this Section 3(d), the "Drag-Along Right") to (A) in the case of a Transfer of the type referred to in clause (x), require each other Investor to sell to the Proposed Transferee all of his or its Shares (including any warrants or options to acquire Shares) for the same per share consideration as proposed to be received by Warburg Pincus (less, in the case of options or warrants, the exercise price for such options or warrants) then Owned by such Investor or (B) in the case of a merger or sale of assets referred to in clauses (y) or (z), require each other Investor to vote all Shares then Owned by such other Investor in favor of such transaction and to waive any appraisal or similar rights. Each Investor agrees to take all steps necessary to enable him or it to comply with the provisions of this Section 3(d) to facilitate the Warburg Pincus' exercise of a Drag-Along Right.
        (ii)   To exercise a Drag-Along Right, Warburg Pincus shall give each other Investor a written notice (for purposes of this Section 3(d), a "Drag-Along Notice") containing (x) the name and address of the Proposed Transferee and (y) the proposed purchase price, terms of payment and other material terms and conditions of the Proposed Transferee's offer. Each other Investor shall
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thereafter be obligated to sell or vote its Shares (including any warrants or options Owned by such Investor), provided that the sale to the Proposed Transferee is consummated within ninety (90) days of delivery of the Drag-Along Notice. If the sale or merger is not consummated within such 90-day period, then each other Investor shall no longer be obligated to sell such Investor's Shares pursuant to that specific Drag-Along Right but shall remain subject to the provisions of this Section 3(d).
        (iii)  Notwithstanding anything contained in this Section 3(d), in the event that all or a portion of the purchase price consists of securities and the sale of such securities to the Investors would require either a registration under the Securities Act or the preparation of a disclosure document pursuant to Regulation D under the Securities Act (or any successor regulation) or a similar provision of any state securities law, then, at the option of Warburg Pincus, the Investors may receive, in lieu of such securities, the fair market value of such securities, as determined in good faith by the Board, in cash from Warburg Pincus or the respective transferee, surviving Person or purchaser, as the case may be.
        (e)     Subscription Right.     
        (i)    If at any time after the date hereof, the Company proposes to issue equity securities of any kind (the term "equity securities" shall include for these purposes any warrants, options or other rights to acquire equity securities and debt securities convertible into equity securities) of the Company (other than the issuance of securities (v) pursuant to options and warrants outstanding as of the date of this Agreement, (w) pursuant to a stock-for-stock acquisition of another Person that has been approved by the Board, (x) upon conversion of the Preferred Stock pursuant to the Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate"), (y) pursuant to an employee stock option plan, stock bonus plan, stock purchase plan or other management equity program approved by the Board, or (z) pursuant to the terms of the Purchase Agreement), then, as to each Investor who then Owns Preferred Stock, the Company shall:
        (A)  give written notice setting forth in reasonable detail (1) the designation and all of the terms and provisions of the securities proposed to be issued (the "Proposed Securities"), including, where applicable, the voting powers, preferences and relative participating, optional or other special rights, and the qualification, limitations or restrictions thereof and interest rate and maturity; (2) the price and other terms of the proposed sale of such securities; (3) the amount of such securities proposed to be issued; and (4) such other information as such Investors may reasonably request in order to evaluate the proposed issuance; and
        (B)  offer to issue to each such Investor a portion of the Proposed Securities equal to a percentage determined by dividing (x) the number of shares of Common Stock Owned by such Investor, by (y) the total number of shares of Common Stock then outstanding, including for purposes of this calculation all shares of Common Stock outstanding on a fully diluted, as converted basis.
        (ii)   Each such Investor must exercise its purchase rights hereunder within ten (10) days after receipt of such notice from the Company. If all of the Proposed Securities offered to such Investors are not fully subscribed by such Investors, the remaining Proposed Securities will be reoffered to the Investors purchasing their full allotment upon the terms set forth in this Section 3(e), until all such Proposed Securities are fully subscribed for or until all such Investors have subscribed for all such Proposed Securities which they desire to purchase, except that such Investors must exercise their purchase rights within five (5) days after receipt of all such reoffers. To the extent that the Company offers two or more securities in units, such Investors must purchase such units as a whole and will not be given the opportunity to purchase only one of the securities making up such unit.
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        (iii)  Upon the expiration of the offering periods described above, the Company will be free to sell such Proposed Securities that such Investors have not elected to purchase during the ninety (90) days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to such holders. Any Proposed Securities offered or sold by the Company after such 90-clay period must be reoffered to such Investors pursuant to this Section 3(e).
        (iv)  The election by such an Investor not to exercise its subscription rights under this Section 3(e) in any one instance shall not affect its right (other than in respect of a reduction in its percentage holdings) as to any subsequent proposed issuance. Any sale of such securities by the Company without first giving such investors the rights described in this Section 3(e) shall be void and of no force and effect.
4.     CONFIDENTIALITY.
        As to so much of the information and other material furnished under or in connection with this Agreement and the Subscription Agreements (whether furnished before, on or after the date hereof, including without limitation information furnished pursuant to Sections 8.1 and 8.2 of the Purchase Agreement) as constitutes or contains confidential business, financial or other information of the Company or any subsidiary, each of the Investors covenants for itself and its directors, officers and partners that it will avoid (and, in the case of an Investor who is not an individual, will use due care to prevent its officers, directors, partners, employees, counsel, accountants and other representatives) from disclosing such information to Persons other than their respective authorized employees, counsel, accountants, shareholders, partners, limited partners and other authorized representatives and from using such information for any purpose other than to monitor its investment in the Company; provided , however , that each Investor may disclose or deliver any information or other material disclosed to or received by it should such Investor be advised by its counsel that such disclosure or delivery is required by law, regulation or judicial or administrative order. In the event of any termination of any Subscription Agreement, each Investor who is a party to such agreement shall return to the Company all confidential material previously furnished to such Investor or its officers, directors, partners, employees, counsel, accountants and other representatives in connection with this transaction. For purposes of this Section 4, "due care" means at least the same level of care that such Investor would use to protect the confidentiality of its own sensitive or proprietary information, and this obligation shall survive termination of this Agreement.
5.     TERMINATION.
        (a)   Sections 2(a)(i), (ii) and (iii), 2(b), 2(c), 2(d), 3 and 7(a) of this Agreement shall terminate upon the closing of a Qualified Public Offering.
        (b)   This Agreement shall terminate on the date on which (i) each New investor and (ii) the Other Investors and Management Investors Owning a majority of those shares of Common Stock (excluding for this purpose then-outstanding options and warrants) Owned by such Other Investors and Management Investors shall have agreed in writing to terminate this Agreement. Notwithstanding the foregoing, Section 4 of this Agreement shall survive the termination of this Agreement.
6.     INTERPRETATION OF THIS AGREEMENT.
        (a)     Terms Defined.     As used in this Agreement, the following terms have the respective meaning set forth below:
         Affiliate: shall mean any Person or entity, directly or indirectly controlling, controlled by or under common control with such Person or entity.
         Exchange Act: shall mean the Securities Exchange Act of 1934, as amended.
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         Equity Securities: shall have the meaning set forth in Section 3(a)(1) of the Exchange Act.
         Owns, Own, Owning or Owned: shall mean beneficial ownership, assuming the conversion of all outstanding securities convertible into Common Stock and the exercise of all outstanding options and warrants to acquire Common Stock.
         Permitted Transferee: shall mean, in the case of any Investor (i) a spouse, ancestor or descendant (including adoptive children) (an "Immediate Family Member") of such Investor, (ii) an Affiliate of such Investor, or such Investor's Immediate Family Members, or (iii) a family trust for the benefit of such Investor's Immediate Family Members, or (iv) an entity the majority of whose interests are owned at all times by such Investor or such Investor's Immediate Family Members.
         Person: shall mean an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof.
         Qualified Public Offering: shall have the meaning set forth in the Restated Certificate.
         Securities Act: shall mean the Securities Act of 1933, as amended.
         Transfer: shall mean any sale, assignment, pledge, hypothecation, or other disposition or encumbrance.
         Warburg Pincus: shall mean Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership, and its successors and assigns
        (b)     Accounting Principles.     Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with U.S. generally accepted accounting principles at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement.
        (c)     Share Splits.     Any Share number in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend, recapitalization or similar event occurring after the date hereof.
        (d)     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.
        (e)     Governing Law.     This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State.
        (f)     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.
7.     MISCELLANEOUS.
        (a)     Injunctive Relief.     The Company and the Investors hereby declare that it is impossible to measure in money the damages which will accrue to the parties hereto by reason of the failure of any Investor to perform any of its obligations set forth in Sections 2 and 3. Therefore, the Company and the Investors shall have the right to specific performance of such obligations, and if any party hereto shall institute any action or proceeding to enforce the provisions hereof, each of the Company and the Investors hereby waives the claim or defense that the party instituting such action or proceeding has an adequate remedy at law.
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        (b)     Notices.     
        (i)    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 any of the Investors, at the address or facsimile number of such Investor shown on Schedule 1, Schedule II or Schedule III hereto, as the case may be, or at such other address as the Investor may have furnished the Company and the other Investors in writing; and
        (B)  if to the Company, at 4350 E. Camelback Road, B-240, Phoenix, AZ 85018 (facsimile: (602) 553-2728), Attention: Chief Executive Officer, or at such other address or facsimile number as it may have furnished the Investors in writing.
        (ii)   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.
        (c)     Reproduction of Documents.     This Agreement and all documents relating thereto, including, without limitation, (i) consents, waivers and modifications which may hereafter be executed, (ii) documents received by each Investor pursuant hereto and (iii) financial statements, certificates and other information previously or hereafter furnished to each Investor, may be reproduced by each Investor by a photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and each Investor may destroy any original document so reproduced. All 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 each Investor in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
        (d)     Successors and Assigns.     This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties.
        (e)     Entire Agreement Amendment and Waiver.     This Agreement, the Purchase Agreement and the Registration Rights Agreement constitute the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior understandings among such parties. The provisions of the Prior Agreements relating to such subject matter and set forth on Schedule IV 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 Investors in a manner different than the New Investors, with the consent of the other Investors holding a majority of the shares of Common Stock Owned by such other Investors on an as converted basis.
        (f)     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.
        (g)     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 parties hereto have executed this Agreement as of the date first above written.

 	 	 	 	 	
 	 	TELEUNIVERSITY, INC.	

 	
By:	
 	
/s/ SCOTT TURNER
	
 	 	Name: Scott Turner	
 	 	Title: Chief Executive Officer	

 	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

 	
By:	
 	
Warburg Pincus & Co.,
General Partner	

 	
By:	
 	
/s/ MIMI H. STROUSE
	
 	 	Name: Mimi Strouse	
 	 	Title: Managing Director	

 	
By:	
 	
/s/ ANDREW CLARK
	
 	 	Name: Andrew Clark	

 AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
        THIS AMENDMENT NO. 1 (this " Amendment "), dated as of January 20, 2006 is made to that certain STOCKHOLDERS AGREEMENT (the " Agreement "), dated as of November 26, 2003, among Bridgepoint Education, Inc. (f/k/a TeleUniversity, Inc.) (the " Company ") and the Investors (as defined therein). Capitalized terms used herein and not otherwise defined have the meaning ascribed thereto in the Agreement.

 W I T N E S S E T H:
        WHEREAS, the Company desires to amend certain employment agreements with certain Management Investors and Other Investors, with respect to the number of options to be issued to such persons under such agreements and the terms thereof as set forth in the several First Amendment to Employment Agreement, as applicable, dated the date hereof (the " Employment Amendments "); and
        WHEREAS, in connection with the Employment Amendments, the parties hereto desire to amend the Agreement as set forth herein, in accordance with Section 7(e) of the Agreement with the written consent of the Company and Warburg Pincus.
        NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
        SECTION 1.     Management Equity Plan.     Section 2(d)(iii) of the Agreement is hereby amended by deleting its entirety and inserting the following in lieu thereof:
        "(iii) Intentionally Omitted."
        SECTION 2.     Management Investors.     Schedule II of the Agreement is hereby amended by deleting its entirety and inserting, in lieu thereof Exhibit A attached hereto.
        SECTION 3.     Other Investors.     Schedule III of the Agreement is hereby amended by deleting its entirety and inserting, in lieu thereof, Exhibit B attached hereto.
        SECTION 4.     Miscellaneous.     
        4.1.     Successors and Assigns     
        This Amendment shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.
        4.2.     Entire Agreement; Amendment and Waiver     
        This Amendment constitutes the entire understandings of the parties hereto and supersedes all prior agreements or understandings with respect to the subject matter hereof among such parties. This Amendment may be amended, and the observance of any term of this Amendment 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 Investors in a manner different than the New Investors, with the consent of the other Investors holding a majority of the shares of Common Stock Owned by such other Investors on an as converted basis.
        4.3.     Severability     
        In the event that any part or parts of this Amendment 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 Amendment which shall remain in full force and effect.
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        4.4.     Counterparts     
        This Amendment 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.
        4.5.     Agreement in Full Force and Effect; Internal References     
        Except as expressly amended hereby, the Agreement remains in full force and effect. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby.
        4.6.     Governing Law     
        This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State.
[Remainder of Page Left Intentionally Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above.

 	 	 	 	 	
 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ ANDREW S. CLARK
	
 	 	 	 	Name:  Andrew S. Clark	
 	 	 	 	Title:    Chief Executive Officer	

 	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

 	
By:	
 	
Warburg Pincus Partners LLC,
General Partner	

 	
By:	
 	
WARBURG PINCUS & CO.,
Managing Member	

 	
By:	
 	
/s/ MIRIAM H. STROUSE
	
 	 	 	 	Name:  Miriam H. Strouse	
 	 	 	 	Title:    Managing Director	
[Signature Page to Amendment No. 1 to Stockholders Agreement]
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 AMENDMENT NO. 2 TO
STOCKHOLDERS AGREEMENT
        THIS AMENDMENT NO. 2 (this " Amendment No. 2 "), dated as of February 14th, 2007 is made to that certain STOCKHOLDERS AGREEMENT, as amended (the " Agreement "), dated as of November 26, 2003, among Bridgepoint Education, Inc. (f/k/a TeleUniversity, Inc.) (the " Company ") and the Investors (as defined therein). Capitalized terms used herein and not otherwise defined have the meaning ascribed thereto in the Agreement.

 W I T N E S S E T H:
        WHEREAS, the Company desires to amend Section 2(b), Schedule II and Schedule III of the Agreement (all as described below) (collectively the " Amendments "); and
        WHEREAS, in connection with the Amendments, the parties hereto desire to amend the Agreement as set forth herein, in accordance with Section 7(e) of the Agreement with the written consent of the Company and Warburg Pincus.
        NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
        SECTION 1.     Replacement Directors.     Section 2(b) of the Agreement is hereby amended by deleting its entirety and inserting the following in lieu thereof:
        "b)     Replacement Directors.     In the event that any Warburg Pincus Director, Scott Turner, the Chief Executive Officer of the Company or Independent Director designated in the manner set forth in Section 2(a) hereof is unable to serve, or once having commenced to serve, is removed or withdraws from the Board (a "Withdrawing Director"), such Withdrawing Director's replacement (the "Substitute Director") will be designated by (w) Warburg Pincus in the case of any Warburg Pincus Directors, (x) the Chief Executive Officer in the case of Scott Turner or any of his successors, (y) Warburg Pincus in the case of the Chief Executive Officer of the Company, and (z) mutually by Warburg Pincus and the Chief Executive Officer in the case of an Independent Director. The Investors and the Company agree to take all action within their respective power, including but not limited to, the voting of capital stock of the Company Owned by them, (i) to cause the election of such Substitute Director promptly following his or her nomination pursuant to this Section 2(b), (ii) upon the written request of Warburg Pincus, to remove, with or without cause, the Warburg Pincus Director, (iii) upon the written request of the Chief Executive Officer, to remove, with or without cause, Scott Turner or any of his successors, (iv) upon the written request of Warburg Pincus, to remove, with or without cause, the Chief Executive Officer of the Company and (v) upon the written request of Warburg Pincus and the Chief Executive Officer, to remove, with or without cause, the Independent Director. Notwithstanding the foregoing, in the event Scott Turner is no longer employed by the Company, the Investors and the Company shall take all action within their respective power, including but not limited to, the voting of all shares of capital stock of the Company Owned by them, to remove Scott Turner from the Board and replace him pursuant to this Section 2(b)."
        SECTION 2.     Management Investors.     Schedule II of the Agreement is hereby amended by deleting its entirety and inserting, in lieu thereof Exhibit A attached hereto.
        SECTION 3.     Other Investors.     Schedule III of the Agreement is hereby amended by deleting its entirety and inserting, in lieu thereof, Exhibit B attached hereto.
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        SECTION 4.     Miscellaneous.     
        4.1.     Successors and Assigns     
        This Amendment No. 2 shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.
        4.2.     Entire Agreement; Amendment and Waiver     
        This Amendment No. 2 constitutes the entire understandings of the parties hereto and supersedes all prior agreements or understandings with respect to the subject matter hereof among such parties. This Amendment No. 2 may be amended, and the observance of any term of this Amendment No. 2 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 Investors in a manner different than the New Investors, with the consent of the other Investors holding a majority of the shares of Common Stock Owned by such other Investors on an as converted basis.
        4.3.     Severability     
        In the event that any part or parts of this Amendment No. 2 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 Amendment No. 2, which shall remain in full force and effect.
        4.4.     Counterparts     
        This Amendment No. 2 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.
        4.5.     Agreement in Full Force and Effect; Internal References     
        Except as expressly amended hereby, the Agreement remains in full force and effect. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby.
        4.6.     Governing Law     
        This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State.
[Remainder of Page Left Intentionally Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 as of the date first set forth above.

 	 	 	 	 	
 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ ANDREW S. CLARK
	
 	 	 	 	Name:  Andrew S. Clark	
 	 	 	 	Title:    Chief Executive Officer	

 	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

 	
By:	
 	
Warburg Pincus Partners LLC,
General Partner	

 	
By:	
 	
WARBURG PINCUS & CO.,
Managing Member	

 	
By:	
 	
/s/ MIRIAM H. STROUSE
	
 	 	 	 	Name:  Miriam Strouse	
 	 	 	 	Title:    Managing Director	
[Signature Page to Amendment No. 2 to Stockholders Agreement]

 AMENDMENT NO. 3 TO
STOCKHOLDERS AGREEMENT
        THIS AMENDMENT NO. 3 (this " Amendment No. 3 "), dated as of November 27, 2007 is made to that certain STOCKHOLDERS AGREEMENT, as amended (the " Agreement "), dated as of November 26, 2003, among Bridgepoint Education, Inc. (f/k/a TeleUniversity, Inc.) (the " Company ") and the Investors (as defined therein). Capitalized terms used herein and not otherwise defined have the meaning ascribed thereto in the Agreement.

 W I T N E S S E T H:
        WHEREAS, the Company desires to amend Schedule III of the Agreement (the " Amendment "); and
        WHEREAS, in connection with the Amendment, the parties hereto desire to amend the Agreement as set forth herein, in accordance with Section 7(e) of the Agreement with the written consent of the Company and Warburg Pincus.
        NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
        SECTION 1.     Other Investors.     Schedule III of the Agreement is hereby amended by deleting its entirety and inserting, in lieu thereof, Exhibit A attached hereto.
        SECTION 2.     Miscellaneous.     
        2.1.     Successors and Assigns     
        This Amendment No. 3 shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.
        2.2.     Entire Agreement; Amendment and Waiver     
        This Amendment No. 3 constitutes the entire understandings of the parties hereto and supersedes all prior agreements or understandings with respect to the subject matter hereof among such parties. This Amendment No. 3 may be amended, and the observance of any term of this Amendment No. 3 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 Investors in a manner different than the New Investors, with the consent of the other Investors holding a majority of the shares of Common Stock Owned by such other Investors on an as converted basis.
        2.3.     Severability     
        In the event that any part or parts of this Amendment No. 3 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 Amendment No. 3, which shall remain in full force and effect.
        2.4.     Counterparts     
        This Amendment No. 3 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.
1

        2.5.     Agreement in Full Force and Effect; Internal References     
        Except as expressly amended hereby, the Agreement remains in full force and effect. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby.
        2.6.     Governing Law     
        This Amendment No. 3 shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State.
[Remainder of Page Left Intentionally Blank]
2

        IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 3 as of the date first set forth above.

 	 	 	 	 	
 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ ANDREW S. CLARK
	
 	 	 	 	Name:  Andrew S. Clark	
 	 	 	 	Title:    Chief Executive Officer	

 	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.	

 	
By:	
 	
Warburg Pincus Partners LLC,
General Partner	

 	
By:	
 	
WARBURG PINCUS & CO.,
Managing Member	

 	
By:	
 	
/s/ ADARSH SARMA
	
 	 	 	 	Name:  Adarsh Sarma	
 	 	 	 	Title:    Principal	
[Signature Page to Amendment No. 3 to Stockholders Agreement]
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QuickLinks
Exhibit 4.3
TELEUNIVERSITY, INC. STOCKHOLDERS AGREEMENT
R E C I T A L S
 AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
W I T N E S S E T H
 AMENDMENT NO. 2 TO STOCKHOLDERS AGREEMENT
W I T N E S S E T H
 AMENDMENT NO. 3 TO STOCKHOLDERS AGREEMENT
W I T N E S S E T H

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 Exhibit 10.1
BRIDGEPOINT EDUCATION, INC.
AMENDED AND RESTATED 2005 STOCK INCENTIVE PLAN
        1.     Purpose of the Plan.     The purpose of this Bridgepoint Education, Inc. Amended and Restated 2005 Stock Incentive Plan is to offer certain Employees, Non-Employee Directors, and Consultants the opportunity to acquire a proprietary interest in the Company. Through the Plan, the Company and its Affiliates seek to attract, motivate, and retain highly competent persons. The success of the Company and its Affiliates are dependent upon the efforts of these persons. The Plan provides for the grant of options and awards to purchase Common Stock. An option granted under the Plan may be a Non-Statutory Stock Option or an Incentive Stock Option, as determined by the Administrator.
        2.     Definitions.     As used herein, the following definitions shall apply.
        "Act" shall mean the Securities Act of 1933, as amended.
        "Administrator" shall mean the Board or any one of the Committees.
        "Affiliate" shall mean, with respect to any entity, any other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such entity.
        "Award" shall mean an Option or a Stock Purchase Award.
        "Board" shall mean the Board of Directors of the Company.
        "Cause" shall have the meaning provided for in the Participant's employment or service agreement with the Company. If "Cause" is not defined in the Participant's employment or service agreement, or the Participant does not have an employment or service agreement with the Company, then "Cause" shall mean (i) incompetence, fraud, personal dishonesty, or acts of gross negligence or willful misconduct on the part of a Participant in the course of his or her employment or services; (ii) a Participant's engagement in conduct that is materially injurious to the Company or its Affiliates; (iii) misappropriation by a Participant of the assets or business opportunities of the Company or its Affiliates; (iv) embezzlement or other financial fraud committed by a Participant, at his or her direction, or with his or her personal knowledge; (v) a Participant's conviction by a court of competent jurisdiction of, or pleading "guilty" or "no contest" to, (x) a felony, or (y) any other criminal charge (other than minor traffic violations) which could reasonably be expected to have a material adverse impact on the Company's or an Affiliate's reputation or business; (vi) failure by a Participant to follow the lawful directions of a superior officer or the Board; or (vii) Participant's material breach of any provision of the confidentiality agreement, or of any material provision of his or her employment or service agreement.
        "Change in Control" shall mean: (i) a change in ownership or control of the Company effected through a transaction or series of related transactions (other than an offering of Company's securities to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any "person" or related "group" of "persons" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an Affiliate of the Company or the Warburg Investors, directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company's securities outstanding immediately after such acquisition; or (ii) the sale or conveyance of all or substantially all of the assets of the Company to a person who is not an Affiliate of the Company or the Warburg Investors.
        "Code" shall mean the Internal Revenue Code of 1986, as amended.
        "Committee" shall mean a committee appointed by the Board.
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        "Common Stock" shall mean the common stock of the Company, par value $0.01 per share.
        "Company" shall mean Bridgepoint Education, Inc., a Delaware corporation.
        "Consultant" shall mean any natural person who performs bona fide services for the Company or an Affiliate of the Company as a consultant or advisor, excluding Employees and Non-Employee Directors; provided, however, that such services must not be in connection with the offer or sale of securities in a capital raising transaction, and such person does not directly or indirectly promote or maintain a market for the Company's securities.
        "Date of Grant" shall mean the effective date as of which the Administrator grants an Option to an Optionee or a Stock Purchase Award to a Purchaser.
        "Disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code.
        "Employee" shall mean a common-law employee of the Company or any of its Affiliates.
        "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
        "Exercise Price" shall mean the exercise price of a share of Optioned Stock.
        "Fair Market Value" shall mean, as of any date, the fair market value of Common Stock, as determined by the Administrator in good faith with a reasonable application of a reasonable valuation method. Such determination shall be conclusive and binding on all persons.
        "Immediate Family" shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and shall include adoptive relationships.
        "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
        "Mature Shares" shall mean Shares that had been held by the Participant for a meaningful period of time such as six months or such other period of time determined by the Administrator.
        "Non-Employee Director" shall mean a non-employee member of the Board.
        "Non-Statutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option.
        "Notice of Stock Option Grant" shall mean the notice delivered by the Company to the Optionee evidencing the grant of an Option.
        "Option" shall mean a stock option granted pursuant to the Plan.
        "Option Agreement" shall mean a written agreement that evidences an Option in such form as the Administrator shall approve from time to time.
        "Optioned Stock" shall mean the Common Stock subject to an Option.
        "Optionee" shall mean any person who receives an Option.
        "Participant" shall mean an Optionee or a Purchaser.
        "Person" shall be construed broadly and shall include, without limitation, an individual, a partnership, an investment fund, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof.
        "Plan" shall mean the Bridgepoint Education, Inc. Amended and Restated 2005 Stock Incentive Plan.
2

        "Purchase Price" shall mean the purchase price of a share of Purchased Stock.
        "Purchased Stock" shall mean the Shares subject to a Stock Purchase Agreement.
        "Purchaser" shall mean any person who receives a Stock Purchase Award.
        "Qualified Public Offering" shall mean the closing of an underwritten public offering pursuant to an effective registration statement under the Act, covering the offer and sale of Common Stock for the account of the Company to the public generally in which the net proceeds to the Company are not less than $25 million, and in which the shares of Common Stock are designated for trading on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange.
        "Related Corporation" shall mean any parent or subsidiary (as those terms are defined in Code Section 424(e) and (f), respectively) of the Company.
        "Repurchase Price" shall mean:
        (a)   on or following a Participant's termination of Service other than by the Company for Cause, an amount equal to the Fair Market Value of the Shares on the date of repurchase; or
        (b)   on or following a Participant's termination of Service by the Company for Cause, the lesser of (A) the original purchase price (or Exercise Price) paid for such Shares, and (B) the Fair Market Value of the Shares on the date of repurchase.
        "Restricted Stock" shall mean Common Stock that is subject to a Right of Repurchase.
        "Right of Repurchase" shall mean the Company's right (not obligation) to repurchase Common Stock in accordance with Section 8 below.
        "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3.
        "Section 280G Approval" shall mean the stockholder approval obtained in compliance with the requirements of Code Section 280G(b)(5)(B), as amended, and any successor thereof, and the regulations or proposed regulations promulgated thereunder, as determined by the Administrator in its sole discretion.
        "Service" shall mean the performance of services for the Company (or any of its Affiliates) by an Employee, Non-Employee Director, or Consultant, as determined by the Administrator in its sole discretion. Service shall not be considered interrupted in the case of: (i) a change of status ( i.e.,  from Employee to Consultant, Non-Employee Director to Consultant, or any other combination); (ii) transfers between locations of the Company or between the Company and any of its Affiliate; or (iii) a leave of absence approved by the Company or an Affiliate. A leave of absence approved by the Company or an Affiliate shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company or an Affiliate of the Company.
        "Service Provider" shall mean an Employee, Non-Employee Director, or Consultant.
        "Share" shall mean a share of Common Stock.
        "Stockholders Agreement" shall mean the TeleUniversity, Inc. Stockholders Agreement dated November 26, 2003, as amended from time to time.
        "Stock Purchase Agreement" shall mean a written agreement that evidences a Stock Purchase Award in such form as the Administrator shall approve from time to time.
        "Stock Purchase Award" shall mean an award granted pursuant to the Plan that entitles the Purchaser to purchase Restricted Stock at the applicable Purchase Price.
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        "Taxes" shall mean the federal, state, and local income and employment tax liabilities incurred by the Participant in connection with his/her Awards.
        "10% Shareholder" shall mean the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Related Corporation).
        "Termination Date" shall mean the date on which a Participant's Service terminates, as determined by the Administrator in its sole discretion.
        "Warburg Investors" shall mean Warburg Pincus Private Equity VIII, L.P., together with any other Affiliate of Warburg Pincus & Co. that holds equity securities in the Company or its Affiliates.
        3.     Administration of the Plan.     
        (a)     Initial Plan Administration.     Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee.
        (b)     Plan Procedure after the Date, if any, upon Which the Company becomes Subject to the Exchange Act.     
        (i)     Multiple Administrative Bodies.     The Plan may be administered by different Committees with respect to different groups of Service Providers.
        (ii)     Section 162(m).     To the extent that the Administrator determines that it is desirable to qualify Awards as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee comprised solely of two or more "outside directors" within the meaning of Section 162(m) of the Code.
        (iii)     Rule 16b-3.     To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.
        (iv)     Other Administration.     Other than as provided for above, the Plan shall be administered by (A) the Board or (B) a Committee, which Committee shall be constituted to satisfy applicable laws.
        (c)     Powers of the Administrator.     Subject to the provisions of the Plan and in the case of specific duties delegated by the Administrator, and subject to the approval of relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its sole discretion:
          (i)  to determine the Fair Market Value of the Common Stock;
         (ii)  to select the Service Providers to whom Awards may, from time to time, be granted under the Plan;
        (iii)  to determine whether and to what extent Awards are granted under the Plan;
        (iv)  to determine the number of Shares that are covered by an Award;
         (v)  to approve the terms of the Option Agreement and Stock Purchase Agreement;
        (vi)  to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award. Such terms and conditions may include, but are not limited to, the Exercise Price, Purchase Price, the status of an Option (Non-Statutory Stock Option or Incentive Stock Option), the time or times when Awards may be exercised, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding the Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
4

       (vii)  to determine the method of payment of the Exercise Price and Purchase Price;
      (viii)  to delegate to others responsibilities to assist in administering the Plan; and
        (ix)  to construe and interpret the terms of the Plan, Option Agreements, Stock Purchase Agreements, and any other documents related to the Awards.
        (d)     Effect of Administrator's Decision.     All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Participants and any other holders of any Awards. The Administrator's decisions and determinations under the Plan need not be uniform and may be made selectively among Participants whether or not such Participants are similarly situated.
        (e)     Liability.     No member of the Board or Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his/her behalf in his/her capacity as a member of the Board or Committee for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Board or Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power the Company may have to indemnify them or hold them harmless.
        4.     Stock Subject To The Plan.     
        (a)     Limitations.     Subject to the adjustments provided for in Section 9 of the Plan, the maximum aggregate number of Shares that may be issued under the Plan through Awards is 45,254,291 Shares.
        (b)     Additional Shares.     In the event that any outstanding Award expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Award shall again be available for the purposes of the Plan. In the event that Shares issued under the Plan are reacquired by the Company at their original purchase price, such Shares shall again be available for the purposes of the Plan. Notwithstanding the foregoing, Shares issued under the Plan that are reacquired by the Company at their original purchase price shall not be available for the purposes of the Incentive Stock Option limitation provided for in Section 4(a) above.
        5.     Eligibility.     The persons eligible to participate in the Plan shall be limited to Employees, Non-Employee Directors, and Consultants who have the potential to impact the long-term success of the Company and its Affiliates and who have been selected by the Administrator to participate in the Plan.
        6.     Option Terms.     Each Option shall be evidenced by an Option Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, that each Option Agreement shall comply with the terms specified below. Each Option Agreement evidencing an Incentive Stock Option shall, in addition, be subject to Section 7 below.
        (a)     Exercise Price.     
          (i)  The Exercise Price of an Option shall be determined by the Administrator but shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option.
         (ii)  The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of (A) cash, (B) check, (C) Mature Shares, (D) consideration received by the Company
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under a broker assisted sale and remittance program acceptable to the Administrator, (E) such other consideration and method of payment for the issuance of Shares to the extent permitted by applicable laws and approved in writing by the Administrator prior to exercise, or (F) any combination of the foregoing methods of payment.
        (b)     Vesting.     Any Option granted hereunder shall be exercisable and shall vest at such times and under such conditions as determined by the Administrator and set forth in the Notice of Stock Option Grant and Option Agreement. An Option may not be exercised for a fraction of a Share.
        (c)     Term of Options.     No Option shall have a term in excess of 10 years measured from the Date of Grant of such Option.
        (d)     Procedure for Exercise.     An Option shall be deemed to be exercised when written notice of such exercise has been given to the Administrator in accordance with the terms of the Option Agreement by the person entitled to exercise the Option and full payment of the applicable Exercise Price and applicable Taxes for the Shares being exercised has been received by the Administrator. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Subsection (a)(ii) above.
        (e)     Effect of Termination of Service.     
        (i)     Termination of Service.     Upon termination of an Optionee's Service, other than due to death, Disability, or Cause, the Optionee may exercise his/her Option, but only on or prior to the date that is three months (or such other period provided for in the Option Agreement; provided, that such period is not less than 30 days) following the Optionee's Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration of the term of such Option, as set forth in the Notice of Stock Option Grant or the Option Agreement). If, on the Termination Date, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the non-exercisable portion of the Option shall revert to the Plan. If, after termination of Service, the Optionee does not exercise his/her Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.
        (ii)     Disability of Optionee.     In the event of termination of an Optionee's Service due to his/her Disability, the Optionee may exercise his/her Option, but only on or prior to the date that is 12 months (or such other period provided for in the Option Agreement; provided, that such period is not less than six months) following the Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant or the Option Agreement). To the extent the Optionee is not entitled to exercise the Option on the Termination Date, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.
        (iii)     Death of Optionee.     In the event that an Optionee should die while in Service, the Optionee's Option may be exercised by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only on or prior to the date that is 12 months (or such other period provided for in the Option Agreement; provided, that such period is not less than six months) following the date of death, and only to the extent that the Optionee was entitled to exercise the Option at the date of death (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant or the Option Agreement). If, at the time of death, the Optionee was not entitled to exercise his/her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquires the right to exercise the
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Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.
        (iv)     Cause.     In the event of termination of an Optionee's Service due to Cause, the Optionee's Options shall terminate on the Termination Date.
        (f)     Stockholder Rights.     Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 9 below.
        (g)     Non-transferability of Options.     Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Notwithstanding the foregoing, the Administrator, in its sole discretion, may allow an Optionee to: (i) transfer his/her Option to a trust where under Section 671 of the Code and other applicable laws, the Optionee is considered the sole beneficial owner of the Option while it is held in the trust; and (ii) gift his/her Non-Statutory Stock Option to a member of the Optionee's Immediate Family, or to an inter vivos or testamentary trust in which members of the Optionee's Immediate Family have a beneficial interest of more than 50% and which provides that such Non-Statutory Stock Option is to be transferred to the beneficiaries upon the Optionee's death.
        (h)     Change in Control.     
          (i)  Except as otherwise provided for in the Optionee's Stock Option Agreement, in the event of a Change in Control, the Company and the successor corporation, if any, may agree (without the Optionee's consent):
        (A)  that, subject to Subsection (ii) below, all Options that are outstanding on the date that immediately precedes the date of the Change in Control shall become exercisable on the date that immediately precedes the date of the Change in Control, and the Administrator shall notify the Optionees of their Options' exercisability at least 21 days prior to the date of the Change in Control so that the Optionees can decide whether or not to exercise their Options on the date that immediately precedes the date of the Change in Control. Effective as of the date of the Change in Control, the Plan shall terminate and all unexercised Options shall be cancelled;
        (B)  to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control without the payment of any consideration; provided, however, that the Administrator shall notify the Optionees of their Options' cancellation at least 21 days prior to the date of the Change in Control so that the Optionees can exercise those Options that are otherwise exercisable before they are cancelled;
        (C)  that the successor corporation or its parent shall assume the Plan and all outstanding Options effective as of the date of the Change in Control; or
        (D)  to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control and replace such Options with comparable options in the successor corporation or parent thereof (the determination of comparability shall be made by the Administrator, and its determination shall be final, binding, and conclusive).
         (ii)  Notwithstanding the foregoing, unless Section 280G Approval has been obtained, no acceleration of exercisability shall occur under Subsection (i) above to the extent that such
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acceleration would, after taking into account any other payments in the nature of compensation to which the Optionee would have a right to receive from the Company and any other Person contingent upon the occurrence of such Change in Control, result in a "parachute payment" as defined in Section 280G(b)(2) of the Code.
        (iii)  The outstanding Options shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
        7.     Incentive Stock Options.     The terms specified below shall be applicable to all Incentive Stock Options, and these terms shall, as to such Incentive Stock Options, supersede any conflicting terms in Section 6 above. Options which are not specifically designated as Incentive Stock Options when issued under the Plan shall not be subject to the terms of this Section.
        (a)     Eligibility.     Incentive Stock Options may only be granted to Employees of the Company or a Related Corporation.
        (b)     Exercise Price.     The Exercise Price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option, except as otherwise provided in Subsection (d) below.
        (c)     Dollar Limitation.     In the case of an Incentive Stock Option, the aggregate Fair Market Value of the Optioned Stock (determined as of the Date of Grant of each Option) with respect to Options granted to any Employee under the Plan (or any other option plan of the Company or any Related Corporation) that may for the first time become exercisable as Incentive Stock Options during any one calendar year shall not exceed the sum of $100,000. An Incentive Stock Option is considered to be first exercisable during a calendar year if the Incentive Stock Option will become exercisable at any time during the year, assuming that any condition on the Optionee's ability to exercise the Incentive Stock Option related to the performance of services is satisfied. If the Optionee's ability to exercise the Incentive Stock Option in the year is subject to an acceleration provision, then the Incentive Stock Option is considered first exercisable in the calendar year in which the acceleration provision is triggered. To the extent the Employee holds two or more Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Options as Incentive Stock Options shall be applied on the basis of the order in which such Options are granted. However, because an acceleration provision is not taken into account prior to its triggering, an Incentive Stock Option that becomes exercisable for the first time during a calendar year by operation of such provision does not affect the application of the $100,000 limitation with respect to any Incentive Stock Option exercised prior to such acceleration. Any Options in excess of this limitation shall automatically be treated as Non-Statutory Stock Options.
        (d)     10% Shareholder.     If any Employee to whom an Incentive Stock Option is granted is a 10% Shareholder, then the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on the Date of Grant of such Option, and the Option term shall not exceed five years measured from the Date of Grant of such Option.
        (e)     Change in Status.     In the event of an Optionee's change of status from Employee to Consultant or to Non-Employee Director, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Statutory Stock Option three months and one day following such change of status.
        (f)     Approved Leave of Absence.     For purposes of Incentive Stock Options, no leave of absence may exceed three months, unless reemployment upon expiration of such leave is provided by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Related Corporation is not so provided by statute or contract, an Optionee's employment with the
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Company shall be deemed terminated on the first day immediately following such three month period of leave for Incentive Stock Option purposes.
        8.     Stock Purchase Awards.     Each Stock Purchase Award shall be evidenced by a Stock Purchase Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, that each Stock Purchase Agreement shall comply with the terms specified below.
        (a)     Purchase Price.     
          (i)  The Purchase Price of a Stock Purchase Award shall be determined by the Administrator.
         (ii)  The consideration to be paid for the Shares to be issued upon exercise of a Stock Purchase Award, including the method of payment, shall be determined by the Administrator and may consist entirely of (A) cash, (B) check, (C) Mature Shares, (D) such other consideration and method of payment for the issuance of Shares to the extent permitted by applicable laws and approved in writing by the Administrator prior to exercise, or (E) any combination of the foregoing methods of payment.
        (b)     Purchase Period.     A Stock Purchase Award shall automatically expire on the earlier of: (i) the date that is 30 days following the Date of Grant of such Stock Purchase Award; or (ii) the date on which the Purchaser's Service is terminated.
        (c)     Procedure for Exercise.     A Stock Purchase Award shall be deemed to be exercised when written notice of such exercise has been given to the Administrator in accordance with the terms of the Stock Purchase Agreement by the person entitled to exercise the Stock Purchase Award and full payment of the applicable Purchase Price for the Shares being purchased have been received by the Administrator. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Subsection (a)(ii) above.
        (d)     Rights as a Stockholder.     Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Stock Purchase Award, notwithstanding the exercise of the Stock Purchase Award. The Company shall issue (or cause to be issued) such certificate promptly upon exercise of the Stock Purchase Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 below.
        (e)     Dividends.     The Stock Purchase Agreement may require or permit the immediate payment or investment of dividends paid on Restricted Stock.
        (f)     Non-transferability of Stock Purchase Award.     Stock Purchase Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Purchaser, only by the Purchaser.
        (g)     Right of Repurchase.     
        (i)     General Rule.     Shares issued upon exercise of a Stock Purchase Award shall be subject to the Company's right (not obligation) of repurchase such Shares at their Purchase Price. The Right of Repurchase shall be set forth in the Stock Purchase Agreement, and shall comply with the terms specified below.
        (ii)     Lapse of Right of Repurchase.     The Right of Repurchase shall lapse as the Purchaser vests in the Purchased Stock. The Purchaser shall vest in the Purchased Stock at such times and under such conditions as determined by the Administrator and set forth in the Stock Purchase Agreement.
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        (iii)     Repurchase Period.     The Company must exercise (if at all) the Right of Repurchase within the time period (if any) prescribed by applicable law.
        (iv)     Non-transferability of Restricted Stock.     The Purchaser may not sell, pledge, assign, hypothecate, transfer, or dispose of the Shares while they are subject to the Right of Repurchase.
        (v)     Additional Restrictions.     When the Right of Repurchase lapses, such Shares shall be subject to such other Company repurchase rights as the Administrator shall deem appropriate. These repurchase rights shall be set forth in the Stock Purchase Agreement, and shall comply with the terms specified below. If the Company has a right to repurchase the Purchased Stock upon termination of the Purchaser's Service, then the Company shall repurchase such Shares (if at all) at their Fair Market Value in accordance with any applicable laws. The right to repurchase the Shares at their Fair Market Value shall terminate when the Common Stock becomes publicly traded.
        (vi)     Change in Control.     Except as otherwise provided for in the Purchaser's Stock Purchase Agreement, in the event of a Change in Control, the Company and the successor corporation, if any, may agree (without the Purchaser's consent):
        (A)  to repurchase the Restricted Stock at their Purchase Price;
        (B)  that the Restricted Stock shall remain outstanding and the successor corporation or its parent will assume the Right of Repurchase;
        (C)  to exchange the Restricted Stock for comparable restricted stock in the successor corporation or its parent (the determination of comparability shall be made by the Administrator, and its determination shall be final, binding, and conclusive); or
        (D)  subject to Subsection (F) below, to vest the Purchaser in the Restricted Stock; or
        (E)  subject to Subsection (F) below, to repurchase the Restricted Stock at the Fair Market Value of the Shares on the date of the Change in Control.
        (F)  Notwithstanding the foregoing, unless Section 280G Approval has been obtained, no acceleration in vesting or repurchase shall occur under this Subsection to the extent that such acceleration or repurchase would, after taking into account any other payments in the nature of compensation to which the Purchaser would have a right to receive from the Company and any other Person contingent upon the occurrence of such Change in Control, result in a "parachute payment" as defined in Section 280G(b)(2) of the Code.
        9.     Restrictions on Stock.     
        (a)     Prohibition on Transfers.     Except as otherwise approved by the Administrator, or pursuant to subsections (b) and (c) below, notwithstanding any other provision of the Plan to the contrary, shares of Common Stock acquired by a Participant under this Plan shall be subject to the provisions of Section 20 herein.
        (b)     Stockholders Agreement.     As a condition of the exercise of any Option or the grant of any other Award hereunder, a Participant shall be required to execute and become a party to the Stockholders Agreement, to the extent not already a party thereto.
        (c)     Repurchase Rights Upon Termination of Employment.     
          (i)  If, prior to the date of a Qualified Public Offering, a Participant's Service with the Company terminates for any reason then, subject to the restrictions provided in subsection (iv) below, at any time thereafter (or as provided in subsection (iv)(B), if applicable), in addition to any repurchase right of the Company as provided in Section 8(g) above, the Company shall have the right to repurchase the shares of Common Stock received pursuant to Awards granted
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hereunder at a per share price equal to the Repurchase Price (the "Repurchase Right"). The Repurchase Right shall be exercisable upon written notice to a Participant indicating the number of shares of Common Stock to be repurchased within the period prescribed by applicable law. The certificates representing the shares of Common Stock to be repurchased shall be delivered to the Company prior to the close of business on the date specified for the repurchase.
         (ii)  If the Company exercises the Repurchase Right following a Participant's termination of Service other than (A) by the Company for Cause or (B) by a Participant's voluntary resignation, the aggregate Repurchase Price shall be paid in a lump-sum at the time of repurchase.
        (iii)  If the Company exercises the Repurchase Right following a Participant's termination of Service, (A) by the Company for Cause or (B) by such Participant, the Company shall be permitted to issue a promissory note equal to the aggregate Repurchase Price in lieu of a cash payment; provided, however, that such promissory note shall have a maturity date that does not exceed three years from the date of such repurchase, shall bear simple interest of not less than the "prime rate" in effect on the date of such repurchase, and shall be payable as to interest in equal monthly installments during the term of the note and as to principal on the maturity date. The Company shall be permitted to assign the Repurchase Right to the Warburg Investors or any of its Affiliates that are stockholders of the Company at the time of such assignment.
        10.     Adjustments Upon Changes in Capitalization.     
        (a)     Changes in Capitalization.     The number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, and the numerical limits expressed in Section 4(a), as well as the Exercise Price or Purchase Price per Share covered by each such outstanding Award, as well as the number of shares of Restricted Stock shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued and outstanding Shares, effected without the receipt of consideration by the Company. The Administrator's determination with respect to the adjustment shall be final, binding, and conclusive.
        (b)     Dissolution or Liquidation.     In the event of the proposed dissolution or liquidation of the Company that is not a Change in Control, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. In such event, the Administrator, in its discretion, may provide for a Participant to fully vest in his/her Option and the Right of Repurchase to lapse on his/her Restricted Stock. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares. To the extent it has not been previously exercised, an Award shall terminate upon such dissolution or liquidation of the Company.
        (c)     Fractional Shares.     Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Option.
        11.     Share Escrow/Legends.     Unvested Shares issued under the Plan may, in the Administrator's discretion, be held in escrow by the Company until the Participant's interest in such Shares vest or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested Shares.
        12.     Tax Withholding.     
        (a)   The Company's obligation to deliver Shares upon the exercise of an Option or deliver Shares or remove any restrictive legends upon vesting of such Shares under the Plan shall be subject to the satisfaction of all applicable federal, state and local income and employment tax withholding
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requirements. The Participant shall satisfy the tax withholding requirements pursuant to the method or methods selected by the Administrator.
        (b)   In addition to any other method selected by the Administrator, the Administrator may, in its discretion, provide any or all holders of Non-Statutory Stock Options or unvested Shares under the Plan with the right to use previously vested Shares in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their Options or the vesting of their Shares; provided, however, that this form of payment shall be limited to the withholding amount calculated using the minimum statutory rates. Such right may be provided to any such holder in either or both of the following formats:
        (i)     Stock Withholding:     The election to have the Company withhold, from the Shares otherwise issuable upon the exercise of such Non-Statutory Stock Option or the vesting of such Shares, a portion of those Shares with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory withholding rates interpreted in accordance with applicable accounting requirements.
        (ii)     Stock Delivery:     The election to deliver to the Company, at the time the Non-Statutory Stock Option is exercised or the Shares vest, one or more Shares previously acquired by such holder (other than in connection with the Option exercise or Share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory withholding rates interpreted in accordance with applicable accounting requirements.
        13.     Effective Date and Term of the Plan.     The Plan became effective as of January 20, 2006, the date of its adoption by the Board. This Plan was amended and restated as of November     , 2007. Unless sooner terminated by the Administrator, the Plan shall continue through January 19, 2016. When the Plan terminates, no Awards shall be granted under the Plan thereafter.
        14.     Time of Granting Awards.     The Date of Grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination to grant such Award, or such other date as determined by the Administrator; provided, however, that any Award granted prior to the date on which the Plan is approved by the Company's stockholders shall be subject to the stockholders' approval of the Plan. Notice of the determination shall be given to each Service Provider to whom an Award is so granted within a reasonable period of time after the date of such grant.
        15.     Amendment and Termination of the Plan.     The Board may at any time amend, alter, suspend, or discontinue the Plan or any Award, but no amendment, alteration, suspension, or discontinuation shall be made which would materially impair the rights that the Participant had earned by the time of the amendment, alteration, suspension, or discontinuation without his/her consent. In addition, to the extent necessary and desirable to comply with all applicable laws or the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.
        16.     Regulatory Approvals.     
        (a)   The implementation of the Plan, the granting of any Awards and the issuance of any Shares upon the exercise of any granted Award shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Awards granted under it, and the Shares issued pursuant to it.
        (b)   No Shares or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable laws.
        17.     No Employment/Service Rights.     Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Affiliate employing or retaining such person) or of the
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Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.
        18.     Reserved.     
        19.     Reserved.     
        20.     Market Stand-Off.     In connection with any Qualified Public Offering, the Participant shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Plan without the prior written consent of the Company or its underwriters. Such restriction (the "Market Stand-Off") shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriters. In no event, however, shall such period exceed 180 days. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company's outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Plan until the end of the applicable stand-off period. The Company's underwriters shall be beneficiaries of the agreement set forth in this Section. This Section shall not apply to Shares registered in the public offering under the Act, and the Participant shall be subject to this Section only if the directors and officers of the Company are subject to similar arrangements.
        21.     Section 409A.     Notwithstanding anything in the Plan to the contrary, it is the intent of the Company that the Plan shall be administered so that the additional taxes provided for in Section 409A(a)(1)(B) of the Code are not imposed.
        22.     Governing Law.     This Plan shall be governed by Delaware law, applied without regard to conflict of law principles.
        IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Plan.

 	 	BRIDGEPOINT EDUCATION, INC.,
a Delaware corporation	

Date: November 27, 2007	
 	
By:	
 	
/s/ ANDREW CLARK

 	
 	
Its:	
 	
Chief Executive Officer
	
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Exhibit 10.1
BRIDGEPOINT EDUCATION, INC. AMENDED AND RESTATED 2005 STOCK INCENTIVE PLAN

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 Exhibit 10.7
INDEPENDENT CONTRACTOR AGREEMENT
        This Independent Contractor Agreement ("Agreement") is made as of November 29, 2006 (the "Effective Date"), by and between Bridgepoint Education, Inc. (the "Company") and Robert Hartman ("Contractor") (collectively the "Parties").
        The Parties agree as follows:
        1.     Term of Agreement.     The Company hereby engages Contractor to provide consulting services to the Company for the period commencing on the Effective Date (the "Commencement Date"), and ending as hereinafter provided in Section 4 (the "Term"). Contractor's services to the Company, and the Company's and Contractor's obligations to each other, shall terminate simultaneously with the termination of this Agreement.
        2.     Services.     During the Term, Contractor shall render such services as the Company may from time to time request of Contractor related to operational and strategic planning for the Company based on Contractor's experience in the for-profit educational industry. Contractor is engaged to put forth Contractor's best efforts using Contractor's skills, experience and knowledge to the best of Contractor's professional ability. Contractor will dedicate an average of 10-20 hours per month to performing consulting services for the Company. Contractor will complete projects assigned by the Company within the time designated. Contractor shall give prompt notice to the Company whenever Contractor becomes aware of any inability to promptly perform services under this Agreement.
        3.     Compensation.     During the Term, the Company shall pay directly to Contractor, a fee equivalent to $20,000 per year (the "Fee"). The Fee shall be payable to Contractor in the amount of $10,000 bi-annually beginning on December 31, 2006. For any year in which Contractor works only a portion of the year, the Company shall pay Contractor a pro-rata amount of the Fee.
        4.     Term.     The Term shall commence on the Commencement Date and shall continue during the period ending on the one (1) year anniversary of the Commencement Date. Thereafter, the Term shall be extended automatically without further action by either party by one (1) additional year, first on the first anniversary of the Commencement Date, and on each succeeding anniversary thereafter, unless, not later than sixty (60) days prior to the end of the Term (including any extension thereof), either the Company or the Contractor shall have notified the other in writing of its intention not to renew this Agreement.
        5.     Termination.     This Agreement may be terminated in one of the following two ways. In the event of termination, the Company shall pay Contractor all fees earned through the date of termination. Contractor and the Company agree that once this payment has been made, the Company shall have no further liabilities whatsoever to Contractor.
        (a)     Without Cause.     This Agreement may be terminated by either Party without cause upon sixty (60) days prior written notice to the other Party.
        (b)     Cause.     The Company may terminate this Agreement without notice at any time for Cause. In this Agreement, the term "Cause" means: (A) the commission of an act or omission which would constitute a felony; (B) negligence or malfeasance; (C) breach of fiduciary duties to Company, (D) neglect of duties or (E) any other action or omission which could reasonably be expected to adversely affect the Company's business, financial condition, prospect or reputation or the Contractor's performance of his duties.
        6.     Independent Contractor.     
        6.1     No Employment Relationship.     Contractor, in performance of services under this Agreement, is acting as an independent contractor, and will not be considered an employee of the
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Company for any purpose. It is not the Parties' intent, and nothing herein shall be construed, to create between Contractor and the Company the relationship of employer/employee, partners or joint venturers. Contractor is engaged in an independent business separate and apart from the Company and as such has the right to control the manner, method and means by which Contractor's work is performed. The Company shall not have the right to, nor shall the Company in fact, control the manner, method or means by which Contractor provides Contractor's services. The Company only has the right to control Contractor as to the identification of services and results desired.
        6.2     No Employment Benefits.     Contractor understands and agrees that Contractor is not an employee and is not entitled to receive any of the Company's employee benefits. The Company is not responsible for payment of workers' compensation, disability or other similar benefits, unemployment or other insurance, or for withholding income or other similar taxes or Social Security tax for Contractor, but such responsibility shall be solely that of Contractor. Contractor will obtain and maintain all permits and business licenses it needs to perform services under this Agreement, and will be responsible for all payroll and other taxes and assessments for Contractor.
        7.     Expenses.     Contractor shall be fully responsible to pay all expenses and disbursements that Contractor incurs in the performance of any services covered by this Agreement except reasonable travel expenses. The Company shall reimburse reasonable travel related expenses if Contractor receives approval from the Chief Executive Officer.
        8.     Nondisclosure of Confidential Information.     Contractor will hold in complete confidence and not disclose, produce, publish, permit access to, or reveal any information and material which is proprietary to Company, whether or not marked as "confidential" or "proprietary" and which is disclosed to or obtained by Contractor, which relates to Company's business activities ("Confidential Information"). "Confidential Information" shall not include information which is publicly available at the time of disclosure or subsequently becomes publicly available through no fault of Contractor or any of its agents or employees.
        8.1   Contractor will not alter, modify, disassemble, reverse engineer, decompile, disseminate or distribute any materials containing or constituting Confidential Information without the express prior written consent of the Company, and will return all Confidential Information, together with any copies thereof, promptly after the purposes for which they were furnished have been accomplished, or upon the request of Company. Additionally, upon request of Company, Contractor will return or destroy materials prepared by Contractor that contain Confidential Information.
        8.2   Contractor shall take all reasonable measures necessary to protect the confidentiality of the Confidential Information and to avoid disclosure or use of the Confidential Information, except as permitted herein, including the highest degree of care that Contractor utilizes to protect Contractor's own confidential information. Contractor shall promptly notify Company in writing of any misuse or misappropriation of Confidential Information which may come to Contractor's attention.
        8.3   Disclosure of Confidential Information is not precluded if such disclosure is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided that Contractor will first give notice to Company and make a reasonable effort to obtain a protective order requiring that the Confidential Information be disclosed only for limited purposes for which the order was issued.
        8.4   Contractor shall use the Confidential Information only for the limited purpose for which it was disclosed. Contractor shall not disclose the Confidential Information to any third party (including subcontractors) without first obtaining Company's written consent and shall disclose the
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Confidential Information only to its own employees having a need to know. Contractor shall promptly notify Company of any items of Confidential Information prematurely disclosed.
        8.5   Contractor agrees that Company's Confidential Information has been developed or obtained by the investment of significant time, effort and expense and provides Company with a significant competitive advantage in its business. If Contractor fails to comply with any obligations hereunder, Contractor agrees that Company will suffer immediate, irreparable harm for which monetary damages will provide inadequate compensation. Accordingly, Contractor agrees that Company will be entitled, in addition to any other remedies available to it, at law or in equity, to immediate injunctive relief to specifically enforce the terms of this Agreement.
        8.6   The obligations set forth in this Paragraph 8 and its subparagraphs shall survive expiration or termination of this Agreement.
        9.     No Solicitation.     Contractor agrees that during the Term and for a one year period thereafter, Contractor will not directly or indirectly solicit for hire any current employees of the Company.
        10.     Assignment of Inventions.     Contractor agrees that during the Term that all inventions that are developed using equipment, supplies, facilities or trade secrets of the Company, or result from work performed by Contractor for the Company (collectively "Assigned Inventions"), will be the sole and exclusive property of the Company and are hereby irrevocably assigned by Contractor to the Company.
        11.     Assignment of Intellectual Property Rights.     In addition to the foregoing assignment of Assigned Inventions to the Company, Contractor hereby irrevocably transfers and assigns to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets and other intellectual property rights in any Assigned Invention, and (b) any and all "Moral Rights" (as defined below) that Contractor may have in or with respect to any Assigned Invention. Contractor also hereby forever waives and agrees never to assert any and all Moral Rights Contractor may have in or with respect to any Assigned Invention, even after expiration or termination of this Agreement. For the purposes of this Agreement, "Moral Rights" mean any rights to claim authorship of an Assigned Invention to object to or prevent the modification of any Assigned Invention, or to withdraw from circulation or control the publication or distribution of any Assigned Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right."
        12.     Work for Hire.     Contractor acknowledges and agrees that any copyrightable works prepared by Contractor during the Term are "works for hire" under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works.
        13.     Outside Employment.     Contractor is free to contract with other persons and/or entities to provide them with services during the term of this Agreement, so long as such services do not directly or indirectly conflict with the services provided by Contractor to the Company under this Agreement.
        14.     Indemnification.     
        14.1 Contractor shall indemnify and hold the Company harmless from any and all claims, demands, judgments, damages, liabilities, costs and fees, including reasonable attorneys' fees, relating to or arising out of any claim or the defense of any claim that relates either to the performance by Contractor of Contractor's services under this Agreement or Contractor's failure to comply with any of the terms of this Agreement and/or Contractor's legal obligations.
        14.2 The Company shall indemnify and hold Contractor harmless from any and all claims, demands, judgments, damages, liabilities, costs and fees, including reasonable attorneys' fees, relating to or arising out of any claim or the defense of any claim that relates either to the performance by the Company under this Agreement or the Company's failure to comply with any of the terms of this Agreement and/or the Company's legal obligations.
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        15.     Miscellaneous.     
        15.1     Governing Law.     This Agreement shall be governed by the laws of the State of California.
        15.2     Waiver.     The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature.
        15.3     Severability.     Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by such holding.
        15.4     Entire Agreement.     This Agreement sets forth the entire agreement and understanding of the parties relating to the Company's retention of Contractor and merges all prior and contemporaneous discussions and agreements between them. This Agreement may not be modified except in writing and signed by the Contractor and the President of the Company. Both parties represent and acknowledge that they have read and understood this Agreement and that they have executed this Agreement voluntarily and without duress.
        15.5     Contractor is a Director.     Contractor is a director of the Company and this Agreement is not intended to compensate Contractor for his services as a director of the Company, but is intended as an arm's length agreement to provide operational and strategic planning services.
[Signature Page Follows]
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Agreed to by the following:
BRIDGEPOINT EDUCATION, INC..
Date: November 29, 2006

 	 	 	 	 	
Signature:	 	/s/ ANDREW CLARK

Andrew Clark, CEO	 	 	
ROBERT HARTMAN
Date: November 29, 2006

 	 	 	 	 	
Signature:	 	/s/ ROBERT HARTMAN

Robert Hartman	 	 	
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 AMENDMENT TO INDEPENDENT CONTRACTOR AGREEMENT
        This Amendment to Independent Contractor Agreement (" Amendment ") is made and entered into as of January 1, 2008, by and between Bridgepoint Education, Inc., a Delaware corporation (the " Company "), and Robert Hartman, an individual (" Contractor ").

 RECITALS
        WHEREAS, on November 29, 2006, the Company entered into that certain Independent Contractor Agreement with Contractor (the " Agreement ");
        WHEREAS, the Company and Contractor now desire to amend the Agreement as provided below.
        NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Contractor hereby agree to amend the Agreement as follows:
        1.     Section 3 of the Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:
        "3.     Compensation.     During the Term, the Company shall pay directly to Contractor, a fee equivalent to $30,000 per year (the " Fee "). The Fee shall be payable to Contractor in the amount of $15,000 bi-annually beginning on January 1, 2008. For any year in which Contractor works only a portion of the year, the Company shall pay Contractor a pro-rata amount of the Fee."
        2.     Miscellaneous.     
        2.1     Entire Agreement; Amendment and Waiver.     This Amendment constitutes the entire understandings of the parties hereto and supersedes all prior agreements or understandings with respect to the subject matter hereof among such parties. This Amendment may be amended, and the observance of any term of this Amendment may be waived, with (and only with) the written consent of the Company and Contractor.
        2.2     Severability.     In the event that any part or parts of this Amendment 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 Amendment, which shall remain in full force and effect.
        2.3     Counterparts.     This Amendment 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.
        2.4     Agreement in Full Force and Effect; Internal References.     Except as expressly amended hereby, the Agreement remains in full force and effect.
        2.5     Governing Law.     This Amendment shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within such State.
[Signature Page Follows]
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         IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written.

 	 	 	 	 	
 	 	Contractor	

 	
Robert Hartman	

 	
By:	
 	
/s/ ROBERT HARTMAN

 	
 	
Company	

 	
Bridgepoint Education, Inc., a Delaware
corporation	

 	
By:	
 	
/s/ ANDREW S. CLARK
	
 	 	Name:  Andrew S. Clark	
 	 	Title:     Chief Executive Officer	
[Signature Page to Amendment to Independent Contractor Agreement]
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Exhibit 10.7
INDEPENDENT CONTRACTOR AGREEMENT
 AMENDMENT TO INDEPENDENT CONTRACTOR AGREEMENT
RECITALS

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 Exhibit 10.8

 BRIDGEPOINT EDUCATION, INC.

INDEMNIFICATION AGREEMENT
        THIS INDEMNIFICATION AGREEMENT is made and entered into as of the      day of                        , 2008 (the "Agreement"), by and between Bridgepoint Education, Inc., a Delaware corporation (the "Company"), and                                    ("Indemnitee"), with reference to the following facts:
        A.    The Company desires the benefits of having Indemnitee serve as an officer and/or director secure in the knowledge that any expenses, liability and/or losses incurred by him or her in his or her good faith service to the Company will be borne by the Company or its successors and assigns.
        B.    Indemnitee is willing to serve in his or her position with the Company only on the condition that he or she be indemnified for such expenses, liability and/or losses.
        C.    The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and agents of a corporation at reasonable cost.
        D.    The Company and Indemnitee recognize that there has been an increase in litigation against corporate directors, officers and agents.
        E.    Article VIII of the Company's Certificate of Incorporation, as amended (the "Certificate"), provides for the mandatory indemnification, to the fullest extent permitted by Delaware law, of directors and officers of the Company, from and against any and all expense, liability and loss reasonably incurred or suffered by such persons in connection with their service to the Company, and provides that such right to indemnification is not exclusive of any other rights which any person may have or later acquire under any statute, provision of the Certificate, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Article 9 of the Company's bylaws ("Bylaws") provides for the mandatory indemnification of any officer or director, or any former officer or director, against any and all of the expenses, liabilities or other matters referred to in or covered by Section 145 of the Delaware General Corporation Law.
        NOW, THEREFORE, the parties hereby agree as follows:
         1.     Definitions.     For purposes of this Agreement:
         1.1    "Agent" shall mean any person who is or was a director, officer, employee or agent of the Company, or a subsidiary of the Company whether serving in such capacity or as a director, officer, employee, agent, fiduciary or other official of another corporation, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.
         1.2    "Change of Control" shall mean, solely for purposes of this Agreement, the occurrence of any of the following events after the date of this Agreement:
         (a)    A change in the composition of the board of directors of the Company (the "Board"), as a result of which at least one-half (1/2) of the incumbent directors are not directors who either (a) had been directors of the Company twenty-four (24) months prior to such change or (b) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company twenty-four (24) months prior to such change and who were still in office at the time of the election or nomination; or
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         (b)    Any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended), through the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Capital Stock"), other than Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership; provided, however, that any change in ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company.
         1.3    "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee.
         1.4    "Expenses" shall include, without limitation, (a) all reasonable direct and indirect costs incurred, paid or accrued, (b) all reasonable attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, food and lodging expenses while traveling, duplicating costs, printing and binding costs, telephone charges, postage, delivery service, freight or other transportation fees and expenses, (c) all other reasonable disbursements and out-of-pocket expenses, and (d) amounts paid in settlement, to the extent not prohibited by Delaware Law.
         1.5    "Independent Counsel" shall mean a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent: (a) the Company, the Board, any committee of the Board, an affiliate of the Company or Indemnitee in any matter material to either party or (b) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's right to indemnification under this Agreement.
         1.6    "Liabilities" shall mean liabilities of any type whatsoever, including, but not limited to, judgments, arbitral awards, fines, ERISA or other excise taxes and penalties, and amounts paid in settlement (including all interest, assessments or other charges paid or payable in connection with any of the foregoing).
         1.7    "Delaware Law" means the Delaware General Corporation Law, as amended and in effect from time to time or any successor or other statutes of Delaware having similar import and effect.
         1.8    "Proceeding" shall mean any pending, threatened or completed action, hearing, suit or any other proceeding, whether civil, criminal, arbitrative, administrative, investigative or any alternative dispute resolution mechanism, including without limitation any Proceeding brought by or in the right of the Company, in which Indemnitee was, is or will be involved as a party, witness or otherwise, by reason of the fact that Indemnitee is or was an Agent of the Company, by reason of any action taken by him or her or any inaction on his or her part while acting as an Agent of the Company, whether or not he or she is acting or serving in any such capacity at the time any such Proceeding commences or is ongoing.
         2.     Employment Rights and Duties.     Subject to any other obligations imposed on either of the parties by contract or by law, and with the understanding that this Agreement is not intended to confer employment rights on either party which they did not possess on the date of its execution, Indemnitee agrees to serve as a director or officer so long as he or she is duly appointed or elected and qualified
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in accordance with the applicable provisions of the Certificate and Bylaws of the Company or any subsidiary of the Company and until such time as he or she resigns or fails to stand for election or until his or her employment terminates. Indemnitee may from time to time also perform other services at the request, or for the convenience of, or otherwise benefiting the Company. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in any such position. For sake of clarity, in the event of such resignation or removal, this Agreement shall survive according to its terms.
         3.     Directors' and Officers' Insurance.     
         3.1    The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible Proceeding, the Company, subject to Section 3.3, shall maintain directors' and officers' insurance in full force and effect.
         3.2    In all policies of directors' and officers' insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy.
         3.3    The Company shall maintain directors' and officers' insurance unless the Board determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount and/or scope of coverage provided to the insureds (other than the Company), or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit to the insureds (other than the Company); provided, however, that if Indemnitee is not then serving as a director of the Company, then the Company must provide notice to Indemnitee, no less than thirty (30) days prior to the effective date of cancellation, expiration or non-renewal of the then-current directors' and officers' insurance policy, of the Board's determination, or the possibility of such a determination, to discontinue maintenance of directors' and officers' insurance in accordance with the exception set forth in this Section 3.3, and the Company shall in good faith request that the Board reconsider any such determination based on information that Indemnitee or his or her insurance broker is able to provide concerning the availability, costs and benefits of continued insurance coverage. Failure of the Company to provide the required notice shall render the exception to the obligation to continue to maintain directors' and officers' insurance set forth in this Section 3.3 inapplicable. In the event the Company properly relies on the exception to the obligation to continue to maintain directors' and officers' insurance set forth in this Section 3.3, the Company shall purchase, prior to the deadline therefor, the maximum "option extension period," "discovery period" or similar benefit available under the last directors' and officers' insurance policy in effect, providing to Indemnitee continuing coverage following policy expiration for a premium which is fixed by the terms of such last policy in effect; or, if such coverage may be purchased only by Indemnitee, the Company shall pay directly for, or reimburse Indemnitee for the cost of, Indemnitee's purchase of such coverage.
         3.4    If, at the time of the receipt by the Company of a notice of a "Claim" as that term or any similar term is defined under any policy of directors' and officers' liability insurance maintained by the Company, the Company shall give prompt notice of the commencement of such Claim to the insurer(s) in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.
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         4.     Indemnification.     The Company shall indemnify Indemnitee to the fullest extent authorized or permitted by Delaware Law in effect on the date hereof, and as Delaware Law may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits the Company to provide broader indemnification rights than Delaware Law permitted the Company to provide before such amendment). Without in any way diminishing the scope of the indemnification provided by this Section 4, the Company shall indemnify Indemnitee if and whenever he or she is or was a witness, party or is threatened to be made a witness or a party to any Proceeding, against all Expenses and Liabilities actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the investigation, defense, settlement or appeal of such Proceeding. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 5, 6 and 7 below.
         5.     Payment of Expenses.     
         5.1    All Expenses incurred by or on behalf of Indemnitee shall be advanced by the Company to Indemnitee within thirty (30) days after the receipt by the Company of a written request for such advance which may be made from time to time, whether prior to or after final disposition of a Proceeding (unless there has been a final determination by a court of competent jurisdiction or arbitrator that Indemnitee is not entitled to be indemnified for such Expenses). Indemnitee's entitlement to advancement of Expenses shall include those incurred in connection with any Proceeding by Indemnitee seeking a determination, an adjudication or an award in arbitration pursuant to this Agreement. The requests shall reasonably evidence the Expenses incurred by Indemnitee in connection therewith. Indemnitee hereby undertakes to repay the amounts advanced pursuant to this Agreement if it shall ultimately be determined that Indemnitee is not entitled to be indemnified pursuant to the terms of this Agreement. Indemnitee shall, at the Company's request, provide an additional undertaking to such effect in connection with any Proceeding in which Indemnitee requests advancement of Expenses hereunder.
         5.2    Notwithstanding any other provision in this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee in connection therewith.
         6.     Procedure for Determination of Entitlement to Indemnification.     
         6.1    Whenever Indemnitee believes that he or she is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification (the "Indemnification Request") to the Company to the attention of the Chief Executive Officer with a copy to the Secretary. This request shall include documentation or information which is necessary for the determination of entitlement to indemnification and which is reasonably available to Indemnitee. Determination of Indemnitee's entitlement to indemnification shall be made no later than sixty (60) days after receipt of the Indemnification Request. The Chief Executive Officer or the Secretary shall, promptly upon receipt of Indemnitee's Indemnification Request, advise the Board in writing that Indemnitee has made such request for indemnification.
         6.2    Following receipt by the Company of an Indemnification Request, an initial determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board of Directors: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (4) by a majority vote of the stockholders of the Company. Notwithstanding the foregoing, following a Change of
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Control, the determination shall be made by Independent Counsel pursuant to clause (3) above. The Company agrees to bear any and all Expenses reasonably incurred by Indemnitee or the Company in connection with the determination of Indemnitee's entitlement to indemnification by any of the above methods.
         7.     Presumptions and Effect of Certain Proceedings.     Upon making an Indemnification Request, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proof by clear and convincing evidence to overcome that presumption in reaching any contrary determination. The termination of any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, (a) adversely affect the rights of Indemnitee to indemnification except as indemnification may be expressly prohibited under this Agreement, (b) create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or (c) with respect to any criminal action or proceeding, create a presumption that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
         8.     Remedies of Indemnitee in Cases of Determination not to Indemnify or to Advance Expenses.     
         8.1    In the event that (a) an initial determination is made that Indemnitee is not entitled to indemnification, (b) advances for Expenses are not made when and as required by this Agreement, (c) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement or (d) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Delaware of his or her entitlement to such indemnification or advance. Alternatively, Indemnitee at his or her option may seek an award in arbitration. If the parties are unable to agree on an arbitrator within twenty (20) days, the parties shall provide JAMS ("JAMS") with a statement of the nature of the dispute and the desired qualifications of the arbitrator. JAMS will then provide a list of three available arbitrators. Each party may strike one of the names on the list, and the remaining person will serve as the arbitrator. If both parties strike the same person, JAMS will select the arbitrator from the other two names. The arbitration award shall be made within ninety (90) days following the demand for arbitration. Except as set forth herein, the provisions of Delaware law shall apply to any such arbitration. In any such proceeding or arbitration Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proof by clear and convincing evidence to overcome that presumption.
         8.2    A court or arbitrator to which Indemnitee may apply for enforcement of this Agreement shall give no deference or weight to an initial determination made by the Company pursuant to the methods set forth in Section 6.2 above that, in whole or in part, Indemnitee is not entitled to indemnification.
         8.3    If an initial determination is made or deemed to have been made pursuant to the terms of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in the absence of (a) a misrepresentation of a material fact by Indemnitee in the request for indemnification or (b) a specific finding (which has become final) by a court of competent jurisdiction or arbitrator that all or any part of such indemnification is expressly prohibited by law.
         8.4    The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, will be inadequate, impracticable and difficult to prove, and further agree that such breach would cause Indemnitee irreparable harm. Accordingly, the Company and Indemnitee agree that Indemnitee shall be entitled to temporary and permanent injunctive relief to enforce this Agreement without the necessity of proving actual damages or irreparable harm. The Company and Indemnitee further agree that Indemnitee shall be entitled to such injunctive relief,
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including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bond or other undertaking in connection therewith. Any such requirement of bond or undertaking is hereby waived by the Company, and the Company acknowledges that in the absence of such a waiver, a bond or undertaking may be required by the court.
         8.5    The Company agrees not to assert that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Company further agrees to stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement and not to make any assertion to the contrary.
         8.6    Expenses reasonably incurred by Indemnitee in connection with his or her Indemnification Request under, seeking enforcement of, or to recover damages for breach of this Agreement shall be borne and advanced by the Company, unless a court of competent jurisdiction or arbitrator determines that each and every material assertion made by Indemnitee in such action was either not made in good faith or was frivolous.
         9.     Other Rights to Indemnification.     Indemnitee's rights of indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under applicable law, the Certificate, the Bylaws, an employment agreement, a vote of stockholders or Disinterested Directors, insurance or other financial arrangements or otherwise.
         10.     Limitations on Indemnification.     No indemnification pursuant to Section 4 shall be paid by the Company nor shall Expenses be advanced pursuant to Section 4:
         10.1     Insurance.     To the extent that Indemnitee is reimbursed pursuant to such insurance as may exist for Indemnitee's benefit. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Company pursuant to this Agreement by assigning to the Company any claims under such insurance to the extent Indemnitee is paid by the Company. Indemnitee shall reimburse the Company for any sums he or she receives as indemnification from other sources to the extent of any amount paid to him or her for that purpose by the Company;
         10.2     Section 16(b).     On account and to the extent of any wholly or partially successful claim against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) or the Securities Exchange Act of 1934, as amended, and amendments thereto or similar provisions of any federal, state or local statutory law; or
         10.3     Indemnitee's Proceedings.     In connection with all or any part of a Proceeding which is initiated or maintained by or on behalf of Indemnitee, or any Proceeding by Indemnitee against the Company or its directors, officers, employees or other agents, unless (a) such indemnification is expressly required to be made by Delaware Law, (b) the Proceeding was authorized by a majority of the Disinterested Directors, (c) there has been a Change of Control or (d) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under Delaware Law.
         11.     Duration and Scope of Agreement; Binding Effect.     This Agreement shall continue so long as Indemnitee shall be subject to any possible Proceeding. This Agreement shall be binding upon the Company and its successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company) and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors, administrators and other legal representatives.
         12.     Notice by Indemnitee and Defense of Claims.     Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment,
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information or other document relating to any matter which may be subject to indemnification hereunder, whether civil, criminal, arbitrative, administrative or investigative; but the omission so to notify the Company will not relieve it from any liability which it may have to Indemnitee if such omission does not actually prejudice the Company's rights and, if such omission does prejudice the Company's rights, it will relieve the Company from liability only to the extent of such prejudice; nor will such omission relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding:
         12.1    The Company will be entitled to participate therein at its own expense;
         12.2    Except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election so to assume the defense thereof and the assumption of such defense, the Company will not be liable to Indemnitee under this Agreement for any attorney fees or costs subsequently incurred by Indemnitee in connection with Indemnitee's defense except as otherwise provided below. Indemnitee shall have the right to employ his or her counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof and the assumption of such defense shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company in writing, (ii) Indemnitee shall have reasonably concluded that there is or is reasonably likely to be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action or (iii) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company; and
         12.3    The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim which would impose any limitation, payment obligation, cost or penalty on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee will unreasonably withhold its consent to any proposed settlement.
         12.4    Indemnitee shall provide reasonable cooperation to the Company and counsel selected pursuant to Section 12.2 in connection with the defense of any Proceeding, including providing to the Company and such counsel, upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such defense. Any Expenses reasonably incurred by Indemnitee in so cooperating shall be borne by the Company and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
         13.     Contribution.     
         13.1    Whether or not the indemnification provided in Section 4 hereof is available, in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance and to the fullest extent permitted by applicable law, the entire amount of any Expenses and Liabilities without requiring Indemnitee to contribute to such payment and the Company hereby waives and, to the fullest extent permitted by applicable law, relinquishes any right of contribution it may have against Indemnitee with respect to such Expenses and Liabilities. The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.
         13.2    Without diminishing or impairing the obligations of the Company set forth in Section 13.1, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any
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Expenses or Liabilities in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of Expenses and Liabilities actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all Agents of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction(s) from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all Agents of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses and Liabilities, as well as any other equitable considerations that may be required to be considered under applicable law. The relative fault of the Company and all Agents of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
         13.3    The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by Agents of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
         13.4    To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever other than as set forth in Section 9, the Company, in lieu of indemnifying Indemnitee, shall contribute to the Expenses and Liabilities incurred by Indemnitee in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect the relative benefits received by the Company and all Agents of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction(s) from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all Agents of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses and Liabilities, as well as any other equitable considerations which may be required to be considered under applicable law. The relative fault of the Company and all Agents of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
         14.     Period of Limitations.     No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
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         15.     Miscellaneous Provisions .     
         15.1     Severability; Partial Indemnity.     If any provision or provisions of this Agreement (or any portion thereof) shall be held by a court of competent jurisdiction or arbitrator to be invalid, illegal or unenforceable for any reason whatever: (a) such provision shall be limited or modified in its application to the minimum extent necessary to avoid the invalidity, illegality or unenforceability of such provision; (b) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (c) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision (or portion thereof) held invalid, illegal or unenforceable. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Liabilities of any type whatsoever incurred by him or her in the investigation, defense, settlement or appeal of a Proceeding but not entitled to all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which it has been determined pursuant to Section 6 hereof that Indemnitee is not entitled.
         15.2     Identical Counterparts.     This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
         15.3     Interpretation of Agreement.     It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent not now or hereafter prohibited by law.
         15.4     Headings.     The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
         15.5     Modification and Waiver.     No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties to this Agreement. No waiver of any provision of this Agreement shall be deemed to constitute a waiver of any of the provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. No waiver of any provision of this Agreement shall be effective unless executed in writing.
         15.6     Notices.     All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a)
To Indemnitee at the address set forth below Indemnitee signature hereto:

(b)
To the Company at:
Bridgepoint Education, Inc.
13500 Evening Creek Dr., Ste. 600
San Diego, CA 92128
Telephone: (858) 513-9240
Facsimile: (858) 513-9239
Attention: Chief Executive Officer
With a Copy to: General Counsel
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or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
         15.7     Governing Law .     The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.
         15.8     Consent to Jurisdiction .     The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this agreement and agree that any action instituted under this agreement shall be brought only in the state courts of the State of Delaware.
         15.9     Entire Agreement.     This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understanding between the parties hereto with respect to the subject matter of this Agreement, except as provided in Sections 3 and 9 or otherwise specifically referred to herein.
        IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on the day and year first above written.

 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	

Name:
Title:	

 	
INDEMNITEE	

 	
By:	

Name:
Title:
Address:

Telephone:
Facsimile:	
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Exhibit 10.8
BRIDGEPOINT EDUCATION, INC. INDEMNIFICATION AGREEMENT

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 Exhibit 10.9

 BRIDGEPOINT EDUCATION, INC.

LOAN AND SECURITY AGREEMENT

        This LOAN AND SECURITY AGREEMENT is entered into as of April 12, 2004, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. ("Borrower").

 RECITALS
        Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

 AGREEMENT
        The parties agree as follows:
        1.     DEFINITIONS AND CONSTRUCTION.     
        1.1     Definitions.     As used in this Agreement, the following terms shall have the following definitions:
        "Accounts" means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
        "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners.
        "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
        "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
        "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
        "Change in Control" shall mean a transaction in which any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such "person" or "group" to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
        "Closing Date" means the date of this Agreement.
        "Code" means the California Uniform Commercial Code.
        "Collateral" means the property described on Exhibit A attached hereto.
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        "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or management designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
        "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
        "Credit Extension" means each Equipment Advance or any other extension of credit by Bank for the benefit of Borrower hereunder.
        "Daily Balance" means the amount of the Obligations owed at the end of a given day.
        "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any Interest.
        "Equipment Advance" has the meaning set forth in Section 2.1(b).
        "Equipment Line" means a credit extension of up to Four Hundred Thousand Dollars
        "Equipment Maturity Date" means June 1, 2007.
        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
        "Event of Default" has the meaning assigned in Article 8.
        "GAAP" means generally accepted accounting principles as in effect from time to time.
        "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
        "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
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        "Intellectual Property Collateral" means all of Borrower's right, title, and interest in and to the following:
        (a)   Copyrights, Trademarks and Patents;
        (b)   Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
        (c)   Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
        (d)   Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;
        (e)   All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;
        (f)    All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
        (g)   All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
        "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing.
        "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
        "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
        "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
        "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.
        "Material Adverse Effect" means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents or (iii) the value or priority of Bank's security interests in the Collateral.
        "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing.
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        "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
        "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
        "Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
        "Permitted Indebtedness" means:
        (a)   Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
        (b)   Indebtedness existing on the Closing Date and disclosed in the Schedule;
        (c)   Indebtedness secured by a lien described in clause (c) of the defined term "Permitted Liens," provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $100,000 in the aggregate at any given time; and
        (d)   Subordinated Debt.
        "Permitted Investment" means:
        (a)   Investments existing on the Closing Date disclosed in the Schedule; and
        (b)   (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank's money market accounts.
        "Permitted Liens" means the following:
        (a)   Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
        (b)   Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security interests;
        (c)   Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
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        (d)   Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.
        "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
        "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank.
        "Responsible Officer" means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.
        "Schedule" means the schedule of exceptions attached hereto and approved by Bank, if any.
        "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank).
        "Subsidiary" means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owed by Borrower, either directly or through an Affiliate.
        "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
        1.2     Accounting Terms.     All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto.
        2.     LOAN AND TERMS OF PAYMENT.     
        2.1     Credit Extensions.     
        Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder.
        Borrower shall also pay interest on thc unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
        (a)     Equipment Advances.     
        (i)    Subject to and upon the terms and conditions of this Agreement, at any time from the date hereof through April 12, 2005, Bank agrees to make advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in an aggregate amount not to exceed the Equipment Line. Each Equipment Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment and software approved by Bank from time to time (which Borrower shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Advance), excluding taxes, shipping, warranty charges, freight discounts and installation expense. Notwithstanding the foregoing, Bank agrees to make an initial Equipment Advance (the "Initial Equipment
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Advance") to Borrower in an aggregate amount not to exceed one hundred percent (100%) of the invoice amount of new equipment and equipment purchased no earlier than January 1, 2004.
        (ii)   Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3, and shall be payable monthly on the first day of each month so long as any Equipment Advances are outstanding. The Initial Equipment Advance shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on August 1, 2004, and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts owing on account of Initial Equipment Advance shall be immediately due and payable. Any Equipment Advances (other than the Initial Equipment Advance) that are outstanding on December 12, 2004 shall be payable in thirty (30) equal monthly installments of principal, plus all accrued interest, beginning on January 1, 2005, and continuing on the same day of each month thereafter until paid in full. Any Equipment Advances (other than the Initial Equipment Advance and any Equipment Advances outstanding on December 12, 2004) that are outstanding on June 12, 2005 shall be payable in twenty four (24) equal monthly installments of principal, plus all accrued interest, beginning on July 1, 2005, and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts owing under this Section 2.l(a) and any other amounts owing under this Agreement shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any Equipment Advances without penalty or premium.
        (iii)  When Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Equipment Advance is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer or its designee and include a copy of the invoice and proof of payment of such invoice for any Equipment to be financed.
        2.2     Intentionally Omitted.     
        2.3     Interest Rates, Payments, and Calculations.     
        (a)     Interest Rates.     Except as set forth in Section 2.3(b), the Equipment Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one and one half percent (1.50%) above the Prime Rate.
        (b)     Late Fee; Default Rate.     If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
        (c)     Payments.     Interest hereunder shall be due and payable on the first calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Equipment Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties,
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impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder regardless of source of payment.
        (d)     Computation.     In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
        2.4     Crediting Payments.     Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
        2.5     Fees.     Borrower shall pay to Bank the following:
        (a)     Facility Fee.     On the Closing Date, a Facility Fee equal to $4,000, which shall be nonrefundable; and
        (b)     Bank Expenses.     On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys' fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due.
        2.6     Additional Costs.     In case any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law):
        (a)   subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof);
        (b)   imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or
        (c)   imposes upon Bank any other condition with respect to its performance under this Agreement,
        and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Banks calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error.
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        2.7     Term.     This Agreement shall become effective on the Closing Date and, subject to Section 13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
        3.     CONDITIONS OF LOANS     
        3.1     Conditions Precedent to Initial Credit Extension.     The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Agreement;
        (b)   a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
        (c)   UCC National Form Financing Statement;
        (d)   an intellectual property security agreement;
        (e)   a warrant to purchase stock;
        (f)    evidence of or authorization for termination of any Liens other than Permitted Liens;
        (g)   securities and/or deposit account control agreements with respect to any such accounts permitted hereunder to be maintained outside Bank;
        (h)   agreement to provide insurance;
        (i)    payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;
        (j)    current financial statements of Borrower;
        (k)   an audit of the Collateral, the results of which shall be satisfactory to Bank; and
        (l)    such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        3.2     Conditions Precedent to all Credit Extensions.     The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
        (a)   timely receipt by Bank of the Payment Advance Form as provided in Section 2.1; and
        (b)   the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
        4.     CREATION OF SECURITY INTEREST.     
        4.1     Grant of Security Interest.     Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by
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Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof.
        4.2     Delivery of Additional Documentation Required.     Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower from time to time may deposit with Bank specific time deposit accounts to secure specific Obligations. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding.
        4.3     Right to Inspect.     Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral.
        5.     REPRESENTATIONS AND WARRANTIES.     
        Borrower represents and warrants as follows:
        5.1     Due Organization and Qualification.     Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified.
        5.2     Due Authorization; No Conflict.     The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any material agreement to which it is a party or by which it is bound.
        5.3     No Prior Encumbrances.     Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
        5.4     Bona Fide Accounts.     The Accounts are bona fide existing obligations. The property and services giving rise to such Accounts has been delivered or rendered to the account debtor or to the account debtor's agent for immediate and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor.
        5.5     Merchantable Inventory.     All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.
        5.6     Intellectual Property Collateral.     Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except as set forth in the Schedule, Borrower's rights as a licensee of intellectual property
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do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, Borrower is not a party to, or bound by, any agreement that restricts the grant by Borrower of a security interest in Borrower's rights under such agreement.
        5.7     Name; Location of Chief Executive Office.     Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. All Borrower's Inventory and Equipment is located only at the location set forth in Section 10 hereof and Borrower has paid for and owns all Equipment financed by Bank hereunder.
        5.8     Litigation.     Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect, or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral.
        5.9     No Material Adverse Change in Financial Statements.     All consolidated and consolidating financial statements related to Borrower and any Subsidiary that Bank has received from Borrower fairly present in all material respects Borrower's financial condition as of the date thereof and Borrower's consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
        5.10     Solvency, Payment of Debts.     Borrower is solvent and able to pay its debts (including trade debts) as they mature.
        5.11     Regulatory Compliance.     Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from Borrower's failure to comply with ERISA that could result in Borrowers incurring any material liability. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
        5.12     Environmental Condition.     Except as disclosed in the Schedule, none of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
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        5.13     Taxes.     Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.
        5.14     Subsidiaries.     Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
        5.15     Government Consents.     Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted, the failure to obtain which could have a Material Adverse Effect.
        5.16     Accounts.     None of Borrower's nor any Subsidiary's property is maintained or invested with a Person other than Bank.
        5.17     Full Disclosure.     No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.
        6.     AFFIRMATIVE COVENANTS     
        Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
        6.1     Good Standing.     Borrower shall maintain its and each of its Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.
        6.2     Government Compliance.     Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
        6.3     Financial Statements, Reports, Certificates.     Borrower shall deliver the following to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated balance sheet, income, and cash flow statement covering Borrower's consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrowers fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and, if applicable, all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or more; (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time, including an annual budget for each year, by January 15 of such year, and (f) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any
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applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower's intellectual property, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of the Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.
        Borrower shall deliver to Bank with the monthly financial statements, a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto.
        Bank shall have a right from time to time hereafter to appraise Collateral at Borrower's expense, provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing.
        6.4     Inventory; Returns.     Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).
        6.5     Taxes.     Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
        6.6     Insurance.     
        (a)   Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's.
        (b)   All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lenders loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
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        6.7     Accounts.     Borrower shall maintain and shall cause each of its Subsidiaries to maintain its primary depository, operating, and investment accounts with Bank and/or Comerica Securities, Inc.
        6.8     Enrollment to Plan.     Borrower shall maintain at all times enrollment of at least seventy five percent (75%) of the projections attached hereto as Annex I.
        6.9     Relationship with Charter Oaks.     Borrower shall maintain at all times its relationship with Charter Oaks State College (or a similar institution approved by Bank).
        6.10     Intellectual Property Rights.     
        (a)   Borrower shall register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registerable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.
        (b)   Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any. Borrower shall (i) give Bank not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) prior to the filing of any such applications or registrations, shall execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower, and upon the request of Bank, shall file such documents simultaneously with the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Borrower shall promptly provide Bank with (i) a copy of such applications or registrations, without the exhibits, if any, thereto, (ii) evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and (iii) the date of such filing.
        (c)   Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect and maintain the priority of Bank's security interest in the Intellectual Property Collateral. Borrower shall (i) protect, defend and maintain the validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.
        (d)   Bank may audit Borrower's Intellectual Property Collateral to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower's sole expense, any actions that Borrower is required under this Section to take but which Borrower fails to take, after 15 days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section.
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        6.11     Further Assurances.     At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
        7.     NEGATIVE COVENANTS.     
        Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following:
        7.1     Dispositions.     Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank.
        7.2     Change in Business; Change in Control or Executive Office.     Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Banks prior written consent, change the date on which its fiscal year ends.
        7.3     Mergers or Acquisitions.     Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.
        7.4     Indebtedness.     Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
        7.5     Encumbrances.     Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. Agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so.
        7.6     Distributions.     Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.
        7.7     Investments.     Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
        7.8     Transactions with Affiliates.     Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary
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course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person.
        7.9     Subordinated Debt.     Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent.
        7.10     Inventory and Equipment.     Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Bank's security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank's benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section 10 of this Agreement.
        7.11     Compliance.     Become an "investment company" or be controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
        7.12     Negative Pledge Agreements.     Permit the inclusion in any contract to which it or a Subsidiary becomes a party of any provisions that could restrict or invalidate the creation of a security interest in any of Borrower's or such Subsidiary's property.
        8.     EVENTS OF DEFAULT.     
        Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
        8.1     Payment Default.     If Borrower fails to pay, when due, any of the Obligations;
        8.2     Covenant Default.     
        (a)   If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or
        (b)   If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten day period or cannot after diligent attempts by Borrower be cured within such ten day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made.
        8.3     Material Adverse Effect.     If there occurs any circumstance or circumstances that could have a Material Adverse Effect;
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        8.4     Attachment.     If any portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
        8.5     Insolvency.     If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
        8.6     Other Agreements.     If there is a default or other failure to perform in any agreement to which Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or which could have a Material Adverse Effect;
        8.7     Subordinated Debt.     If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;
        8.8     Judgments.     If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or
        8.9     Misrepresentations.     If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
        9.     BANK'S RIGHTS AND REMEDIES.     
        9.1     Rights and Remedies.     Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
        (a)   Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
        (b)   Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
        (c)   Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
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        (d)   Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
        (e)   Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
        (f)    Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Banks benefit;
        (g)   Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
        (h)   Bank may credit bid and purchase at any public sale; and
        (i)    Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
        9.2     Power of Attorney.     Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Banks designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral; and (h) to transfer the Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the California Uniform Commercial Code; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred, including without limitation to modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrowers approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in
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any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions hereunder is terminated.
        9.3     Accounts Collection.     At any time during the term of this Agreement, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Banks trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
        9.4     Bank Expenses.     If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate herein above provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
        9.5     Bank's Liability for Collateral.     So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
        9.6     Remedies Cumulative.     Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
        9.7     Demand; Protest.     Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.
        10.     NOTICES.     
        Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service,
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certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:

If to Borrower:	 	BRIDGEPOINT EDUCATION, INC.
4350 E. Camelback Road
Phoenix, AZ 85018
Attn: Chief Financial Officer
FAX: (602) 553-                        	

If to Bank:	
 	
Comerica Bank
2321 Rosecrans Avenue, Suite 5000
El Segundo, CA 90245
Attn: Manager
FAX: (310) 338-6110	

with a copy to:	
 	
Comerica Bank
11512 El Camino Real, Ste. 350
San Diego, CA 92130
Attn: Michael A. Berrier
FAX: (858) 509-2365	
        The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
        11.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.     
        This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
        12.     JUDICIAL REFERENCE.     
        If and only if the jury trial waiver set forth in Section 11 of this Agreement is invalidated for any reason by a court of law, statute or otherwise, the reference provisions set forth below shall be substituted in place of the jury trial waiver. So long as the jury trial waiver remains valid, the reference provisions set forth in this Section shall be inapplicable.
        12.1     Each controversy, dispute or claim (each, a "Claim") between the parties arising out of or relating to this Agreement, any security agreement executed by Borrower in favor of Bank, any note executed by Borrower in favor of Bank or any other document, instrument or agreement executed by Borrower with or in favor of Bank (collectively in this Section, the "Loan Documents"), other than (i) all matters in connection with nonjudicial foreclosure of security interests in real or personal property; or (ii) the appointment of a receiver or the exercise of other provisional remedies (any of which may be initiated pursuant to applicable law) that are not settled
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in writing within fifteen (15) days after the date on which a party subject to the Loan Documents gives written notice to all other parties that a Claim exists (the "Claim Date") shall be resolved by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure, or their successor sections'("CCP"), which shall constitute the exclusive remedy for the resolution of any Claim concerning the Loan Documents, including whether such Claim is subject to the reference proceeding. Except as set forth in this section, the parties waive the right to initiate legal proceedings against each other concerning each such Claim. Venue for these proceedings shall be in the Superior Court in the County where the real property, if any, is located or in a County where venue is otherwise appropriate under state law (the "Court"). By mutual agreement, the parties shall select a retired Judge of the Court to serve as referee; and if they cannot so agree within fifteen (15) days after the Claim Date, the Presiding Judge of the Court (or his or her representative) shall promptly select the referee. A request for appointment of a referee may be heard on an ex parte or expedited basis. The referee shall be appointed to sit as a temporary judge, with all the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP § 170.6. Upon being selected, the referee shall (a) be requested to set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection and (b) if practicable, try any and all issues of law or fact and report a statement of decision upon them within ninety (90) days of the date of selection. The referee will have power to expand or limit the amount of discovery a party may employ. Any decision rendered by the referee will be final, binding and conclusive, and judgment shall be entered pursuant to CCP § 644 in any court in the State of California having jurisdiction. The parties shall complete all discovery no later than fifteen (15) days before the first trial date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Either party may take depositions upon seven (7) days written notice, and shall respond to requests for production or inspection of documents within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. Pending appointment of the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate.
        12.2     Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. Except for trial, all proceedings and hearings conducted before the referee shall be conducted without a court reporter unless a party requests a court reporter. The party making such a request shall have the obligation to arrange for and pay for the court reporter. Subject to the referee's power to award costs to the prevailing party, the parties shall equally bear the costs of the court reporter at the trial and the referee's expenses.
        12.3     The referee shall determine all issues in accordance with existing California case and statutory law. California rules of evidence applicable to proceedings at law will apply to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that shall be binding upon the parties. At the close of the reference proceeding, the referee shall issue a single judgment at disposing of all the claims of the parties that are the subject of the reference. The parties reserve the right (i) to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee and (ii) to obtain findings of fact, conclusions of
21

laws, a written statement of decision, and (iii) to move for a new trial or a different judgment, which new trial, if granted, shall be a reference proceeding under this provision.
        12.4     If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration conducted by a retired judge of the Court, in accordance with the California Arbitration Act § 1280 through § 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery as set forth in this Section shall apply to any such arbitration proceeding.
        13.     GENERAL PROVISIONS.     
        13.1     Successors and Assigns.     This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder.
        13.2     Indemnification.     Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys' fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct.
        13.3     Time of Essence.     Time is of the essence for the performance of all obligations set forth in this Agreement.
        13.4     Severability of Provisions.     Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
        13.5     Amendments in Writing, Integration.     Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
        13.6     Counterparts.     This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
        13.7     Survival.     All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

	 	 	BRIDGEPOINT EDUCATION, INC.	
	 	 	By:	 	/s/ ANDREW CLARK
	
	 	 	Title:    Chief Executive Officer	
	 	 	 	 	 	
	 	 	COMERICA BANK	
	 	 	By:	 	/s/ COMERICA BANK
	
	 	 	Title:    Senior VP	

[Signature Page to Loan and Security Agreement]
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 FIRST AMENDMENT
TO LOAN AND SECURITY AGREEMENT
        This First Amendment to Loan and Security Agreement (this "Amendment") is entered into as of March 9, 2005, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC., a Delaware corporation ("BPE"), and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC, an Iowa limited liability company, and wholly-owned Subsidiary of BPE ("BEREH" and, collectively with BPE, the "Borrowers;" and each individually, a "Borrower").

 RECITALS
        BPE and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time (the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are amended or restated as follows:
        "Acquisition" means the purchase by BEREH and Ashford of substantially all the real and personal property assets of Sellers, pursuant to the terms and conditions of the Acquisition Documents.
        "Acquisition Documents" means that certain Purchase and Sale Agreement dated as of December 3, 2004, as amended from time to time, by and between BPE and Sellers, and such other documents, instruments and agreements, including but not limited to the Assignment Agreement, each as amended from time to time, in form and content reasonably acceptable to Bank, executed and delivered in connection therewith, pursuant to which the parties thereto will consummate the Acquisition.
        "Appraisal" means that certain appraisal of the Real Property, ordered by and prepared for the benefit of Bank, which Bank shall receive, in form and content reasonably acceptable to Bank, within sixty (60) days of the date hereof.
        "Ashford" means Ashford University, LLC, an Iowa limited liability company, and wholly-owned Subsidiary of BPE.
        "Assignment Agreement" means that certain agreement pursuant to which BPE will assign to BEREH and Ashford, as assignees, BPE's rights, duties and obligations under the Acquisition Documents.
        "Escrow Agent" means Abstract and Title Co., as escrow agent with respect to the Acquisition.
        "Escrow Instructions" means the joint escrow instructions delivered to and accepted by Escrow Agent with respect to the Acquisition, in form and content reasonably satisfactory to Bank.
        "Excess Loan Amount" means, as of the date of determination, the difference between (1) the sum of (a) the face amount of the Letter of Credit issued hereunder, and (b) the principal amount of the Term Loan, and (2) seventy five percent (75%) of the appraised value of the Real Property, as reported in the Appraisal.
        "Letter of Credit" means that certain letter of credit issued by Bank at Parent's request in accordance with Section 2.1(c).
        "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrowers or their Subsidiaries pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or
1

obligation owing from Borrowers or their Subsidiaries to others that Bank may have obtained by assignment or otherwise.
        "Parent" means BPE, as Borrower.
        "Real Estate Documents" means, collectively, that certain Deed of Trust, Security Agreement and Fixture Filing (With Assignment of Rents and Leases); Environmental Indemnity; Assignment of Real Property Leases and Rents; and Subordination Agreement; each executed for the benefit of Bank.
        "Real Property" means the real property being acquired in connection with the Acquisition, and commonly referred to as the "Franciscan University."
        "Sellers" means, collectively, The Franciscan University of the Prairies, an Iowa non-profit corporation, and the Sisters of St. Francis, Clinton, Iowa, an Iowa non-profit corporation.
        "Shares" means (i) sixty-six and two-thirds percent (66 2 / 3 %) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Borrower in any Subsidiary of such Borrower which is not an entity organized under the laws of the United States or any territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Borrower in any Subsidiary of such Borrower which is an entity organized under the laws of the United States or any territory thereof.
        "Term Loan" has the meaning set forth in Section 2.1(b).
        "Term Loan Maturity Date" means March 9, 2008.
        2.     Except as the context otherwise requires, references throughout the Loan Documents to "Borrower" shall mean and refer to "Borrowers." BEREH shall be a "Borrower" for all purposes under the Agreement. BEREH shall have the rights and obligations of a Borrower under the Agreement. Without limiting the generality of the foregoing, "Obligations" shall include all Obligations of BEREH, and BEREH grants Bank a security interest in the Collateral to secure the Obligations.
        3.     New Section 2.1(b) hereby is added to the Agreement to read as follows:
        "(b) Term Loan.
        (i)    Subject to and upon the terms and conditions of this Agreement, on the date of this Amendment, Bank shall make one term loan to Parent in an aggregate amount not to exceed Three Million Five Hundred Forty Nine Thousand Eight Hundred Dollars ($3,549,800) (the "Term Loan"), which amount shall be used to consummate the Acquisition. Bank shall wire transfer the proceeds of the Term Loan directly to the Escrow Agent, to be released only in accordance with the terms and conditions of the Escrow Instructions.
        (ii)   Interest shall accrue from the date the Term Loan is made at the rate specified in Section 2.3(a), and shall be payable monthly on the first day of each month commencing on the first day of the first month after the Term Loan is made. The Term Loan shall be repaid in thirty-six (36) equal monthly installments of principal in the amount of Thirteen Thousand Five Hundred Thirty Dollars ($13,530), plus accrued but unpaid interest, commencing on the first day of the first month after the Term Loan is made and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts owing under this Section 2.1(b) shall be immediately due and payable. Notwithstanding the foregoing, the Excess Loan Amount shall be repaid in twenty-four (24) equal monthly payments of principal plus accrued but unpaid interest, commencing on the first day of the first month after Bank receives and approves the Appraisal (and provides notice of the same to Parent), and continuing on the same day of each month thereafter until the Excess Loan Amount is paid in full. The Term Loan, once repaid, may not be reborrowed. Except as otherwise set forth herein, Borrower may prepay the Term Loan without penalty or premium."
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        4.     New Section 2.1(c) hereby is added to the Agreement to read as follows:
        "(c)     Letter of Credit.     In reliance on the representations and warranties of Borrowers set forth herein, on or about the date of this Amendment, Bank shall issue for the account of Ashford a Letter of Credit as Parent may request by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letter of Credit shall not at any time exceed One Million Four Hundred Fifty Thousand Two Hundred Dollars ($1,450,200). The Letter of Credit shall be delivered by Bank to the Escrow Agent, to be released only in accordance with the terms and conditions of the Escrow Instructions. Any drawn but unreimbursed amounts under the Letter of Credit shall be charged against the balance in any deposit accounts held by Bank and/or certificates of deposit or time deposit accounts issued by Bank in any Borrower's name (and any interest paid thereon or proceeds thereof). In the event of drawn but unreimbursed amounts under the Letter of Credit, Borrowers authorize Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by any Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Letters of Credit are outstanding. The Letter of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement. Borrowers will pay any standard issuance and other fees that Bank notifies Parent it will charge for issuing and processing the Letter of Credit."
        5.     Section 2.3(a) of the Agreement hereby is amended and restated in its entirety to read as follows:
        "(a)     Interest Rates.     
        (i)     Equipment Advances.     Except as set forth in Section 2.3(b), the Equipment Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one and one half percent (1 .50%) above the Prime Rate.
        (ii)     Term Loan.     Except as set forth in Section 2.3(b), the Term Loan shall bear on the outstanding Daily Balance thereof, at either (a) a floating rate (the "Floating Rate Option") equal to one percent (1.00%) above the Prime Rate, or (b) after Bank's receipt and review of the Appraisal (and determination of any Mandatory Prepayment Amount (as defined below), if any), a fixed rate (the "Fixed Rate Option") equal to one and one half percent (1.50%) above the Prime Rate as in effect on the date of election of the Fixed Rate Option. Unless Borrower advises Bank to the contrary prior to or concurrently with the execution and delivery by Borrower of this Amendment, the interest rate in effect with respect to the Term Loan from the date of this Amendment shall be the Floating Rate Option. At any time thereafter, Borrower shall be entitled, one (1) time during such amortization period, upon five (5) Business Days prior written notice to Bank, to elect thereafter to pay interest thereon at the Fixed Rate Option. Such election by Borrower, once made, shall be irrevocable for the remainder of the term of repayment of the Term Loan. In the event Borrower elects to pay interest on the Term Loan at the Fixed Rate Option, the Term Loan may be prepaid by Borrower, other than pursuant to Section 2.3(e) hereof, only in accordance with the prepayment penalty provisions set forth in Appendix I hereto (the "Prepayment Penalty Provisions")."
        6.     New Section 2.3(e) hereby is added to the Agreement to read as follows:
        "(e)     Mandatory Prepayment.     Within five (5) Business Days of Bank's receipt and approval of the Appraisal (and notice of the same to Parent), Borrowers shall pay to Bank on account of the Term Loan, an amount (the "Mandatory Prepayment Amount") equal to the Excess Loan Amount minus Two Million Dollars ($2,000,000). The Mandatory Prepayment Amount shall be
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applied by Bank to the Term Loan in the reverse order in which the principal payments would have been due under the Term Loan's principal amortization schedule."
        7.     New Section 4.4 hereby is added to the Agreement to read as follows:
        "4.4     Pledge of Collateral.     Each Borrower hereby pledges, assigns and grants to Bank a security interest in all the respective Borrower's Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. On the date of this Amendment, the certificate or certificates for the Shares will be delivered to Bank, accompanied by an instrument of assignment duly executed in blank by the appropriate Borrower. To the extent required by the terms and conditions governing the Shares, each Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new certificates representing such securities to be issued in the name of Bank or its transferee. Each Borrower will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank's security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, each Borrower shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default."
        8.     New Section 4.5 hereby is added to the Agreement to read as follows:
        "4.5     Pledge of Account.     Borrowers hereby pledge to Bank and grant to Bank a security interest in Comerica Bank account no. 1892037647, which shall at all times have a minimum balance of One Million Dollars ($1,000,000), together with all proceeds and substitutions thereof, all interest paid thereon, and all other cash and noncash proceeds of the foregoing (all hereinafter called the "Pledged Collateral"), as security for the prompt payment and performance of all of Borrowers' Obligations. Borrowers shall enter into such control or other agreements as Bank requests in order to perfect or ensure the priority of Bank's security interest in the Pledged Collateral. Upon (a) Bank's receipt and satisfactory review of the Appraisal, which shall reflect a minimum value of the Real Property of Four Million Dollars ($4,000,000), or (b) Borrower's satisfaction of the Mandatory Prepayment, Bank shall release the Pledged Collateral to Borrower."
        9.     Section 5.12 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "5.12     Environmental Condition.     To the best of Borrower's knowledge, except as disclosed in the Schedule, none of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary or, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in
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the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment."
        10.   New Section 5.18 hereby is added to the Agreement to read as follows:
        "5.18     Shares.     Each Borrower has full power and authority to create a first lien on the respective Shares and no disability or contractual obligation exists that would prohibit such Borrower from pledging the Shares pursuant to this Agreement. To each Borrower's knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To each Borrower's knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and no Borrower knows of any reasonable grounds for the institution of any such proceedings.
        11.   Section 6.3 (b) of the Agreement is hereby amended to replace the words "one hundred twenty (120)" with "one hundred eighty (180)."
        12.   New Section 6.6(c) hereby is added to the Agreement to read as follows:
        "(c) In the event a deed of trust by and between Borrower and Bank provides insurance requirements as to certain Collateral, the insurance requirements of said deed of trust shall govern with regard to such Collateral."
        13.   Section 6.8 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "6.8     Intentionally Omitted."     
        14.   Section 6.9 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "6.9     Stock Purchase Agreement.     By March 31, 2005, BPE shall have sold and issued equity interests to Warburg Pincus Private Equity VIII, L.P., or any of its Affiliates (collectively, "WP"), the aggregate net cash proceeds of which shall be no less than $1.5 million. By July 31, 2005, BPE and WP shall have entered into an agreement, on terms acceptable to WP, that has been approved and accepted by BPE's Board of Directors, which provides for the sale by BPE and the purchase by WP, of equity interests of BPE, the net proceeds of which shall be in an amount sufficient to cover actual losses of BPE and its Subsidiaries on a consolidated basis as of July 31, 2005, such losses to be certified by the Chief Executive Officer and the Chief Financial Officer of BPE as being true and accurate provided, however, that in no event shall such net proceeds be more than $3.5 million."
        15.   New Section 6.12 hereby is added to the Agreement to read as follows:
        "6.12     Maximum Net Loss; Profitability.     For the 2005 and 2006 fiscal years, BPE and its Subsidiaries, measured quarterly on a consolidated basis, shall not suffer a net loss in any single quarter in excess of twenty percent (20%) of the net loss projected for that quarter in the projections attached hereto as Annex I. Notwithstanding the foregoing, for any two consecutive fiscal quarters during such fiscal years, BPE and its Subsidiaries, on a consolidated basis, shall not suffer a cumulative net loss in excess of the net loss for such two quarters projected in the projections attached hereto as Annex I. Not later than December 31, 2005, BPE may, in its sole discretion, deliver to Bank a projection for 2006 (the "Subsequent Projection"). If the Bank does not object to the Subsequent Projection within 30 days of Bank's receipt thereof, Annex I shall automatically be deemed amended to instead include the Subsequent Projection as the basis for this "Maximum Net Loss; Profitability" covenant for fiscal year 2006. Borrowers and Bank agree to negotiate in good faith to amend this covenant based upon the Subsequent Projection, if delivered and deemed included herein as set forth above. If BPE determines not to or fails timely to deliver to Bank a projection for 2006 as provided above, the projections set forth in Annex I shall continue in full force and effect."
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        16.   New Section 6.13 hereby is added to the Agreement to read as follows:
        "6.13     Appraisal.     Borrowers shall cooperate with Bank and Bank's appraisers in connection with such appraisers' access to the Real Property, and preparation and delivery of the Appraisal."
        17.   Section 7.1 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "7.1     Dispositions.     Except as otherwise permitted under Section 7.8, convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank."
        18.   Section 7.2 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "7.2     Change in Business; Change in Control or Executive Office.     Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower or any its Subsidiaries after taking into account the Acquisition, and any business substantially similar or related (or incidental) thereto; or cease to conduct business in the manner conducted by Borrower as of the Closing Date after taking into account the Acquisition and without regard to Borrower's business with Charter Oak State College; or suffer or permit a Change of Control; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Bank's prior written consent, change the date on which its fiscal year ends."
        19.   Section 7.8 of the Agreement hereby is amended and restated to read as follows:
        "7.8     Transactions with Affiliates.     Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person; provided, however, that (x) Borrower and its Subsidiaries may have employees common to each other and may transfer employees between and among themselves; and (y) BPE may make capital contributions to Ashford (collectively, the "Ashford Contributions") from time to time not to exceed Four Million Dollars ($4,000,000) in the aggregate per fiscal year (excluding amounts contributed by BPE to Ashford in connection with the consummation of the Acquisition), provided the Ashford Contributions are allocated to and expended for the Operating Activities of Ashford and not accumulated beyond Five Hundred Thousand Dollars ($500,000) as cash on Ashford's books at any time. As used herein, "Operating Activities" means operating expenses, capital expenditures, and working capital requirements primarily related to the timing of collection of accounts receivable, all in Ashford's ordinary course of business."
        20.   The address for the Borrower set forth in Section 10 of the Agreement hereby is amended to read as follows:

"If to Borrower:	 	BRIDGEPOINT EDUCATION, INC.
13880 Stowe Drive
Poway, CA 92064-8826	

 	
BRIDGEPOINT EDUCATION REAL ESTATE
HOLDINGS, LLC
400 North Bluff Boulevard
Clinton, Iowa 52732"	
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        21.   Article 14 hereby is added to the Agreement to read as follows:
        "14.     CO-BORROWERS.     
        14.1     Co-Borrowers.     Borrowers are jointly and severally liable for the Obligations and Bank may proceed against one Borrower to enforce the Obligations without waiving its right to proceed against the other Borrower. This Agreement and the Loan Documents are a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of the Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Advance Request Forms, Borrowing Base Certificates and Compliance Certificates. Borrowers are jointly and severally liable for the Obligations and Bank may proceed against one or more of the Borrowers to enforce the Obligations without waiving its right to proceed against any of the other Borrowers. Each Borrower appoints each other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent for receipt of any Advances on behalf of each Borrower and to apply to Bank on behalf of each Borrower for Advances, any waivers and any consents. This authorization cannot be revoked, and Bank need not inquire as to one Borrower's authority to act for or on behalf of another Borrower.
        14.2     Subrogation and Similar Rights.     Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives, until all obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrower, all rights that it may have at law or in equity (including, without limitation, any law subrogating the Borrower to the rights of Bank under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.
        14.3     Waivers of Notice.     Each Borrower waives, to the extent permitted by law, notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default except as set forth herein; notice of the amount of the Obligations outstanding at any time; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower's risk; presentment for payment; demand; protest and notice thereof as to any instrument; and all other notices and demands to which the Borrower would otherwise be entitled by virtue of being a co-borrower or a surety. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Bank's failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Each Borrower also waives
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any defense arising from any act or omission of Bank that changes the scope of the Borrower's risks hereunder. Each Borrower hereby waives any right to assert against Bank any defense (legal or equitable), setoff, counterclaim, or claims that such Borrower individually may now or hereafter have against another Borrower or any other Person liable to Bank with respect to the Obligations in any manner or whatsoever.
        14.4     Subrogation Defenses.     Until all Obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrower, each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.
        14.5     Right to Settle, Release.     
        (a)   The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Bank may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.
        (b)   Without notice to any Borrower and without affecting the liability of any Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the Obligations with respect to a Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to a Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.
        14.6     Subordination.     All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Bank to effect, to enforce and to give notice of such subordination."
        22.   Exhibit C to the Agreement hereby is replaced in its entirety with Exhibit C attached hereto.
        23.   Notwithstanding any provision in the Agreement to the contrary, subject to the terms and conditions (and execution and delivery) of this Amendment, Bank hereby consents to Borrowers' consummation of the Acquisition.
        24.   No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure at any time to require strict performance by a Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        25.   Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as
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expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        26.   Each Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        27.   As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by Borrowers;
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (c)   a UCC Financing Statement naming BEREH as debtor;
        (d)   a UCC Financing Statement Amendment, reflecting the correct address for BPE;
        (e)   fully executed copies of the Acquisition Documents;
        (f)    fully executed copies of the Real Estate Documents;
        (g)   evidence of receipt by BPE of net proceeds from the issuance and sale by BPE of its equity securities, on terms and from investors reasonably acceptable to Bank, in the minimum amount of Five Million Five Hundred Thousand Dollars ($5,500,000), which shall be used by Borrower, together with the proceeds of the Term Loan, to consummate the Acquisition;
        (h)   the certificate(s) for the Shares, together with Assignment(s) Separate from Certificate, duly executed by in blank;
        (i)    a warrant to purchase BPE's stock;
        (j)    a facility fee in the amount of $17,500 (receipt of $12,000 of which hereby is acknowledged by Bank, which shall be applied by Bank to satisfy Bank Expenses, with any remaining amount to be applied by Bank to the facility fee), which may be debited from any of Borrowers' accounts;
        (k)   all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrowers' accounts; and
        (l)    such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        28.   This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        In witness whereof, the undersigned have executed this Amendment as of the first date above written.

	 	BRIDGEPOINT EDUCATION, INC., a Delaware corporation	
	 	By:	 	/s/ ANDREW CLARK
	
	 	Title:	 	Chief Executive Officer
	
	 	BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC, an Iowa Limited Liability Company	
	 	By:	 	/s/ ANDREW CLARK
	
	 	Title:	 	Chief Executive Officer
	
	 	COMERICA BANK	
	 	By:	 	/s/ COMERICA BANK
	
	 	Title:	 	Senior V.P.
	
[Signature Page to First Amendment to Loan & Security Agreement)
10

 SECOND AMENDMENT
TO LOAN AND SECURITY AGREEMENT
        This Second Amendment to Loan and Security Agreement (this "Amendment") is entered into as of June 13, 2006, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005 (collectively, the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terns in Section 1.1 of the Agreement hereby are amended or restated as follows:
        "Advance" or "Advances" means a cash advance or cash advances under the Revolving Line.
        "Credit Extension" means each Advance, Equipment Advance, Equipment Line B Advance, Term Loan, or any other extension of credit by Bank to or for the benefit of Borrowers hereunder.
        "Equipment Line B" means a Credit Extension of up to Two Hundred Thousand Dollars ($200,000).
        "Equipment Line B Advances" means a cash advance or cash advance under the Equipment Line B.
        "Equipment Line B Maturity Date" means June 13, 2010.
        "Revolving Line" means a credit extension of up to One Million Dollars ($1,000,000).
        "Revolving Maturity Date" means the day before the first anniversary of the date of this Amendment.
        "Tranche A" has the meaning assigned in Section 2.1(e)(i).
        "Tranche A Availability End Date" means December 13, 2006.
        "Tranche A Equipment Advance" or "Tranche A Equipment Advances" means any Equipment Line B Advances(s) made under Tranche A.
        "Tranche B" has the meaning assigned in Section 2.1(e)(i).
        "Tranche B Availability End Date" means June 13, 2007.
        "Tranche B Equipment Advance" or "Tranche B Equipment Advances" means any Equipment Line B Advances(s) made under Tranche B.
        2.     New Section 2.1(d) hereby is added to the Agreement to reads as follows:
        "(d)     Advances Under Revolving Line.     
        (i)     Amount.     Subject to and upon the terms and conditions of this Agreement (1) BPE may request Advances in an aggregate outstanding amount not to exceed the Revolving Line, and (2) amounts borrowed pursuant to this Section 2.1(d) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(d) shall be immediately due and payable. Borrowers may prepay any Advances without penalty or premium.
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        (ii)     Form of Request.     Whenever BPE desires an Advance, BPE will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof and Borrowers shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(d) to BPE's deposit account."
        3.     New Section 2.1(e) hereby is added to the Agreement to read as follows:
        "(e)     Equipment Line B Advances.     
        (i)    Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Equipment Line B Advances to BPE in two (2) tranches, Tranche A and Tranche B. BPE may request Equipment Line B Advances under Tranche A at any time from the date hereof through the Tranche A Availability End Date. BPE may request Equipment Line B Advances under Tranche B at anytime from the Tranche A Availability End Date through the Tranche B Availability End Date. The aggregate outstanding amount of Tranche A Equipment Line B Advances and Tranche B Equipment Line B Advances shall not exceed the Equipment Line. Each Equipment Line B Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment and software approved by Bank from time to time (which Borrowers shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Line B Advance), excluding taxes, shipping, warranty charges, freight discounts and installation expense.
        (ii)   Interest shall accrue from the date of each Equipment Line B Advance at the rate specified in Section 2.3(a), and shall be payable in accordance with Section 2.3(c). Any Equipment Line B Advances that are outstanding under Tranche A on the Tranche A Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on January 13, 2007, and continuing on the same day of each month thereafter until paid in full. Any Equipment Line B Advances that are outstanding under Tranche B on the Tranche B Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on July 13, 2007, and continuing on the same day of each month thereafter through the Equipment Line B Maturity Date, at which time all amounts due in connection with Tranche B Equipment Line B Advance made under this Section 2.1(e) and any other amounts due under this Agreement shall be immediately due and payable. Equipment Line B Advances, once repaid, may not be reborrowed Borrowers may prepay any Equipment Line B Advances without penalty or premium.
        (iii)  When BPE desires to obtain an Equipment Line B Advance, BPE shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Equipment Line B Advance is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer or its designee and include a copy of the invoice for any Equipment to be financed."
        4.     New subsections (iii) and (iv) hereby are added to Section 2.3(a) of the Agreement to read as follows:
        "(iii)     Advances.     Except as set forth in Section 2.3(b), the Advances shall bear interest on the outstanding daily balance thereof, at a variable rate equal to one and one half percent (1.50%) above the Prime Rate; and
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        (iv)     Equipment Line B Advances.     Except as set forth in Section 2.3(b), the Equipment Line B Advances shall bear interest, on the outstanding daily balance thereof, at a rate equal to one percent (1.00%) above the Prime Rate."
        5.     A new unnumbered paragraph hereby is added to the end of Section 6.3 of the Agreement to read as follows:
        "Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank aged listings by invoice date of accounts receivable and accounts payable."
        6.     Exhibit C to the Agreement hereby is replaced in its entirety with Exhibit C attached hereto.
        7.     All references in the Loan Documents (except the Warrant) to Bank's address at 2321 Rosecrans Ave., Suite 5000, El Segundo, CA 90245 shall mean and refer to 75 East Trimble Road, MIC 4770, San Jose, California 95131, Attn: Manager, FAX: (408) 556-5091; and the reference to the Bank's address at 11512 El Camino Real, Ste. 350, San Diego, CA 92130, Attn: Michael A. Berrier shall mean and refer to 11943 El Camino Real, Ste. 110B, San Diego, CA 92130, Attn: Raquel Cunningham. The reference in the Warrant to Bank's address(es) shall mean and refer to 500 Woodward Avenue, 32nd Floor, MC 3379, Detroit, MI 48226.
        8.     Section 11 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "11.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.     
        This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES."
        9.     Section 12 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "12     REFERENCE PROVISION.     
        In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
        12.1     Mechanics.     
        (a)   With the exception of the items specified in clause (c), below, any controversy, dispute or claim (each, a "Claim") between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the "Comerica Documents"), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure ("CCP"), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the "Court").
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        (b)   The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.
        (c)   The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
        (d)   The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
        (e)   The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party's failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to "priority" in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
        12.2     Procedures.     Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any heating conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee's power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
        12.3     Application of Law.     The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which
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would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for anew trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
        12.4     Repeal.     If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
        12.5   THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS."
        10.   No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right Bank's failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        11.   Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        12.   Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        13.   As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by each Borrower,
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
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        (c)   an Amendment to and Affirmation (or similar) of that certain (i) Deed of Trust, Mortgage, Security Agreement and Fixture Filing (With Assignment of Rents and Leases); (ii) Assignment of Real Property Leases and Rents; (iii) Subordination Agreement; and Environmental Indemnity;
        (d)   a facility fee in the amount of $10,000, which may be debited from any of Borrower's accounts;
        (e)   all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts; and
        (f)    such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        14.   This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

	 	 	BRIDGEPOINT EDUCATION, INC.	
	 	 	By:	 	/s/ ANDREW CLARK
	
	 	 	Title:	 	Chief Executive Officer

	 	 	BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	
	 	 	By:	 	/s/ ANDREW CLARK
	
	 	 	Title:	 	Chief Executive Officer

	 	 	COMERICA BANK	
	 	 	By:	 	/s/ COMERICA BANK
	
	 	 	Title:	 	Senior V.P.

	 	 	 	 	 	

	 	 	 	 	 	
	 	 	 	 	 	
[Signature Page to Second Amendment to Loan & Security Agreement]

 THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
        This Third Amendment to Loan and Security Agreement (this "Amendment") is entered into as of January 11, 2007, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, "Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005 and that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006 (collectively, the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are amended or restated as follows:
        "Amendment" means this Third Amendment to Loan and Security Agreement dated as of January 11, 2007.
        "Revolving Line" means a credit extension of up to (a) One Million Five Hundred Thousand Dollars ($1,500,000) from the date of this Amendment through February 11, 2007, and (b) One Million Dollars ($1,000,000) thereafter.
        2.     No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right Bank's failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        3.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        4.     Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        5.     As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by each Borrower;
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (c)   a Second Amendment to and Affirmation (or similar) of that certain (i) Deed of Trust, Mortgage, Security Agreement and Fixture Filing (With Assignment of Rents and Leases);
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(ii) Assignment of Real Property Leases and Rents; (iii) Subordination Agreement; and Environmental Indemnity;
        (d)   a facility fee in the amount of $2,500, which may be debited from any of Borrower's accounts;
        (e)   all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts; and
        (f)    such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        6.     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

	 	 	BRIDGEPOINT EDUCATION, INC.	
	 	 	By:	 	/s/ DANIEL J. DEVINE
	
	 	 	Title:	 	Chief Financial Officer

	 	 	BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	
	 	 	By:	 	/s/ DANIEL J. DEVINE
	
	 	 	Title:	 	Chief Financial Officer

	 	 	COMERICA BANK	
	 	 	By:	 	/s/ COMERICA BANK
	
	 	 	Title:	 	CBO

	 	 	 	 	 	

	 	 	 	 	 	
	 	 	 	 	 	
[Signature Page to Third Amendment to Loan & Security Agreement]
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 FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
        This Fourth Amendment to Loan and Security Agreement (this "Amendment") is entered into as of March 12, 2007, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, "Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007 (collectively, the "Agreement").
        Borrowers have requested Bank to consent to the issuance by Borrowers of a Grid Note to Warburg Pincus Private Equity VIII, LP, in the original principal amount of $3,000,000. Bank has agreed to so consent subject to the terms and conditions of this Amendment. The parties further desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are amended or restated as follows:
        "Grid Note" means that certain Grid Note made by Borrowers (or any of them) in favor of Warburg in the original principal amount of $3,000,000.
        "Letter of Credit" means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower's request in accordance with Section 2.1(d)(iii).
        "Letter of Credit Sublimit" means a sublimit for Letters of Credit under the Revolving Line not to exceed Two Million One Hundred Twenty Thousand Two Hundred Dollars ($2,120,200).
        "Revolving Line" means a credit extension of up to Four Million Twenty Thousand Two Hundred Dollars ($4,020,200).
        "Revolving Maturity Date" means June 12, 2008.
        "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the sum of the capital stock, partnership interest or limited liability company interest of Borrower and its Subsidiaries minus intangible assets, determined in accordance with GAAP. For purposes of this definition, the Grid Note constitutes debt and not equity.
        "Warburg" means Warburg Pincus Private Equity VIII, L.P.
        2.     Bank hereby consents to Borrowers execution, delivery and performance of the Grid Note. The Indebtedness evidenced by the Grid Note shall be deemed "Permitted Indebtedness" and "Subordinated Debt" under the Agreement. The security interest created by the Grid Note shall be a "Permitted Lien" under the Agreement. Bank hereby waives any default or Event of Default under the Agreement as a result of the execution, delivery or performance of the Grid Note, including but not limited to Section 7.8 of the Agreement.
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        3.     Section 2.1(d)(i) of the Agreement hereby is amended and restated in its entirety to read as follows:
        "(i)     Amount.     Subject to and upon the terms and conditions of this Agreement (1) BPE may request Advances in an aggregate outstanding amount not to exceed the Revolving Line, less any amounts outstanding under the Letter of Credit Sublimit, and (2) amounts borrowed pursuant to this Section 2.1(d) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(d) shall be immediately due and payable. Borrowers may prepay any Advances without penalty or premium."
        4.     New Sections 2.1(d)(iii) and (iv) hereby are added to the Agreement to read as follows:
        "(iii)     Letter of Credit Sublimit.     Subject to the availability under the Revolving Line, and in reliance on the representations and warranties of Borrower set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Bank shall issue for the account of Borrower such Letters of Credit as Borrower may request by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of calculating availability under the Revolving Line. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as Advances against the Revolving Line. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement Borrower will pay any standard issuance and other fees that Bank notifies Borrower it will charge for issuing and processing Letters of Credit.
        (iv)     Collateralization of Obligations Extending Beyond Maturity.     If Borrower has not secured to Bank's satisfaction its obligations with respect to any Letters of Credit by the Revolving Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in Borrower's name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding and undrawn Letters of Credit. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Letters of Credit are outstanding or continue.
        5.     Section 6.7 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "6.7     Tangible Net Worth.     Borrower shall at all times maintain a Tangible Net Worth of not less than (i) One Million Five Hundred Thousand Dollars ($1,500,000) from March 31, 2007 through December 30, 2007; and (ii) Two Million Five Hundred Thousand Dollars ($2,500,000) thereafter."
        6.     Exhibit C to the Agreement hereby is replaced in its entirety with Exhibit C attached hereto.
        7.     No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to
2

demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        8.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        9.     Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        10.   As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by each Borrower;
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (c)   a Third Amendment to and Affirmation (or similar) of that certain (i) Deed of Trust, Mortgage, Security Agreement and Fixture Filing (With Assignment of Rents and Leases); (ii) Assignment of Real Property Leases and Rents; (iii) Subordination Agreement; and Environmental Indemnity;
        (d)   a facility fee in the amount of $8,750, which may be debited from any of Borrower's accounts;
        (e)   a Subordination Agreement from [Warburg Pincus], in form and content reasonably acceptable to Bank;
        (f)    all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts; and
        (g)   such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        11.   This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

	 	 	BRIDGEPOINT EDUCATION, INC.	
	 	 	By:	 	/s/ DANIEL J. DEVINE
	
	 	 	Title:	 	Chief Financial Officer

	 	 	BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	
	 	 	By:	 	/s/ DANIEL J. DEVINE
	
	 	 	Title:	 	Chief Financial Officer

	 	 	COMERICA BANK	
	 	 	
By:	 	/s/ COMERICA BANK
	
	 	 	Title:	 	CBO

	 	 	 	 	 	

	 	 	 	 	 	
	 	 	 	 	 	
[Signature Page to Fourth Amendment to Loan & Security Agreement]

 FIFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
        This Fifth Amendment to Loan and Security Agreement (this "Amendment") is entered into as of October 1, 2007, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, "Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007, and that certain Fourth Amendment to Loan and Security Agreement dated as of March 12, 2007 (collectively, the "Agreement").
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are added, amended or restated as follows:
        "Letter of Credit Sublimit" means a sublimit for Letters of Credit under the Revolving Line not to exceed Three Million Six Hundred Ninety Seven Thousand Eight Hundred Twenty Six Dollars ($3,697,826).
        "Revolving Line" means a credit extension of up to Six Million Dollars ($6,000,000).
        2.     No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        3.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        4.     Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        5.     As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by each Borrower;
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (c)   a Fourth Amendment to and Affirmation of that certain (i) Deed of Trust, Mortgage, Security Agreement and Fixture Filing (With Assignment of Rents and Leases); (ii) Fourth
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Amendment to and Assignment of Real Property Leases and Rents; (iii) Fourth Amendment to and Affirmation of Subordination Agreement;
        (d)   an Affirmation of Subordination, duly executed by Warburg Pincus Private Equity VIII, L.P.;
        (e)   an amendment fee in the amount of $2,500, which may be debited from any of Borrower's accounts;
        (f)    all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts; and
        (g)   such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        6.     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

	 	BRIDGEPOINT EDUCATION, INC.	
	 	By:	 	/s/ ANDREW CLARK
	
	 	Title:	 	Chief Executive Officer
	
	 	BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	
	 	By:	 	/s/ ANDREW CLARK
	
	 	Title:	 	Chief Executive Officer
	
	 	COMERICA BANK	
	 	By:	 	/s/ COMERICA BANK
	
	 	Title:	 	

 [Signature Page to Fifth Amendment to Loan & Security Agreement]

 SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
        This Sixth Amendment to Loan and Security Agreement (this "Amendment") is entered into as of March 9, 2008, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, "Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007, that certain Fourth Amendment to Loan and Security Agreement dated as of March 12, 2007 and that certain Fifth Amendment to Loan and Security Agreement dated as of October 1, 2007 (the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are added, amended or restated as follows:
        "Letter of Credit Sublimit" means a sublimit for Letters of Credit under the Revolving Line not to exceed Two Million Fifty Four Thousand Seven Hundred Twenty Six Dollars ($2,054,726).
        "Revolving Line" means a Credit Extension of up to Five Million Dollars ($5,000,000).
        "Sixth Amendment" means that certain Sixth Amendment to Loan and Security Agreement dated as of March 9, 2008.
        "Term Loan B" has the meaning set forth in Section 2.l(b).
        "Term Loan B Maturity Date" means March 1, 2011.
        2.     Section 2.l(b) of the Agreement hereby is amended and restated in its entirety to read as follows:
        "(b)     Term Loan B.     
        (i)    Subject to and upon the terms and conditions of this Agreement, on the date of the Sixth Amendment or as soon thereafter a s practical, Bank shall make one term loan to Parent in an aggregate amount not to exceed Seven Million Five Hundred Thousand Dollars ($7,500,000) ("Term Loan B"), which amount shall be used to refinance the existing Term Loan and for working capital.
        (ii)   Interest shall accrue from the date Term Loan B is made at the rate specified in Section 2.3(a). Term Loan B shall be repaid in thirty-six (36) monthly installments of principal and interest in an amount based upon a ten (10) year amortization schedule, commencing on the first day of the first month after Term Loan B is made and continuing on the same day of each month thereafter through the Term Loan B Maturity Date, at which time all amounts owing under this Section 2.l(b) shall be immediately due and payable. Term Loan B, once repaid, may not be reborrowed. Except as otherwise set forth herein, Borrower may prepay Term Loan B without penalty or premium."
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        3.     Section 2.3(a)(ii) of the Agreement hereby is amended and restated in its entirety to read as follows:
        "(ii) Term Loan B . Except as set forth in Section 2.3(b), Term Loan B shall bear interest on the outstanding Daily Balance thereof, at a floating rate equal to one half of one percent (0.50%) above the Prime Rate."
        4.     Section 2.3(e) of the Agreement hereby is amended and restated in its entirety to read as follows:
        "(e)     Intentionally Omitted."     
        5.     Section 6.7 of the Agreement hereby is amended and restated in its entirety to read as follows:
        "6.7     Tangible Net Worth.     Borrowers shall at all times maintain a Tangible Net Worth of not less than Four Million Dollars ($4,000,000)."
        6.     Exhibit C to the Agreement hereby is replaced in its entirety with Exhibit C attached hereto.
        7.     No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        8.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        9.     Each Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        10.   As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by Borrowers;
        (b)   a signed Acknowledgement in the form attached hereto as Annex A;
        (c)   a Certificate of the Secretaries of Borrowers with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (d)   a Fifth Amendment to and Affirmation (or similar) of that certain (i) Deed of Trust, Mortgage, Security Agreement and Fixture Filing (With Assignment of Rents and Leases); (ii) Assignment of Real Property Leases and Rents; (iii) Subordination Agreement; and Environmental Indemnity;
        (e)   a facility fee in the amount of Eighteen Thousand Seven Hundred Fifty Dollars ($18,750), which may be debited from any of Borrowers' accounts;
        (f)    all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrowers' accounts; and
        (g)   such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        11.   This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ DANIEL J. DEVINE
	
 	 	Title:	 	Chief Financial Officer

 	
 	
BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	

 	
By:	
 	
/s/ DANIEL J. DEVINE
	
 	 	Title:	 	Chief Financial Officer

 	
 	
COMERICA BANK	

 	
By:	
 	
/s/ COMERICA BANK
	
 	 	Title:	 	V.P.
	
[Signature Page to Sixth Amendment to Loan and Security Agreement]
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 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
        This Seventh Amendment to Loan and Security Agreement (this "Amendment") is entered into as of June 12, 2008, by and between COMERICA BANK ("Bank") and BRIDGEPOINT EDUCATION, INC. and BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC (each, a "Borrower" and collectively, "Borrowers").

 RECITALS
        Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of April 12, 2004, as amended from time to time, including but not limited to that certain First Amendment to Loan and Security Agreement dated as of March 9, 2005, that certain Second Amendment to Loan and Security Agreement dated as of June 13, 2006, that certain Third Amendment to Loan and Security Agreement dated as of January 11, 2007, that certain Fourth Amendment to Loan and Security Agreement dated as of March 12, 2007, that certain Fifth Amendment to Loan and Security Agreement dated as of October 1, 2007 and that certain Sixth Amendment to Loan and Security Agreement dated as of March 9, 2008 (the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
        NOW, THEREFORE, the parties agree as follows:
        1.     The following defined terms in Section 1.1 of the Agreement hereby are added, amended or restated as follows:
        "Collateralized L/C" means Letter of Credit no. 633969 issued by Bank, which shall be cash secured by Comerica Bank money market account no. 1893-069946.
        "Letter of Credit Sublimit" means a sublimit for Letters of Credit, excluding the Collateralized L/C, under the Revolving Line not to exceed Five Million Dollars ($5,000,000).
        "Revolving Maturity Date" means June 12, 2010.
        2.     All references in Sections 2.l(d)(iii) and (iv) of the Agreement to "Letters of Credit" shall mean and refer to Letters of Credit exclusive of the "Collateralized L/C."
        3.     A new Section 4.6 hereby is added to the Agreement to read as follows:
        "4.6     Pledge of Account to Secure the Collateralized L/C.     Borrowers hereby pledge to Bank and grant Bank a security interest in Comerica Bank account no. 1893-069946, which shall at all times have a minimum balance of not less than the face amount of the Collateralized L/C, together with all proceeds and substitutions thereof, all interest paid thereon, and all other cash and noncash proceeds of the foregoing (all hereinafter called the "L/C Collateral"), as security for the prompt payment and performance of all of Borrowers' obligations under the Collateralized L/C. Borrowers shall enter into such control or other agreements as Bank requests in order to perfect or ensure the priority of Bank's security interest in the L/C Collateral."
        4.     No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank's failure at any time to require strict performance by a Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
        5.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as
1

expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.
        6.     Each Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
        7.     As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
        (a)   this Amendment, duly executed by each Borrower;
        (b)   a Certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
        (c)   all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrowers' accounts; and
        (d)   such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
        8.     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Balance of Page Intentionally Left Blank]
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        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ DANIEL J. DEVINE
	
 	 	Title:	 	Chief Financial Officer

 	
 	
BRIDGEPOINT EDUCATION REAL ESTATE HOLDINGS, LLC	

 	
By:	
 	
/s/ DANIEL J. DEVINE
	
 	 	Title:	 	Chief Financial Officer

 	
 	
COMERICA BANK	

 	
By:	
 	
/s/ COMERICA BANK
	
 	 	Title:	 	Senior VP
	
[Signature Page to Seventh Amendment to Loan and Security Agreement]
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QuickLinks
Exhibit 10.9
BRIDGEPOINT EDUCATION, INC. LOAN AND SECURITY AGREEMENT
 RECITALS
AGREEMENT
 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS
 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
RECITALS

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 Exhibit 10.10
EXECUTION COPY
GRID NOTE

 	 	 	
$3,000,000	 	New York, New York
March 12, 2007	
        On March 12, 2008 (the " Maturity Date "), the undersigned, BRIDGEPOINT EDUCATION, INC. (" Maker ") promises to pay to the order of WARBURG PINCUS PRIVATE EQUITY VIII, L.P. or assigns (" Lender ") at the office of Lender located at 466 Lexington Avenue, New York, New York 10017 or at any of its other offices as Lender may designate by written notice to Maker, the principal sum of THREE MILLION DOLLARS , or so much thereof as shall be advanced by Lender to Maker, in Lender's sole discretion, and not repaid, together with interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until the date on which this Note is paid in full, at the rate set forth below.
        Interest on the unpaid principal of this Note will be due and payable on the last day of each month and on the Maturity Date whether by acceleration or otherwise.
        Prior to the Maturity Date (whether by acceleration or otherwise) this Note shall bear interest at a rate equal to the Prime Rate (as defined below) plus 1.50% per annum. After the Maturity Date, this Note shall be payable on demand and shall accrue at a rate equal to the Prime Rate plus 3,50% per annum. As used herein " Prime Rate " means, with respect to an Advance, on any given day, the per annum interest rate listed by the Wall Street Journal on such day as the "base rate on corporate loans posted by at least 75% of the 30 largest U.S. banks." Any change in the Prime Rate shall become effective on the date of such change.
        Interest shall be calculated on the basis of a 365-day year for actual days elapsed. In no event shall the interest rate applicable at any time to this Note exceed the maximum rate permitted by law.
        This Note evidences loans made by Lender to Maker in Lender's sole discretion, from time to time. The unpaid principal balance of this Note at any time shall be the total amount advanced by Lender to Maker in Lender's sole discretion, less the total amount of principal payments made hereon by Maker. The date and amount of each such loan and each payment on account of principal thereof may be endorsed by Lender on the grid attached to and made a part of this Note, and when so endorsed shall represent evidence thereof binding upon Maker in the absence of manifest error. Any failure by Lender to so endorse shall in no way mitigate or discharge the obligation of Maker to repay any loans actually made.
        Requests for loans to Maker from Lender and directions as to the disposition of the proceeds thereof shall be given in writing no less than five business days prior to the requested funding date of such loan to Lender by the officers of Maker or other persons authorized to borrow on Maker's behalf. Loans shall be made in minimum increments of $250,000 or integer multiples thereof. Nothing in this Note shall be construed as an obligation of the Lender to make any advances.
        Maker shall be entitled to prepay any outstanding principal amount of this Note in whole or in part before 11:00 A.M. on any Business Day prior to the Maturity Date with respect to such principal amount without the prior consent of Lender provided that any such prepayments shall be made together with the payment of all interest accrued on the prepaid principal to the date of prepayment. Amounts prepaid shall be available to be reborrowed until the Maturity Date, subject to the discretion of the Lender to make such additional advances.
        Upon the occurrence of any of the following with respect to Maker, any indorser or any guarantor of the indebtedness evidenced by this Note: (i) default in payment of any amount due under this Note or in the payment or performance of any other Obligation or agreement of any nature or description to or with Lender hereunder or (ii) the occurrence of any "Event of Default" as such term is defined in

the Loan and Security Agreement, dated as of April 12, 2004 (as amended, supplemented or modified to the date of this Note), among Comerica Bank, Maker and Bridgepoint Education Real Estate Holdings, LLC, then all of the obligations of Maker hereunder shall automatically become due and payable immediately without notice or demand.
        This Note shall be payable in lawful money of the United States of America in immediately available funds. Except as otherwise provided herein with respect to prepayments, all payments on this Note shall be applied to the payment of accrued interest before being applied to the payment of principal. Any payment which is required to be made on a day which is not a banking business day in the City of New York shall be payable on the next succeeding banking business day and such additional time shall be included in the computation of interest. In the event that any other obligations hereunder are due at any time that Lender receives a payment from Maker on account of this Note or any such other obligations hereunder, Lender may apply such payment to amounts due under this Note or any such other obligations hereunder in such manner as Lender, in its discretion, elects, regardless of any instructions from Maker to the contrary.
        Maker grants and pledges to Lender a continuing security interest in all presently existing and hereafter acquired or arising property described on Exhibit A hereto (the " Collateral ") in order to secure a prompt repayment of any and all obligations hereunder and in order to secure prompt performance by the Maker of its obligations hereunder. Maker shall from time to time at request of Lender execute and deliver to Lender all financing statements and other documents that Lender may reasonably request, in form satisfactory to Lender, to perfect and continue the perfection of the Lender's security interest in the Collateral. Maker hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature or further consent of the Maker.
        The security interests created hereunder, and the payment obligations hereunder, are subject to the Subordination Agreement, dated as of the date hereof, and as amended, modified or supplemented from time to time, among the Lender, Comerica Bank and the Maker.
        Maker and each indorser hereby separately waive presentment, notice of dishonor, protest and notice of protest, and any or all other notices or demands (other than demand for payment) in connection with the delivery, acceptance, performance, default, endorsement or guarantee of this Note. The liability of Maker or any indorser hereunder shall be unconditional and shall not be in any manner affected by any indulgence whatsoever granted or consented to by the holder hereof, including, but not limited to any extension of time, renewal, waiver or other modification. Any failure of the holder to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time and from time to time thereafter. Lender or any holder may accept late payments, or partial payments, even though marked "payment in full" or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by Maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Note cannot be changed or terminated orally or by estoppel or waiver or by any alleged oral modification regardless of any claimed partial performance referable thereto.
        This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to instruments made and to be performed wholly within that state. If any provision of this Note is held to be illegal or unenforceable for any reason whatsoever, such illegality or unenforceability shall not affect the validity of any other provision hereof.
        Maker will pay or reimburse Lender for all fees and expenses (including reasonable legal fees and expenses) incurred by Lender in connection with the negotiation, preparation, execution and delivery or
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administration of, any waiver or modification (whether or not effective) of and the enforcement of this Note and the Security Agreement.
         MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO MAKER OR SUCH INDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS MAY APPEAR IN LENDER'S RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.
         IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE, LENDER, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.

 	 	 	 	 	
 	 	BRIDGEPOINT EDUCATION, INC.	

 	
By:	
 	
/s/ DANIEL J. DEVINE
	
 	 	 	 	Name: Daniel J. Devine	
 	 	 	 	Title: Chief Financial Officer	
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.

 	 	 	 	 	
By:	 	/s/ MIRIAM H. STROUSE
	 	 	
 	 	Name: Mimi Strouse	 	 	
 	 	Title: Managing Director	 	 	
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Exhibit 10.10
EXECUTION COPY
GRID NOTE

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 Exhibit 16.1
Clifton Gunderson LLP
Certified Public Accountants
December 22, 2008
Securities and Exchange Commission
Washington, DC 20549
        We have read the statements that we understand Bridgepoint Education Inc. will include under the section titled Change in Accountants of its Form S-1 for December 22, 2008, and we agree with such statements concerning our Firm.

/s/ CLIFTON GUNDERSON LLP

Clifton Gunderson LLP	 	 	

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Exhibit 16.1

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 Exhibit 21.1

 SUBSIDIARIES OF
BRIDGEPOINT EDUCATION, INC.
AS OF NOVEMBER 1, 2008

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

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Exhibit 21.1
SUBSIDIARIES OF BRIDGEPOINT EDUCATION, INC. AS OF NOVEMBER 1, 2008

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 EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
        We hereby consent to the use in this Registration Statement on Form S-1 of our reports dated December 21, 2008 relating to the consolidated financial statements and financial statement schedule 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.

 	 	 	 	 	
/s/ PricewaterhouseCoopers LLP	 	 	 	 	
PricewaterhouseCoopers LLP
San Diego, California
December 21, 2008

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EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm