Exhibit 10.3

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (“Second Amendment”) is entered into this 27th
day of August, 2007, by and between Panattoni/Phelan-Sylmar Joint Venture, a
California general partnership (“Landlord”), and ITT Educational Services, Inc.,
a Delaware corporation (“Tenant”), under the terms and conditions set forth
herein.

Recitals:

WHEREAS, Landlord (as successor-in-interest to Panattoni/Phelan-Roxford) and
Tenant entered into a Net Commercial Lease dated August 3, 1995 and amended by a
First Amendment to Lease dated February 16, 1996 (“Lease”), whereby Landlord
agreed to lease to Tenant and Tenant agreed to lease from Landlord all 30,000
square feet of space (the “Leased Premises”) in the building located at 12669
Encinitas Avenue, Sylmar, California 91342 (the “Building”) for a period of
thirteen (13) years, commencing on September 3, 1996 and ending on August 31,
2009 (the “Term”); and

WHEREAS, Landlord and Tenant mutually desire to increase the size of the
Building and the Leased Premises within the Building, to extend the Term of the
Lease, and to modify the rent set forth in the Lease.

NOW, THEREFORE, in consideration of the recitals set forth above and the terms
and conditions set forth below, Landlord and Tenant mutually agree as follows:

1. Expansion Space. The Leased Premises shall be expanded to include an
additional 5,785 rentable square feet measured pursuant to the Lease to be
verified upon construction completion (the “Expansion Space”), which Expansion
Space is identified on the space plan attached hereto in. Exhibit A (together
with the Architectural and Construction Requirements and Specifications also
attached in Exhibit A, the “Plans and Specifications”). After the addition of
the Expansion Space, the entire Leased Premises shall consist of 35,785 rentable
square feet.

2. Parking Variance. Landlord shall obtain a parking variance (“Parking
Variance”) from the City of Los Angeles in order to Substantially Complete the
Expansion Space. “Substantially Complete” shall have the same meaning as set
forth in Subsection 1.04(b) of the Lease. Landlord shall submit the application
for the Parking Variance to the City of Los Angeles within sixty (60) days after
the date of this Second Amendment. In the event that Landlord shall not have
obtained the final Parking Variance approved by the City of Los Angeles in
writing by July 31, 2008, then Tenant shall have the right to terminate this
Second Amendment and Tenant’s lease of the Expansion Space without penalty to
Landlord by mailing written notice to Landlord no later than August 10, 2008,
and neither party shall have any further rights and obligations under this
Second Amendment All fees associated with the application for the Parking
Variance, as well as the cost of any professional studies or reports required by
the City, shall be divided equally between Landlord and Tenant; provided,
however, that Tenant’s portion shall not exceed Ten Thousand Dollars ($10,000),
without prior written approval by Tenant.

3. Expansion Space Improvements. Subject to Landlord’s obtaining approval of the
Parking Variance and all applicable permits, Landlord, at its expense, shall
expand the building and make all exterior and interior improvements to the
Expansion Space in compliance with the Plans and Specifications (the
“Improvements”). The Improvements, as built and modified according to the Plans
and Specifications, shall comply with all applicable laws, ordinances, rules,
codes, and regulations of governmental authorities as of the date of Tenant’s
occupancy of the Expansion Premises, Landlord shall provide Tenant with a
complete set of architectural drawings no later than three (3) months after
approval of the Parking Variance. Tenant must, within seven (7) days of Tenant’s
receipt of the architectural drawings approve said architectural drawings in
writing. Landlord shall submit the architectural drawings to the City of Los
Angeles for all necessary approvals and building permits within fifteen
(15) days after Tenant approves the drawings in writing. Landlord shall use
commercially reasonable efforts to obtain a building permit from the City of Los
Angeles no later than six (6) months after the date said drawings were submitted
to the City. Notwithstanding anything to the contrary in this Agreement, in the
event that Landlord shall not have obtained the building permit by August 31,
2009, then either Tenant or Landlord may terminate this Second Amendment and
Tenant’s lease of the Expansion Space without liability by mailing written
notice and neither party shall have any further rights and obligations under
this Second Amendment, except that the Lease shall automatically extend through
August 31, 2010 at a rental rate of $19.35 per square foot. Landlord and Tenant
shall enter into a Third Amendment to Lease that sets forth such terms within
thirty (30) days after the date of the written notice of termination.

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All construction shall be done in a good workmanlike manner using materials in
accordance with the Plans and Specifications and shall not vary in any
substantial manner without Tenant’s prior written consent. Any changes
necessitated by the local municipality due to the municipality’s interpretation
of the local building code will be made by Landlord at Landlord’s exclusive cost
and will not be charged to Tenant in any manner whatsoever. Tenant represents
and warrants to Landlord that Tenant is not required to obtain any approvals
from governmental educational agencies as a condition precedent for obtaining
certificate of occupancy for the Expansion Space.

If the Improvements are not completed and if the temporary certificate of
occupancy (described in Subsection 1.04(a)(i) of the Lease) has not been
obtained on or before eight (8) months after the date the City of Los Angeles
issues the building permit, subject to force majeure and tenant delay as
referenced in Section 1.05 of the Lease (“First TCO Deadline”), Tenant shall
receive one (1) day of free Base Rent with regard to the Expansion Space only
for each day elapsed after the First TCO Deadline until the date a temporary
certificate of occupancy has been received. Tenant agrees to cooperate and
execute such documents as are reasonably necessary in order for Landlord to
obtain any and all permits and approvals (including the Parking Variance) from
applicable governmental agencies required of Landlord in order to substantially
complete the Expansion Space.

Landlord shall have until sixteen (16) months after the date the Parking
Variance is issued by the City of Los Angeles (“Second TCO Deadline”) to
complete all Improvements and obtain the temporary certificate of occupancy for
the Improvements. In the event that the Improvements are not completed and the
temporary certificate of occupancy is not obtained by the Second TCO Deadline,
then Tenant shall receive one (1) day of free Base Rent for the Expansion Space
only for each day elapsing after the Second TCO Deadline until the date that a
temporary certificate of occupancy has been received. Tenant shall be entitled
to free Base Rent for the Expansion Space only under this paragraph or under the
immediately preceding paragraph, whichever date occurs first, but shall in no
event be entitled to free Base Rent under both paragraphs

4. Inspection and Punchlist. Before the Expansion Space Commencement Date (as
defined below), the parties shall inspect the Expansion Space, have all systems
demonstrated, and prepare a punchlist. The punchlist shall list: 1) incomplete,
minor, and insubstantial details of construction; 2) necessary mechanical
adjustments; and 3) needed finishing touches. Landlord shall complete the
punchlist items within thirty (30) days after the Expansion Space Commencement
Date or if completion reasonably takes longer than thirty (30) days, to commence
the work within, such period of time and diligently pursue it to completion.
Following the Expansion Space Commencement Date, and within the warranty period
set forth below, Landlord shall promptly correct, at no cost to Tenant, any
latent defects in the Improvements, and/or construction thereof as they become
known, if Tenant notifies Landlord of a defect within sixty (60) days after
Tenant first learns of such defect in writing, and provided such defect becomes
known within three (3) years after the Expansion Space Commencement Date.

5. Cost of Improvements. The Improvements shall be provided by Landlord at its
sole cost and expense. If Tenant desires any change in the Plans and
Specifications relative to the Improvements which is reasonable and practical,
such change may only be requested by the delivery to Landlord by Tenant of a
proposed written “Change Order” specifically setting forth in detail the
requested change and the reasons for such requested change. Landlord shall have
five (5) business days from the receipt of the proposed Change Order to provide
the following items: (a) a reasonable summary of any estimated increase in the
cost caused by such change (“Change Order Cost”) and (b) a statement of the
estimated number of days of any delay caused by such proposed change (the
“Change Order Delay”). Tenant shall then have five (5) business days to approve
the Change Order Cost and the Change Order Delay. If Tenant approves these
items, Tenant shall pay to Landlord the Change Order Cost, if any, within thirty
(30) days after Expansion Space Commencement Date, which shall be accompanied by
evidence of Landlord’s payment of such Change Order Cost. Landlord shall,
promptly upon Tenant’s approval of the Change Order Cost and Change Order Delay,
execute the Change Order and cause the appropriate changes to the Plans and
Specifications to be made. If Tenant fails to respond to Landlord within, said
five (5) business day period, the Change Order Cost and the Change Order Delay
shall be deemed disapproved by Tenant and Landlord shall have no further
obligation to perform any work set forth in the proposed Change Order. The
Change Order Cost shall include all reasonable actual out-of-pocket costs
associated with the Change Order, including, without limitation, architectural
fees, engineering fees and construction costs, as reasonably determined by the
architect and the contractor, respectively. The Change Order Delay shall include
all actual unavoidable delays caused by the Change Order, including, without
limitation, all design and construction delays, as reasonably determined by the
architect and the contractor, respectively.

 

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6. Term. The term of the Lease shall be extended for a period of seven
(7) years, beginning September 1, 2009 and ending August 31, 2016 (the
“Termination Date”).

7. Rent. As of the date that the Expansion Space meets all the criteria set
forth in paragraphs (i), (ii), and (iii) of Subsection 1.04(a) of the Lease (the
“Expansion Space Commencement Date”), the annual Base Rent for the entire Leased
Premises (as expanded) shall increase to $16.24 per rentable square foot for the
remainder of the current term (ending August 31, 2009), payable in monthly
installments, in the same manner as set forth in Section 2 of the Lease.
Beginning on September 1, 2009, the annual Base Rent shall increase to $21.28
per rentable square foot and shall remain flat until the Termination Date,
payable in monthly installments, in the same manner as set forth in Section 2 of
the Lease.

8. Refurbishment Allowance. Beginning September 1, 2008, Tenant shall receive a
refurbishment allowance of Four Hundred Fifty Thousand Dollars ($450,000)
(calculated based upon $15 per rentable square foot of the original 30,000
square foot Leased Premises), which shall be used by Tenant for maintenance and
upgrades to the interior of the Leased Premises, including, but not limited to,
new carpet, paint, interior finishes, lighting, electrical work, voice/data
cabling, security cabling, plumbing work and the movement of walls. Prior to
commencement of any work, Tenant shall provide to Landlord written plans and a
scope of work, and the work shall be done in conformity with Section 4,01(a),
(b) and (c) of the Lease. Tenant shall perform the work within twelve
(12) months of Tenant’s commencement of construction for the refurbishment, and
Landlord shall reimburse Tenant for the cost of the work within thirty (30) days
after Tenant provides Landlord with copies of paid invoices from Tenant’s
contractors, architects or engineers in an amount not to exceed the above-stated
allowance. Tenant agrees to submit to Landlord copies of such paid invoices not
more frequently than quarterly per annum. The allowance shall not be used for
trade fixtures, furniture, equipment and other personal property, including any
costs associated with telephones, cabling and/or computers.

9. Option to Renew. Tenant shall have an option to renew the Lease for an
additional five (5) years (“Renewal Term”) beginning immediately after the
Termination Date, upon at least nine (9) months prior written notice to
Landlord, upon the same terms and conditions of the Lease, as amended, except
that the annual Base Rent shall be $24.51 per rentable square foot for each year
of the entire Renewal Term, payable in monthly installments, in the same manner
as set forth in Section 2 of the Lease. Upon the commencement of the Renewal
Term, Landlord shall provide Tenant a Refurbishment Allowance in the amount of
$7.50 per rentable square foot of the Leased Premises (Two Hundred Sixty-Eight
Thousand Three Hundred Eighty-Seven and 50/100 Dollars ($268,387.50), which
shall be payable and subject to the terms and obligations in the same manner as
set forth above in Paragraph 7.

10. Parking. Beginning on the Expansion Space Commencement Date and throughout
the Ten-n of the Lease (including this extension and any renewals), Tenant shall
have the use of at least the minimum amount of parking spaces as required by
applicable law and as otherwise allowed pursuant to the Parking Variance,
including four (4) exclusive “visitors” spaces for Tenant next to the visitor’s
entrance, but not less than 307 spaces. Except as modified by this Paragraph 9
Section 1.06 of the Lease shall remain in full force and effect.

11. Brokers. Tenant and Landlord warrant that they have worked with no brokers
with regard to this Second Amendment except for Fischer Corporate Real Estate
Services (“Fischer”), and no commission shall be due to any other third party.
The party who breaches this warranty shall defend, hold harmless and indemnify
the nonbreaching party from all costs, expenses, and/or liability arising from
the breach. Landlord, at Landlord’s expense, shall be solely responsible for the
commission payment to Fischer.

12. Lienholder Consent. Landlord represents and warrants that to the extent
Landlord is obligated to obtain consent to this Second Amendment from any
lienholder holding a security interest in the Premises, Landlord has obtained
said consent and will forward a copy of said consent to Tenant within thirty
(30) days following Landlord’s execution of this Second Amendment, if
applicable.

13. Execution Deadline. This Second Amendment will not be binding, unless signed
by both parties and an originally signed counterpart is delivered to Tenant by
August 24, 2007.

14. Successors and Assigns. If the condition set forth in Paragraph 13 above is
met, then this Second Amendment shall be binding upon and inure to the benefit
of the parties hereto and their successors and assigns.

 

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15. Reaffirmation. Except as amended in this Second Amendment, all terms and
conditions of the Lease are unmodified, are hereby reaffirmed, and shall remain
in full force and effect. If not defined herein, all capitalized terms shall
have the same meaning as set forth in the Lease.

16. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which counterparts shall for all purposes be deemed to be
an original, but all such counterparts together will constitute only one
instrument.

17. Conflicts. In case of any conflict between any term or provision of this
Second Amendment and the Lease, the term or provision of this Second Amendment
shall govern.

18. No Representations. Notwithstanding anything to the contrary contained in
the Lease or herein, but without limiting any representations or warranties in
the Lease, Landlord’s approval and/or participation in the preparation of the
Plans and Specifications or the selection of the architect, engineers,
consultants or contractor, shall not constitute any representation or warranty,
express or implied, that the Improvements, if built in accordance with the Plans
and Specifications will be suitable for Tenant’s intended purpose (except for
compliance with local building codes), and Landlord specifically disclaims any
such effect. Tenant acknowledges and agrees that the Improvements are intended
for use by Tenant and the specifications and design requirements for such
Improvements are not within the special knowledge or experience of Landlord.

IN WITNESS WHEREOF, this Second Amendment has been executed by Landlord and
Tenant on the date first written above.

 

Landlord

 

PANATTONI/PHELAN-SYLMAR

JOINT VENTURE

a California general partnership

 

By:

 

 

/s/  Coil D. Panattoni

 

 Coil D. Panattoni

 General Partner

 

By:

 

 

/s/  Jeffrey F. Phelan

 

 Jeffrey F. Phelan

 General Partner

 

Tenant

 

ITT EDUCATIONAL SERVICES, INC, A

Delaware corporation

 

By:

 

 

/s/  Kevin M. Modany

 

Print Name:  Kevin M. Modany

 

Title: CEO and President

 

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