Exhibit 10.2
EDUCATION MANAGEMENT CORPORATION
OMNIBUS LONG-TERM INCENTIVE PLAN
     EDUCATION MANAGEMENT CORPORATION, a Pennsylvania corporation (the
“Company”), sets forth herein the terms of its Omnibus Long-Term Incentive Plan
(the “Plan”), as follows:
1. PURPOSE
     The Plan is intended to enhance the Company’s and its Affiliates’ (as
defined herein) ability to attract and retain highly qualified officers,
non-employee members of the Board, key employees, consultants and advisors, and
to motivate such officers, non-employee members of the Board, key employees,
consultants and advisors to serve the Company and its Affiliates and to expend
maximum effort to improve the business results and earnings of the Company, by
providing to such persons an opportunity to acquire or increase a direct
proprietary interest in the operations and future success of the Company. To
this end, the Plan provides for the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units, unrestricted stock, other
stock-based awards and cash awards. Any of these awards may, but need not, be
made as performance incentives to reward attainment of performance goals in
accordance with the terms hereof. Stock options granted under the Plan may be
non-qualified stock options or incentive stock options, as provided herein.
2. DEFINITIONS
     For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
     2.1. “Affiliate” means any company or other trade or business that
“controls,” is “controlled by” or is “under common control” with the Company
within the meaning of Rule 405 of Regulation C under the Securities Act,
including, without limitation, any Subsidiary.
     2.2. “Award” means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, other Stock-based Award or cash award
under the Plan.
     2.3. “Award Agreement” means a written agreement between the Company and a
Grantee, or notice from the Company or an Affiliate to a Grantee that evidences
and sets out the terms and conditions of an Award.
     2.4. “Board” means the Board of Directors of the Company.
     2.5. “Business Combination” shall have the meaning set forth in
Section 15.2.
     2.6. “Cause” shall be defined as that term is defined in a Grantee’s offer
letter or other applicable employment agreement; or, if there is no such
definition, “Cause” means, as determined by the Company and unless otherwise
provided in an applicable

 

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Award Agreement with the Company or an Affiliate: (i) engaging in any act, or
failing to act, or misconduct that is injurious to the Company or its
Affiliates; (ii) gross negligence or willful misconduct in connection with the
performance of duties; (iii) conviction of (or entering a plea of guilty or nolo
contendere to) a criminal offense (other than minor traffic offenses);
(iv) fraud, embezzlement or misappropriation of funds or property of the Company
or an Affiliate; (v) material breach of any term of any employment, consulting
or other services, confidentiality, intellectual property or non-competition
agreements, if any, between the Service Provider and the Company or an
Affiliate; (vi) the entry of an order duly issued by any regulatory agency
(including federal, state and local regulatory agencies and self-regulatory
bodies) having jurisdiction over the Company or an Affiliate requiring the
removal from any office held by the Service Provider with the Company or
prohibiting a Service Provider from participating in the business or affairs of
the Company or any Affiliate; or (vii) the revocation or threatened revocation
of any of the Company’s or any Affiliate’s government licenses, permits or
approvals, which is primarily due to the Service Provider’s action or inaction
and such revocation or threatened revocation would be alleviated or mitigated in
any material respect by the termination of the Service Provider’s Services.
     2.7. “Change in Control” shall have the meaning set forth in Section 15.2.
     2.8. “Code” means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
     2.9. “Committee” means the Compensation Committee of the Board, or such
other committee as determined by the Board. The Compensation Committee of the
Board may, in its discretion, designate a subcommittee of its members to serve
as the Committee (to the extent the Board has not designated another person,
committee or entity as the Committee). Following the Company’s initial public
offering, (i) the Board will cause the Committee to satisfy the applicable
requirements of any stock exchange on which the Common Stock may then be listed;
(ii) for purposes of Awards to Covered Employees intended to constitute
Performance Awards, to the extent required by Code Section 162(m), “Committee”
means all of the members of the Compensation Committee who are “outside
directors” within the meaning of Section 162(m) of the Code; and (iii) for
purposes of Awards to Grantees who are subject to Section 16 of the Exchange
Act, “Committee” means all of the members of the Compensation Committee who are
“non-employee directors” within the meaning of Rule 16b-3 adopted under the
Exchange Act.
     2.10. “Company” means Education Management Corporation, a Pennsylvania
corporation, or any successor corporation.
     2.11. “Common Stock” or “Stock” means a share of common stock of the
Company, par value $0.01 per share.

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     2.12. “Covered Employee” means a Grantee who is a “covered employee” within
the meaning of Section 162(m)(3) of the Code as qualified by Section 12.4
herein.
     2.13. “Disability” means as determined by the Company and unless otherwise
provided in an applicable Award Agreement with the Company or an Affiliate, the
Grantee is unable to perform each of the essential duties of such Grantee’s
position by reason of a medically determinable physical or mental impairment
which is potentially permanent in character or which can be expected to last for
a continuous period of not less than 12 months; provided, however, that, with
respect to rules regarding expiration of an Incentive Stock Option following
termination of the Grantee’s Service, “Disability” means “permanent and total
disability” as set forth in Section 22(e)(3) of the Code.
     2.14. “Effective Date” means the effective date of the Company’s Initial
Public Offering.
     2.15. “Exchange Act” means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
     2.16. “Fair Market Value” of a share of Common Stock as of a particular
date shall mean (1) if the Common Stock is listed on a national securities
exchange, the closing or last price of the Common Stock on the composite tape or
other comparable reporting system for the applicable date, or if the applicable
date is not a trading day, the trading day immediately preceding the applicable
date, or (2) if the shares of Common Stock are not then listed on a national
securities exchange or national market system, or the value of such shares is
not otherwise determinable, such value as determined by the Board in good faith
in its sole discretion (but in any event not less than fair market value within
the meaning of Section 409A); notwithstanding the foregoing, the Fair Market
Value of a share of Common Stock for purposes of determining Awards with a Grant
Date as of the Company’s initial public offering shall be the price per share of
Common Stock set in the final prospectus for such initial public offering.
     2.17. “Family Member” means a person who is a spouse, former spouse, child,
stepchild, grandchild, parent, stepparent, grandparent, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the
applicable individual, any person sharing the applicable individual’s household
(other than a tenant or employee), a trust in which any one or more of these
persons have more than fifty percent of the beneficial interest, a foundation in
which any one or more of these persons (or the applicable individual) control
the management of assets, and any other entity in which one or more of these
persons (or the applicable individual) own more than fifty percent of the voting
interests.
     2.18. “Grant Date” means, as determined by the Board, the latest to occur
of (i) the date as of which the Board approves an Award, (ii) the date on which
the recipient of an Award first becomes eligible to receive an Award under
Section 6

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hereof, or (iii) such other date as may be specified by the Board in the Award
Agreement.
     2.19. “Grantee” means a person who receives or holds an Award under the
Plan.
     2.20. “Incentive Stock Option” means an “incentive stock option” within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
     2.21. “Incumbent Board” shall have the meaning set forth in Section 15.2.
     2.22. “Initial Public Offering” shall mean the initial public offering of
shares of Common Stock pursuant to a registration statement (other than a Form
S-8 or successor forms) filed with, and declared effective by, the SEC.
     2.23. “Non-qualified Stock Option” means an Option that is not an Incentive
Stock Option.
     2.24. “Option” means an option to purchase one or more shares of Stock
pursuant to the Plan.
     2.25. “Option Price” means the exercise price for each share of Stock
subject to an Option.
     2.26. “Outside Director” means a member of the Board who is not an officer
or employee of the Company or an Affiliate, determined in accordance with the
requirements of Section 162(m) of the Code.
     2.27. “Outstanding Company Common Stock” shall have the meaning set forth
in Section 15.2.
     2.28. “Outstanding Company Voting Securities” shall have the meaning set
forth in Section 15.2.
     2.29. “Performance Award” means an Award made subject to the attainment of
performance goals (as described in Section 12) over a performance period of from
one (1) to five (5) years.
     2.30. “Person” shall have the meaning set forth in Section 15.2.
     2.31. “Plan” means this Education Management Corporation Omnibus Long-Term
Incentive Plan.
     2.32. “Principal Stockholders” means GS Capital Partners V Fund, L.P., a
Delaware limited partnership, GS Capital Partners V Offshore Fund, L.P., a
Cayman Islands exempted limited partnership, GS Capital Partners V GmbH & Co.
KG, a limited partnership formed under the laws of the Federal Republic of
Germany, GS

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Capital Partners V Institutional, L.P., a Delaware limited partnership,
Providence Equity Partners V L.P., a Delaware limited partnership, Providence
Equity Partners V-A L.P., a Delaware limited partnership, Providence Equity
Partners IV L.P., a Delaware limited partnership, Providence Equity Operating
Partners IV L.P., a Delaware limited partnership and Leeds Equity Partners IV,
L.P., a Delaware limited partnership.
     2.33. “Purchase Price” means the purchase price for each share of Stock
pursuant to a grant of Restricted Stock.
     2.34. “Reporting Person” means a person who is required to file reports
under Section 16(a) of the Exchange Act.
     2.35. “Restricted Stock” means shares of Stock awarded to a Grantee
pursuant to Section 10 hereof.
     2.36. “Restricted Stock Unit” means a bookkeeping entry representing the
equivalent of shares of Stock, awarded to a Grantee pursuant to Section 10
hereof.
     2.37. “SAR Exercise Price” means the per share exercise price of a SAR
granted to a Grantee under Section 9 hereof.
     2.38. “SEC” means the United States Securities and Exchange Commission.
     2.39. “Section 409A” shall mean Section 409A of the Code and all formal
guidance and regulations promulgated thereunder.
     2.40. “Securities Act” means the Securities Act of 1933, as now in effect
or as hereafter amended.
     2.41. “Separation from Service” means a termination of Service by a Service
Provider, as determined by the Board, which determination shall be final,
binding and conclusive; provided if any Award governed by Section 409A is to be
distributed on a Separation from Service, then the definition of Separation from
Service for such purposes shall comply with the definition provided in
Section 409A.
     2.42. “Service” means service as a Service Provider to the Company or an
Affiliate. Unless otherwise stated in the applicable Award Agreement, a
Grantee’s change in position or duties shall not result in interrupted or
terminated Service, so long as such Grantee continues to be a Service Provider
to the Company or an Affiliate.
     2.43. “Service Provider” means an employee, officer, non-employee member of
the Board, consultant or advisor of the Company or an Affiliate.
     2.44. ”Stock Appreciation Right” or “SAR” means a right granted to a
Grantee under Section 9 hereof.
     2.45. “Subsidiary” means any “subsidiary corporation” of the Company within
the meaning of Section 424(f) of the Code.

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     2.46. “Substitute Award” means any Award granted in assumption of or in
substitution for an award of a company or business acquired by the Company or a
Subsidiary or with which the Company or an Affiliate combines, shares issued or
issuable.
     2.47. “Ten Percent Stockholder” means an individual who owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company, its parent or any of its Subsidiaries. In determining
stock ownership, the attribution rules of Section 424(d) of the Code shall be
applied.
     2.48. “Termination Date” means the date that is ten (10) years after the
Effective Date, unless the Plan is earlier terminated by the Board under
Section 5.2 hereof.
     2.49. “Transaction” shall have the meaning set forth in Section 15.1.
     2.50. “Transition Period” means the period beginning with the consummation
of an Initial Public Offering and ending as of the earlier of (i) the date of
the first annual meeting of shareholders of the Company at which directors are
to be elected that occurs after the close of the third calendar year following
the calendar year in which the Initial Public Offering occurs and (ii) the
expiration of the “reliance period” under Treasury
Regulation Section 1.162-27(f)(2).
3. ADMINISTRATION OF THE PLAN
                3.1. General.
     The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company’s certificate of
incorporation and bylaws and applicable law. The Board shall have the power and
authority to delegate its responsibilities hereunder to the Committee, which
shall have full authority to act in accordance with its charter, and with
respect to the authority of the Board to act hereunder, all references to the
Board shall be deemed to include a reference to the Committee, to the extent
such power or responsibilities have been delegated. Except as specifically
provided in Section 14 or as otherwise may be required by applicable law,
regulatory requirement or the certificate of incorporation or the bylaws of the
Company, the Board shall have full power and authority to take all actions and
to make all determinations required or provided for under the Plan, any Award or
any Award Agreement, and shall have full power and authority to take all such
other actions and make all such other determinations not inconsistent with the
specific terms and provisions of the Plan that the Board deems to be necessary
or appropriate to the administration of the Plan. Following the Company’s
initial public offering, the Committee shall administer the Plan; provided that,
the Board shall retain the right to exercise the authority of the Committee to
the extent consistent with applicable law and the applicable requirements of any
securities exchange on which the Common Stock may then be listed. The
interpretation and construction by the Board of any provision of the Plan, any
Award or any Award Agreement shall be final, binding and conclusive. Without
limitation, the Board shall have full and final authority, subject to the other
terms and conditions of the Plan, to:

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     (i) designate Grantees;
     (ii) determine the type or types of Awards to be made to a Grantee;
     (iii) determine the number of shares of Stock to be subject to an Award;
     (iv) establish the terms and conditions of each Award (including, but not
limited to, the Option Price of any Option, the nature and duration of any
restriction or condition (or provision for lapse thereof) relating to the
vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock
subject thereto, and any terms or conditions that may be necessary to qualify
Options as Incentive Stock Options);
     (v) prescribe the form of each Award Agreement; and
     (vi) amend, modify, or supplement the terms of any outstanding Award
including the authority, in order to effectuate the purposes of the Plan, to
modify Awards to foreign nationals or individuals who are employed outside the
United States to recognize differences in local law, tax policy, or custom.
     To the extent permitted by applicable law, the Board may delegate its
authority as identified herein to any individual or committee of individuals
(who need not be directors), including without limitation the authority to make
Awards to Grantees who are not subject to Section 16 of the Exchange Act or who
are not Covered Employees. To the extent that the Board delegates its authority
to make Awards as provided by this Section 3.1, all references in the Plan to
the Board’s authority to make Awards and determinations with respect thereto
shall be deemed to include the Board’s delegate. Any such delegate shall serve
at the pleasure of, and may be removed at any time by the Board.
          3.2. Restrictions; No Repricing.
     Notwithstanding the foregoing, no amendment or modification may be made to
an outstanding Option or SAR that causes the Option or SAR to become subject to
Section 409A, without the Grantee’s written prior approval. Notwithstanding any
provision herein to the contrary, the repricing of Options or SARs is prohibited
without prior approval of the Company’s stockholders. For this purpose, a
“repricing” means any of the following (or any other action that has the same
effect as any of the following): (A) changing the terms of an Option or SAR to
lower its Option Price or SAR Exercise Price; (B) any other action that is
treated as a “repricing” under generally accepted accounting principles; and
(C) repurchasing for cash or canceling an Option or SAR at a time when its
Option Price or SAR Exercise Price is greater than the Fair Market Value of the
underlying shares in exchange for another Award, unless the cancellation and
exchange occurs in connection with a change in capitalization or similar change
under Section 15. Such cancellation and exchange would be considered a
“repricing” regardless of whether it is treated as a “repricing” under generally
accepted accounting principles and regardless of whether it is voluntary on the
part of the Grantee.
          3.3. Award Agreements.
     The grant of any Award may be contingent upon the Grantee executing the
appropriate Award Agreement. The Company may retain the right in an Award
Agreement to cause a

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forfeiture of the gain realized by a Grantee on account of actions taken by the
Grantee in violation or breach of or in conflict with any employment agreement,
non-competition agreement, any agreement prohibiting solicitation of employees
or clients of the Company or any Affiliate thereof or any confidentiality
obligation with respect to the Company or any Affiliate thereof or otherwise in
competition with the Company or any Affiliate thereof, to the extent specified
in such Award Agreement applicable to the Grantee. Furthermore, the Company may
annul an Award if the Grantee is terminated for Cause as defined in the
applicable Award Agreement or the Plan, as applicable.
     If any of the Company’s financial statements are required to be restated,
the Company may recover all or a portion of any Award made to any Grantee with
respect to any fiscal year of the Company the financial results of which are
negatively affected by such restatement. The amount to be recovered shall be the
amount, as determined by the Committee, by which the affected Award exceeds the
amount that would have been payable had the financial statements been initially
filed as restated. In no event shall the amount to be recovered by the Company
be less than the amount required to be repaid or recovered as a matter of law.
          3.4. Deferral Arrangement.
     The Board may permit or require the deferral of any Award payment into a
deferred compensation arrangement, subject to such rules and procedures as it
may establish and in accordance with Section 409A, which may include provisions
for the payment or crediting of interest or dividend equivalents, including
converting such credits into deferred Stock units.
          3.5. No Liability.
     No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan, any Award or Award
Agreement.
          3.6. Book Entry.
     Notwithstanding any other provision of this Plan to the contrary, the
Company may elect to satisfy any requirement under this Plan for the delivery of
stock certificates through the use of book-entry.
4. STOCK SUBJECT TO THE PLAN
     Subject to adjustment as provided in Section 15 hereof, the maximum number
of shares of Stock available for issuance under the Plan shall be 6,597,869,
plus a number of shares equal to the number of shares subject to stock options
granted under the Company’s 2006 Stock Plan that are canceled, expired,
forfeited, settled in cash, settled by issuance of fewer shares than the number
of shares underlying such stock options or otherwise terminated without delivery
of shares to the grantees, plus a number of shares equal to the number of shares
reserved but not previously granted under the Company’s 2006 Stock Option Plan.
3,519,861 of such shares of Stock available for issuance under the Plan shall be
available for issuance pursuant to Incentive

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Stock Options. Stock issued or to be issued under the Plan shall be authorized
but unissued shares; or, to the extent permitted by applicable law, issued
shares that have been reacquired by the Company. Following the end of the
Transition Period and subject to adjustments in accordance with Section 15, the
maximum number of each type of Award (other than cash-based Performance Awards)
intended to constitute “performance-based compensation” under Code Section
162(m) granted to any Grantee in any thirty-six (36) month period shall not
exceed the following: Options: 7,039,723; SARs: 7,039,723; Restricted Stock:
4,223,833; Restricted Stock Units: 4,223,833 and other Stock-based Performance
Awards : 3,519,861.
     The Board may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting (as, for example, in the case of tandem or
Substitute Awards) and make adjustments in accordance with Section 15. If the
Option Price of any Option granted under the Plan, or if pursuant to
Section 17.3 the withholding obligation of any Grantee with respect to an Option
or other Award, is satisfied by tendering shares of Stock to the Company (by
either actual delivery or by attestation) or by withholding shares of Stock, the
number of shares of Stock issued net of the shares of Stock tendered or withheld
shall be deemed delivered for purposes of determining the maximum number of
shares of Stock available for delivery under the Plan. To the extent that an
Award under the Plan or a stock option granted under the Company’s 2006 Stock
Option Plan is canceled, expired, forfeited, settled in cash, settled by
issuance of fewer shares than the number underlying the Award or stock option,
or otherwise terminated without delivery of shares to the Grantee, the shares
retained by or returned to the Company will be available under the Plan; and
shares that are withheld from such an Award or stock option granted under the
Company’s 2006 Stock Option Plan, or separately surrendered by the Grantee in
payment of any exercise price or taxes relating to such an Award or stock option
shall be deemed to constitute shares not delivered to the Grantee and will be
available under the Plan. In addition, in the case of any Substitute Award, such
Substitute Award shall not be counted against the number of shares reserved
under the Plan.
5. EFFECTIVE DATE, DURATION AND AMENDMENTS
          5.1. Term.
     The Plan shall be effective as of the Effective Date and shall terminate
automatically as of the first meeting of stockholders at which directors are to
be elected that occurs after the close of the third calendar year following the
calendar year in which the initial public offering occurs unless the Plan is
approved by the stockholders of the Company prior to such meeting but subsequent
to the Effective Date. The Plan shall terminate automatically on the ten
(10) year anniversary of the Effective Date and may be terminated on any earlier
date as provided in Section 5.2.

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          5.2. Amendment and Termination of the Plan.
     The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any Awards which have not been made. An amendment shall
be contingent on approval of the Company’s stockholders to the extent stated by
the Board, required by applicable law or required by applicable stock exchange
listing requirements. Notwithstanding the foregoing, any amendment to
Section 3.2 shall be contingent upon the approval of the Company’s stockholders.
No Awards shall be made after the Termination Date. The applicable terms of the
Plan, and any terms and conditions applicable to Awards granted prior to the
Termination Date shall survive the termination of the Plan and continue to apply
to such Awards. No amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, materially impair rights or obligations
under any Award theretofore awarded.
6. AWARD ELIGIBILITY AND LIMITATIONS
          6.1. Service Providers.
     Subject to this Section 6, Awards may be made to any Service Provider,
including any Service Provider who is an officer, Non-employee member of the
Board, consultant or advisor of the Company or of any Affiliate, as the Board
shall determine and designate from time to time in its discretion.
          6.2. Successive Awards.
     An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
          6.3. Stand-Alone, Additional, Tandem, and Substitute Awards.
     Awards may, in the discretion of the Board, be granted either alone or in
addition to, in tandem with, or in substitution or exchange for, any other Award
or any award granted under another plan of the Company, any Affiliate, or any
business entity to be acquired by the Company or an Affiliate, or any other
right of a Grantee to receive payment from the Company or any Affiliate. Such
additional, tandem, and substitute or exchange Awards may be granted at any
time. If an Award is granted in substitution or exchange for another Award, the
Board shall have the right to require the surrender of such other Award in
consideration for the grant of the new Award. The Board shall have the right, in
its discretion, to make Awards in substitution or exchange for any other award
under another plan of the Company, any Affiliate, or any business entity to be
acquired by the Company or an Affiliate. In addition, Awards may be granted in
lieu of cash compensation, including in lieu of cash amounts payable under other
plans of the Company or any Affiliate, in which the value of Stock subject to
the Award is equivalent in value to the cash compensation (for example,
Restricted Stock Units or Restricted Stock).
7. AWARD AGREEMENT
     Each Award shall be evidenced by an Award Agreement, in such form or forms
as the Board shall from time to time determine. Without limiting the foregoing,
an Award Agreement may be provided in the form of a notice which provides that
acceptance of the Award constitutes

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acceptance of all terms of the Plan and the notice. Award Agreements granted
from time to time or at the same time need not contain similar provisions but
shall be consistent with the terms of the Plan. Each Award Agreement evidencing
an Award of Options shall specify whether such Options are intended to be
Non-qualified Stock Options or Incentive Stock Options, and in the absence of
such specification such options shall be deemed Non-qualified Stock Options.
8. TERMS AND CONDITIONS OF OPTIONS
          8.1. Option Price.
     The Option Price of each Option shall be fixed by the Board and stated in
the related Award Agreement. The Option Price of each Option (except those that
constitute Substitute Awards) shall be at least the Fair Market Value on the
Grant Date of a share of Stock; provided, however, that in the event that a
Grantee is a Ten Percent Stockholder as of the Grant Date, the Option Price of
an Option granted to such Grantee that is intended to be an Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value of a share of
Stock on the Grant Date. In no case shall the Option Price of any Option be less
than the par value of a share of Stock.
          8.2. Vesting.
     Subject to Section 8.3 hereof, each Option shall become exercisable at such
times and under such conditions (including, without limitation, performance
requirements) as shall be determined by the Board and stated in the Award
Agreement.
          8.3. Term.
     Each Option shall terminate, and all rights to purchase shares of Stock
thereunder shall cease, upon the expiration of ten (10) years from the Grant
Date, or under such circumstances and on such date prior thereto as is set forth
in the Plan or as may be fixed by the Board and stated in the related Award
Agreement; provided, however, that in the event that the Grantee is a Ten
Percent Stockholder, an Option granted to such Grantee that is intended to be an
Incentive Stock Option at the Grant Date shall not be exercisable after the
expiration of five (5) years from its Grant Date.
          8.4. Limitations on Exercise of Option.
     Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, (i) prior to the date the Plan is approved by
the stockholders of the Company as provided herein or (ii) after the occurrence
of an event which results in termination of the Option.

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          8.5. Method of Exercise.
     An Option that is exercisable may be exercised by the Grantee’s delivery to
the Company of written notice of exercise on any business day, at the Company’s
principal office, on the form specified by the Company. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised plus the amount (if any) of
federal and/or other taxes which the Company may, in its judgment, be required
to withhold with respect to an Award. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of (i) the number set forth in the related Award Agreement
and (ii) the maximum number of shares available for purchase under the Option at
the time of exercise.
          8.6. Rights of Holders of Options.
     Unless otherwise stated in the related Award Agreement, an individual
holding or exercising an Option shall have none of the rights of a stockholder
(for example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 15 hereof or the related
Award Agreement, no adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date of such issuance.
          8.7. Delivery of Stock Certificates.
     Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
          8.8. Limitations on Incentive Stock Options.
     An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee’s employer and its Affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
          9.1. Right to Payment.
     A SAR shall confer on the Grantee a right to receive, upon exercise
thereof, the excess of (i) the Fair Market Value of one share of Stock on the
date of exercise over (ii) the SAR Exercise Price, as determined by the Board.
The Award Agreement for an SAR shall specify the SAR Exercise Price, which shall
be fixed at the Fair Market Value of a share of Stock on the Grant

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Date. SARs may be granted alone or in conjunction with all or part of an Option
or at any subsequent time during the term of such Option or in conjunction with
all or part of any other Award. A SAR granted in tandem with an outstanding
Option following the Grant Date of such Option shall have a grant price that is
equal to the Option Price; provided, however, that the SAR’s grant price may not
be less than the Fair Market Value of a share of Stock on the Grant Date of the
SAR.
          9.2. Other Terms.
     The Board shall determine at the Grant Date or thereafter, the time or
times at which and the circumstances under which an SAR may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which SARs shall cease to be
or become exercisable following Separation from Service or upon other
conditions, the method of exercise, whether or not a SAR shall be in tandem or
in combination with any other Award, and any other terms and conditions of any
SAR.
          9.3. Term of SARs.
     The term of a SAR granted under the Plan shall be determined by the Board,
in its sole discretion; provided, however, that such term shall not exceed ten
(10) years.
          9.4. Payment of SAR Amount.
     Upon exercise of a SAR, a Grantee shall be entitled to receive payment from
the Company (in cash or Stock, as determined by the Board) in an amount
determined by multiplying:
     (i) the difference between the Fair Market Value of a share of Stock on the
date of exercise over the SAR Exercise Price; by
     (ii) the number of shares of Stock with respect to which the SAR is
exercised.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS
          10.1. Restrictions.
     At the time of grant, the Board may, in its sole discretion, establish a
period of time (a “restricted period”) and any additional restrictions including
the satisfaction of corporate or individual performance objectives applicable to
an Award of Restricted Stock or Restricted Stock Units in accordance with
Section 12.1 and 12.2. Each Award of Restricted Stock or Restricted Stock Units
may be subject to a different restricted period and additional restrictions.
Neither Restricted Stock nor Restricted Stock Units may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the restricted
period or prior to the satisfaction of any other applicable restrictions.

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          10.2. Restricted Stock Certificates.
     The Company shall issue stock, in the name of each Grantee to whom
Restricted Stock has been granted, stock certificates or other evidence of
ownership representing the total number of shares of Restricted Stock granted to
the Grantee, as soon as reasonably practicable after the Grant Date. The Board
may provide in an Award Agreement that either (i) the Secretary of the Company
shall hold such certificates for the Grantee’s benefit until such time as the
Restricted Stock is forfeited to the Company or the restrictions lapse, or
(ii) such certificates shall be delivered to the Grantee; provided, however,
that such certificates shall bear a legend or legends that comply with the
applicable securities laws and regulations and makes appropriate reference to
the restrictions imposed under the Plan and the Award Agreement.
          10.3. Rights of Holders of Restricted Stock.
     Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have rights as stockholders of the Company.
          10.4. Rights of Holders of Restricted Stock Units.
          10.4.1. Settlement of Restricted Stock Units.
     Restricted Stock Units may be settled in cash or Stock, as determined by
the Board and set forth in the Award Agreement. The Award Agreement shall also
set forth whether the Restricted Stock Units shall be settled (i) within the
time period specified in Section 17.9.1 for short term deferrals or
(ii) otherwise within the requirements of Section 409A, in which case the Award
Agreement shall specify upon which events such Restricted Stock Units shall be
settled.
          10.4.2. Voting and Dividend Rights.
     Unless otherwise stated in the applicable Award Agreement, holders of
Restricted Stock Units shall not have rights as stockholders of the Company.
          10.4.3. Creditor’s Rights.
     A holder of Restricted Stock Units shall have no rights other than those of
a general creditor of the Company. Restricted Stock Units represent an unfunded
and unsecured obligation of the Company, subject to the terms and conditions of
the applicable Award Agreement.
          10.5. Purchase of Restricted Stock.
     The Grantee shall be required, to the extent required by applicable law, to
purchase the Restricted Stock from the Company at a Purchase Price equal to the
greater of (i) the aggregate par value of the shares of Stock represented by
such Restricted Stock or (ii) the Purchase Price, if any, specified in the
related Award Agreement. If specified in the Award Agreement, the Purchase Price
may be deemed paid by Services already rendered. The Purchase Price shall be
payable in a form described in Section 11 or, in the discretion of the Board, in
consideration for past Services rendered.

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          10.6. Delivery of Stock.
     Upon the expiration or termination of any restricted period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units settled in
Stock shall lapse, and, unless otherwise provided in the Award Agreement, a
stock certificate for such shares shall be delivered, free of all such
restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case
may be.
11. FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK
          11.1. General Rule.
     Payment of the Option Price for the shares purchased pursuant to the
exercise of an Option or the Purchase Price for Restricted Stock shall be made
in cash or in cash equivalents acceptable to the Company, except as provided in
this Section 11.
          11.2. Surrender of Stock.
     To the extent the Award Agreement so provides, payment of the Option Price
for shares purchased pursuant to the exercise of an Option or the Purchase Price
for Restricted Stock may be made all or in part through the tender to the
Company of shares of Stock, which shares shall be valued, for purposes of
determining the extent to which the Option Price or Purchase Price for
Restricted Stock has been paid thereby, at their Fair Market Value on the date
of exercise or surrender. Notwithstanding the foregoing, in the case of an
Incentive Stock Option, the right to make payment in the form of already owned
shares of Stock may be authorized only at the time of grant.
          11.3. Cashless Exercise.
     With respect to an Option only (and not with respect to Restricted Stock),
to the extent permitted by law and to the extent the Award Agreement so
provides, payment of the Option Price may be made all or in part by delivery (on
a form acceptable to the Board) of an irrevocable direction to a licensed
securities broker acceptable to the Company to sell shares of Stock and to
deliver all or part of the sales proceeds to the Company in payment of the
Option Price and any withholding taxes described in Section 17.3.
          11.4. Other Forms of Payment.
     To the extent the Award Agreement so provides, payment of the Option Price
or the Purchase Price for Restricted Stock may be made in any other form that is
consistent with applicable laws, regulations and rules, including, but not
limited to, the Company’s withholding of shares of Stock otherwise due to the
exercising Grantee.
12. TERMS AND CONDITIONS OF PERFORMANCE AWARDS

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          12.1. Performance Conditions.
     The right of a Grantee to exercise or receive a grant or settlement of any
Award, and the timing thereof, may be subject to such performance conditions as
may be specified by the Committee. The Committee may use such business criteria
and other measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited
under Section 12.2 hereof in the case of a Performance Award intended to qualify
under Code Section 162(m).
          12.2. Performance Awards Granted to Designated Covered Employees.
          If and to the extent that the Committee determines that a Performance
Award to be granted to a Grantee who is designated by the Committee as likely to
be a Covered Employee should qualify as “performance-based compensation” for
purposes of Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 12.2.
               12.2.1. Performance Goals Generally.
     The performance goals for such Performance Awards shall consist of one or
more business criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee consistent with
this Section 12.2. Following the end of the Transition Period, performance goals
shall be objective and shall otherwise meet the requirements of Code Section
162(m) and regulations thereunder including the requirement that the level or
levels of performance targeted by the Committee result in the achievement of
performance goals being “substantially uncertain.” The Committee may determine
that such Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the performance
goals must be achieved as a condition to grant, exercise and/or settlement of
such Performance Awards. Performance goals may, in the discretion of the
Committee, be established on a Company-wide basis, or with respect to one or
more business units, divisions, subsidiaries or business segments, as
applicable. Performance goals may be absolute or relative (to the performance of
one or more comparable companies or indices). Measurement of performance goals
may exclude (in the discretion of the Committee) the impact of charges for
restructuring, discontinued operations, extraordinary items, and other unusual
non-recurring items, and the cumulative effects of tax or accounting changes
(each as defined by generally accepted accounting principles and as identified
in the Company’s financial statements or other SEC filings). Performance goals
may differ for Performance Awards granted to any one Grantee or to different
Grantees.
                12.2.2. Business Criteria.
     One or more of the following business criteria for the Company, on a
consolidated basis, and/or specified subsidiaries or business units of the
Company (except with respect to the total stockholder return and earnings per
share criteria), shall be used exclusively by the Committee in establishing
performance goals for such Performance Awards: net sales; revenue; revenue
growth or product revenue growth; operating income (before or after taxes);
pre-or after-tax

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income (before or after allocation of corporate overhead and bonuses; net
earnings; earnings per share; net income (before or after taxes); return on
equity; total shareholder return; return on assets or net assets; appreciation
in and/or maintenance of, share price; market share; gross profits; earnings
(including earnings before taxes, earnings before interest and taxes or earnings
before interest, taxes depreciation and amortization); economic value-added
models or equivalent metrics; comparisons with various stock market indices;
reduction in costs; cash flow or cash flow per share (before or after
dividends); return on capital (including return on total capital or return on
invested capital; cash flow return on investment; improvement in or attainment
of expense levels or working capital levels; operating margins; gross margins or
cash margin; year-end cash; debt reductions; shareholder equity; regulatory
performance; academic performances; student loan performance; implementation,
completion or attainment of measurable objectives with respect to research,
development, products or projects and recruiting and maintaining personnel and,
prior to the end of the Transition Period, any other business criteria
established by the Committee.
                12.2.3. Timing for Establishing Performance Goals.
     Performance goals shall be established not later than 90 days after the
beginning of any performance period applicable to such Performance Awards, or at
such other date as may be required or permitted for “performance-based
compensation” under Code Section 162(m).
                12.2.4. Settlement of Performance Awards; Other Terms.
     Settlement of Performance Awards shall be in cash, Stock, other Awards or
other property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in connection
with such Performance Awards. Following the end of the Transition Period, the
maximum amount of each cash-based Performance Award intended to constitute
“performance-based compensation” under Code Section 162(m) granted to any
Grantee in any twelve (12) month period shall not exceed One Million Dollars
($1,000,000).
               12.3. Written Determinations.
          All determinations by the Committee as to the establishment of
performance goals, the amount of any Performance Award pool or potential
individual Performance Awards and as to the achievement of performance goals
relating to Performance Awards, shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m), to the extent required by
Code Section 162(m). To the extent permitted by Code Section 162(m), the
Committee may delegate any responsibility relating to such Performance Awards.
                12.4. Status of Section 12.2 Awards under Code Section 162(m).
          It is the intent of the Company that Performance Awards under
Section 12.2 hereof granted to persons who are designated by the Committee as
likely to be Covered Employees within the meaning of Code Section 162(m) and
regulations thereunder shall, if so designated by the Committee, constitute
“qualified performance-based compensation” within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, the terms of Section 12.2,
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing

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notwithstanding, because the Committee cannot determine with certainty whether a
given Grantee will be a Covered Employee with respect to a fiscal year that has
not yet been completed, the term Covered Employee as used herein shall mean only
a person designated by the Committee, at the time of grant of Performance
Awards, as likely to be a Covered Employee with respect to that fiscal year. If
any provision of the Plan or any agreement relating to such Performance Awards
does not comply or is inconsistent with the requirements of Code Section 162(m)
or regulations thereunder, such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements.
13. OTHER STOCK-BASED AWARDS
                13.1. Grant of Other Stock-based Awards.
     Other Stock-based Awards, consisting of Stock units, or other Awards,
valued in whole or in part by reference to, or otherwise based on, Common Stock,
may be granted either alone or in addition to or in conjunction with other
Awards under the Plan. Other Stock-based Awards may be granted in lieu of other
cash or other compensation to which a Service Provider is entitled from the
Company or may be used in the settlement of amounts payable in shares of Common
Stock under any other compensation plan or arrangement of the Company, including
without limitation, the Company’s Incentive Compensation Plan. Subject to the
provisions of the Plan, the Committee shall have the sole and complete authority
to determine the persons to whom and the time or times at which such Awards
shall be made, the number of shares of Common Stock to be granted pursuant to
such Awards, and all other conditions of such Awards. Unless the Committee
determines otherwise, any such Award shall be confirmed by an Award Agreement,
which shall contain such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of this Plan with respect to such Award.
                13.2. Terms of Other Stock-based Awards.
     Any Common Stock subject to Awards made under this Section 13 may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
14. REQUIREMENTS OF LAW
               14.1. General.
     The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to an Award
upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award
unless such listing, registration, qualification, consent or approval shall have
been effected or

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obtained free of any conditions not acceptable to the Company, and any delay
caused thereby shall in no way affect the date of termination of the Award.
Specifically, in connection with the Securities Act, upon the exercise of any
Option or the delivery of any shares of Stock underlying an Award, unless a
registration statement under such Act is in effect with respect to the shares of
Stock covered by such Award, the Company shall not be required to sell or issue
such shares unless the Board has received evidence satisfactory to it that the
Grantee or any other individual exercising an Option may acquire such shares
pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
          14.2. Rule 16b-3.
     During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards and the exercise of Options granted to officers and directors hereunder
will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To
the extent that any provision of the Plan or action by the Board or Committee
does not comply with the requirements of Rule 16b-3, it shall be deemed
inoperative to the extent permitted by law and deemed advisable by the Board,
and shall not affect the validity of the Plan. In the event that Rule 16b-3 is
revised or replaced, the Board may exercise its discretion to modify this Plan
in any respect necessary to satisfy the requirements of, or to take advantage of
any features of, the revised exemption or its replacement.
15. EFFECT OF CHANGES IN CAPITALIZATION
          15.1. Changes in Capitalization.
          15.1.1. Changes in Stock.
     If (i) the number of outstanding shares of Stock is increased or decreased
or the shares of Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company on account of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Company occurring after the Effective Date or
(ii) there occurs any spin-off, split-up, extraordinary cash dividend or other
distribution of assets by the Company, the number and kinds of shares for which
grants of Options and other Stock-based Awards may be made under the Plan
(including the per-Grantee maximums set forth in Section 4) shall be equitably
adjusted by the Company; provided that any such adjustment shall comply with
Section 409A. In addition, in the event of any such increase or decrease in the
number of outstanding shares or

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other transaction described in clause (ii) above, the number and kind of shares
for which Awards are outstanding and the Option Price per share of outstanding
options and SAR Exercise Price per share of outstanding SARs shall be equitably
adjusted; provided that any such adjustment shall comply with Section 409A.
          15.1.2. Effect of Certain Transactions.
     Except as otherwise provided in an Award Agreement, in the event of (a) the
liquidation or dissolution of the Company or (b) a reorganization, merger,
exchange or consolidation of the Company or involving the shares of Common Stock
(a “Transaction”), the Plan and the Awards issued hereunder shall continue in
effect in accordance with their respective terms, except that following a
Transaction either (i) each outstanding Award shall be treated as provided for
in the agreement entered into in connection with the Transaction or (ii) if not
so provided in such agreement, each Grantee shall be entitled to receive in
respect of each share of Common Stock subject to any outstanding Awards, upon
exercise or payment or transfer in respect of any Award, the same number and
kind of stock, securities, cash, property or other consideration that each
holder of a share of Common Stock was entitled to receive in the Transaction in
respect of a share of Common stock; provided, however, that, unless otherwise
determined by the Committee, such stock, securities, cash, property or other
consideration shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Awards prior to such
Transaction. Without limiting the generality of the foregoing, the treatment of
outstanding Options and SARs pursuant to this Section 15.1.2 in connection with
a Transaction in which the consideration paid or distributed to the Company’s
stockholders is not entirely shares of common stock of the acquiring or
resulting corporation may include the cancellation of outstanding Options and
SARs upon consummation of the Transaction as long as, at the election of the
Committee, (x) the holders of affected Options and SARs have been given a period
of at least fifteen days prior to the date of the consummation of the
Transaction to exercise the Options or SARs (whether or not they were otherwise
exercisable) or (y) the holders of the affected Options and SARs are paid (in
cash or cash equivalents) in respect of each share of Stock covered by the
Option or SAR being canceled an amount equal to the excess, if any, of the per
share price paid or distributed to stockholders in the transaction (the value of
any non-cash consideration to be determined by the Committee in its sole
discretion) over the Option Price or SAR Exercise Price, as applicable. For
avoidance of doubt, (1) the cancellation of Options and SARs pursuant to clause
(y) of the preceding sentence may be effected notwithstanding anything to the
contrary contained in this Plan or any Award Agreement and (2) if the amount
determined pursuant to clause (y) of the preceding sentence is zero or less, the
affected Option or SAR may be cancelled without any payment therefore. The
treatment of any Award as provided in this Section 15.1.2 shall be conclusively
presumed to be appropriate for purposes of Section 15.1.1.
          15.2. Definition of Change in Control.
     “Change in Control” means:

  (1)   Any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act (a “Person”) becomes the beneficial owner
(within the meaning of Rule 13d 3 promulgated under the Exchange Act) of 30% or
more of either (A) the then-outstanding shares of common stock of the Company
(the

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      “Outstanding Company Common Stock”) or (B) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the “Outstanding Company Voting Securities”);
provided, however, that, for purposes of this Section 15.2, the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliated Company or (iv) any acquisition
pursuant to a transaction that complies with Sections 15.2(3)(A), (B) and (C) or
(v) any acquisition by any of the Principal Stockholders other than in
connection with a going private transaction within the meaning of Rule 13e-3 of
the Exchange Act.     (2)   Individuals who, as of the date hereof, constitute
the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual was a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;     (3)   Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a “Business Combination”), in
each case unless, following such Business Combination, (A) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of common stock (or,
for a non-corporate entity, equivalent securities) and the combined voting power
of the then-outstanding voting securities entitled to vote generally in the
election of directors (or, for a non-corporate entity, equivalent governing
body), as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity that, as a result of such
transaction, owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-

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      outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members of
the board of directors (or, for a non-corporate entity, equivalent governing
body) of the entity resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement or of the
action of the Board providing for such Business Combination; or     (4)  
Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

     Notwithstanding the foregoing, if it is determined that an Award hereunder
is subject to the requirements of Section 409A, the Company will not be deemed
to have undergone a Change in Control unless the Company is deemed to have
undergone a “change in control event” pursuant to the definition of such term in
Section 409A.
          15.3. Effect of Change in Control
     The Board shall determine the effect of a Change in Control upon Awards,
and such effect may be set forth in the appropriate Award Agreement. Without
limiting the foregoing, the Board may provide in the Award Agreements at the
time of grant, or any time thereafter with the consent of the Grantee, the
actions that will be taken upon the occurrence of a Change in Control,
including, but not limited to, accelerated vesting, termination or assumption.
The Board may also provide in the Award Agreements at the time of grant, or any
time thereafter with the consent of the Grantee, for different provisions to
apply to an Award in place of those described in Sections 15.1 and 15.2.
          15.4. Reorganization Which Does Not Constitute a Change in Control.
     If the Company undergoes any reorganization, merger, or consolidation of
the Company with one or more other entities which does not constitute a Change
in Control, any Option or SAR theretofore granted pursuant to the Plan shall
pertain to and apply to the securities to which a holder of the number of shares
of Stock subject to such Option or SAR would have been entitled immediately
following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price or SAR Exercise Price per share so
that the aggregate Option Price or SAR Exercise Price thereafter shall be the
same as the aggregate Option Price or SAR Exercise Price of the shares remaining
subject to the Option or SAR immediately prior to such reorganization, merger,
or consolidation. Subject to any contrary language in an Award Agreement, any
restrictions applicable to such Award shall apply as well to any replacement
shares received by the Grantee as a result of the reorganization, merger or
consolidation.
          15.5. Adjustments.
     Adjustments under this Section 15 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such

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adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share.
16. NO LIMITATIONS ON COMPANY
          The making of Awards pursuant to the Plan shall not affect or limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. TERMS APPLICABLE GENERALLY TO AWARDS GRANTED UNDER THE PLAN
                17.1. Disclaimer of Rights.
     No provision in the Plan or in any Award Agreement shall be construed to
confer upon any individual the right to remain in the employ or service of the
Company or any Affiliate, or to interfere in any way with any contractual or
other right or authority of the Company either to increase or decrease the
compensation or other payments to any individual at any time, or to terminate
any employment or other relationship between any individual and the Company. In
addition, notwithstanding anything contained in the Plan to the contrary, unless
otherwise stated in the applicable Award Agreement, no Award granted under the
Plan shall be affected by any change of duties or position of the Grantee, so
long as such Grantee continues to be a Service Provider. The obligation of the
Company to pay any benefits pursuant to this Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the manner
and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Grantee or beneficiary under the terms of the Plan.
                17.2. Nonexclusivity of the Plan.
     Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals), including, without limitation, the
granting of stock options as the Board in its discretion determines desirable.
                17.3. Withholding Taxes.
     The Company or an Affiliate, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any federal, state,
or local taxes of any kind required by law to be withheld (i) with respect to
the vesting of or other lapse of restrictions applicable to an Award, (ii) upon
the issuance of any shares of Stock upon the exercise of an Option or SAR, or
(iii) otherwise due in connection with an Award. At the time of such vesting,
lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as
the case may be, any amount that the Company or the Affiliate may reasonably
determine to be necessary to satisfy such withholding obligation. Subject to the
prior approval of the Company or the Affiliate, which

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may be withheld by the Company or the Affiliate, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Affiliate to withhold the minimum
required number of shares of Stock otherwise issuable to the Grantee as may be
necessary to satisfy such withholding obligation or (ii) by delivering to the
Company or the Affiliate shares of Stock already owned by the Grantee. The
shares of Stock so delivered or withheld shall have an aggregate Fair Market
Value equal to such withholding obligations. The Fair Market Value of the shares
of Stock used to satisfy such withholding obligation shall be determined by the
Company or the Affiliate as of the date that the amount of tax to be withheld is
to be determined. A Grantee who has made an election pursuant to this Section
17.3 may satisfy his or her withholding obligation only with shares of Stock
that are not subject to any repurchase, forfeiture, unfulfilled vesting, or
other similar requirements.
                17.4. Captions.
     The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or any Award Agreement.
               17.5. Other Provisions.
     Each Award Agreement may contain such other terms and conditions not
inconsistent with the Plan as may be determined by the Board, in its sole
discretion.
                17.6. Number and Gender.
     With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
                17.7. Severability.
     If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
               17.8. Governing Law.
     The Plan shall be governed by and construed in accordance with the laws of
the State of New York without giving effect to the principles of conflicts of
law, provided that the provisions set forth herein that are required to be
governed by the Pennsylvania Business Corporation Law of 1988, as amended, shall
be governed by the Pennsylvania Business Corporation Law of 1988, as amended.

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                17.9. Section 409A.
                17.9.1. Short-Term Deferrals.
     For each Award intended to comply with the short-term deferral exception
provided for under Section 409A, the related Award Agreement shall provide that
such Award shall be paid out by the later of (i) the 15th day of the third month
following the Grantee’s first taxable year in which the Award is no longer
subject to a substantial risk of forfeiture or (ii) the 15th day of the third
month following the end of the Company’s first taxable year in which the Award
is no longer subject to a substantial risk of forfeiture.
                17.9.2. Adjustments.
     To the extent that the Board determines that a Grantee would be subject to
the additional 20% tax imposed on certain deferred compensation arrangements
pursuant to Section 409A as a result of any provision of any Award, to the
extent permitted by Section 409A, such provision shall be deemed amended to the
minimum extent necessary to avoid application of such additional tax. The Board
shall determine the nature and scope of such amendment.
               17.10. Stockholder Approval; Effective Date of Plan.
     The Plan shall be effective as of the Effective Date. Any Option that is
designated as an Incentive Stock Option shall be a Nonqualified Stock Option if
the Plan is not approved by the shareholders of the Company within twelve
(12) months after the Effective Date of the Plan. Following the end of the
Transition Period, no award that is intended to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code shall be effective
unless and until the Plan is approved by the stockholders of the Company.
                17.11. Separation from Service.
     The Board shall determine the effect of a Separation from Service upon
Awards, and such effect shall be set forth in the appropriate Award Agreement.
Without limiting the foregoing, the Board may provide in the Award Agreements at
the time of grant, or any time thereafter with the consent of the Grantee, the
actions that will be taken upon the occurrence of a Separation from Service,
including, but not limited to, accelerated vesting or termination, depending
upon the circumstances surrounding the Separation from Service.
                17.12. Transferability of Awards.
                17.12.1. Transfers in General.
     Except as provided in Section 17.12.2, no Award shall be assignable or
transferable by the Grantee to whom it is granted, other than by will or the
laws of descent and distribution, and, during the lifetime of the Grantee, only
the Grantee personally (or the Grantee’s personal representative) may exercise
rights under the Plan.

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               17.12.2. Family Transfers.
     If authorized in the applicable Award Agreement, a Grantee may transfer,
not for value, all or part of an Award (other than Incentive Stock Options) to
any Family Member. For the purpose of this Section 17.12.2, a “not for value”
transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic
relations order in settlement of marital property rights; or (iii) a transfer to
an entity in which more than fifty percent of the voting interests are owned by
Family Members (or the Grantee) in exchange for an interest in that entity.
Following a transfer under this Section 17.12.2, any such Award shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer. Subsequent transfers of transferred Awards are prohibited
except to Family Members of the original Grantee in accordance with this
Section 17.12.2 or by will or the laws of descent and distribution.
                17.13. Dividends and Dividend Equivalent Rights.
     If specified in the Award Agreement, the recipient of an Award under this
Plan may be entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the Common Stock or other securities
covered by an Award. The terms and conditions of a dividend equivalent right may
be set forth in the Award Agreement. Dividend equivalents credited to a Grantee
may be paid currently or may be deemed to be reinvested in additional shares of
Stock or other securities of the Company at a price per unit equal to the Fair
Market Value of a share of Stock on the date that such dividend was paid to
shareholders, as determined in the sole discretion of the Committee.
EDUCATION MANAGEMENT CORPORATION

                  By:  /s/ Todd S. Nelson       Title:  Chief Executive Officer
           

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