Exhibit 10.03
 
THE
EDUCATION MANAGEMENT CORPORATION
RETIREMENT PLAN
 
Table of Contents
 
 
Quick-Reference Information
    
Sponsor
  
1
Other Participating Employers
  
1
Plan Administrator
  
1
Trustee
  
1
Appeals Authority
  
1
Length Of Service Required For Benefits (Vesting Schedule)
  
2
Plan Year Ends Every
  
2
Plan Number
  
2
Welcome to the Plan!
    
Introduction
  
2
Individual accounts
  
2
Contributions
  
3
Payments
  
3
Plan and summary plan description
  
3
Ordinary names
  
3
Effective Date
  
4
How You Get into the Plan
    
Introduction
  
4
The eligibility requirements
  
4
Actually getting in
  
4

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If things change
  
5
Trading Off Your Pay For Contributions to the Plan
    
Introduction
  
5
How much you can trade off
  
5
How to do it
  
5
Possible but unlikely limit
  
6
Matching Contributions
    
Introduction
  
6
Special eligibility rule
  
6
Rate of match
  
7
Form of matching contribution
  
7
Reports
  
7
Investment
  
7
Profit Sharing Contributions
    
Introduction
  
8
Who shares in profit sharing contributions
  
8
How much you get
  
8
Reports
  
8
The Former ESOP and Employer Stock Accounts
    
Introduction
  
9
Who has an employer stock account
  
9
Who would share in ESOP contributions
  
9
How much you get
  
10
Reports
  
10
Incoming Rollovers
    
Introduction
  
10
Direct rollover
  
10
Indirect rollover
  
10
Rules applicable to both types of rollover
  
11
Approval of plan administrator
  
11
Separate accounting
  
11
What Happens to the Money While It’s in the Plan
    
Introduction
  
11
“Exclusive benefit”
  
11
Investment
  
12
Recordkeeping
  
12
Return of contributions
  
12
Making Your Own Investment Decisions
    
Introduction
  
12
The choices
  
13
Getting information
  
13
Implementing your choices
  
13

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Your responsibility
  
13
When You Retire or Terminate Employment
    
Introduction
  
14
Normal retirement after age 65
  
14
Early retirement after age 55
  
14
Disability
  
14
Other termination of employment
  
14
Forfeitures
  
15
Some special rules about termination of employment
  
16
When Payment Is Actually Made
    
Introduction
  
16
General rule
  
16
Your choices about timing
  
16
Latest possible date to take the money (or stock)
  
17
How Payment Is Made
    
Introduction
  
17
All accounts other than employer stock account
  
17
Employer stock account
  
18
Having the money transferred directly to another plan
  
18
“Put” option
  
19
How to Claim Your Money or Stock
    
Introduction
  
20
Pre-approved payments
  
20
Making a formal claim
  
20
Appeal
  
21
Discretionary authority
  
21
Payment Before Termination of Employment
    
Introduction
  
22
Withdrawal of after-tax contributions
  
22
Age 59½
  
22
Age 70½
  
22
Hardship
  
22
Borrowing Money From Your Accounts
    
Introduction
  
23
Eligibility
  
23
Number
  
24
Amount
  
24
Promissory note
  
24
Term
  
24
Interest
  
24
Source and application of funds
  
24

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Repayment
  
25
Security
  
25
Pre-payment
  
25
Default
  
25
How to apply
  
25
In Case of Death
    
Introduction
  
26
If you’re married
  
26
If you’re not married
  
26
Naming your beneficiary and getting spousal consent
  
26
Claiming your accounts
  
27
Child Support, Alimony and Property Division in Divorce
    
Introduction
  
27
What a domestic relations order is
  
28
What happens when a domestic relations order comes in
  
28
How the Length of Your Service Is Calculated
    
Introduction
  
29
12-Month periods
  
29
Years of service
  
29
Full-time employees
  
30
Part-time faculty
  
30
Other part-time employees
  
30
Back pay
  
30
Breaks in service
  
30
How breaks in service cancel years of service
  
31
Service with related employers
  
31
When You Return from Military Service
    
Introduction
  
32
Break in service
  
32
401(k) contributions
  
32
Matching contributions
  
33
Profit sharing contributions and ESOP contributions
  
33
Your “pay”
  
33
Percentage of entitlement to employer accounts
  
33
Limits and testing
  
33
What the Plan Administrator Does
    
Introduction
  
34
Reporting and disclosure
  
34
Bonding
  
34
Numerical testing
  
34
Prohibited transactions
  
34
Expenses
  
35
Limitation
  
35
What the Employer Does
    

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Introduction
  
35
Establishment
  
35
Contributions
  
35
Employment records
  
36
Insurance and indemnification
  
36
Changing the plan
  
36
Ending the plan
  
36
Maximum Amount of 401(k) Contributions
    
Introduction
  
37
$10,500 limit
  
37
If the $10,500 limit is exceeded
  
37
Utilization test
  
38
Who the restricted employees are
  
38
Performing the utilization test
  
38
If the utilization test reveals a problem
  
39
Returning excess contributions
  
40
Combining plans
  
40
Maximum Amount of Matching Contributions
    
Introduction
  
41
Matching contributions by themselves
  
41
Matching contributions in combination
  
41
If this test of matching contributions reveals a problem
  
42
Maximum Amount of Total Contributions
    
Introduction
  
42
25% of pay limit
  
42
If there’s more than one defined contribution plan
  
43
If there’s also a defined benefit plan
  
43
Related employers
  
43
Improvements When The Plan Is Top-Heavy
    
Introduction
  
44
Who is in the concentration group
  
44
Performing the concentration test
  
45
Changes if the plan is top-heavy
  
46
Special ESOP Provisions
    
Introduction
  
47
The nature of an ESOP
  
47
Investment
  
47
“Employer securities”
  
48
Voting
  
49
Diversification
  
49
“Nonterminable” protections and rights
  
51
Non-allocation under Code section 409(n)
  
51
Miscellaneous
    

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What “pay” or “compensation” means
  
52
Leased employees
  
53
Family and medical leave
  
53
Changes in vesting schedule
  
53
Non-Alienation
  
53
Payments to minors
  
53
Unclaimed benefits
  
54
Plan assets sole source of benefits
  
54
No right to employment
  
54
Profit sharing and stock bonus plan
  
54
Merger of plan
  
54
Protection of benefits, rights, and features from previous edition of plan
  
54
Governing law
  
55
No PBGC Coverage
  
55
“Highly compensated employees.”
  
55
Statement of ERISA rights
  
55
Special Arrangements for New Participating Employers
    
Introduction
  
56
Illinois Institute of Art
  
57
New York Restaurant School
  
57
Art Institutes International Portland, Inc.
  
57
Massachusetts Communications College
  
57
Art Institute of Charlotte
  
58
Art Institute of Las Vegas
  
58
Art Institute of California
  
58

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QUICK-REFERENCE INFORMATION
 
Sponsor
 
Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222
 
Employer identification number assigned by the IRS: 25-1119571
 
Other Participating Employers
 
The other participating employers are listed on Appendix A, which appears at the
end of the plan
 
Plan Administrator
 
Retirement Committee
c/o Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222
 
Telephone: (412) 562-0900
 
Trustee
 
Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
 
(Prior to the merger of the ESOP into the Retirement Plan,
the trustee of the assets of the ESOP was:
Marine Midland Bank
One Marine Midland Center, 17th Floor
P. O. Box 4567
Buffalo, NY 14240)
 
Appeals Authority
 
Retirement Committee
c/o Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222

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Length Of Service Required For Benefits (Vesting Schedule)
 
Less than 5 years of service 0%
5 years of service 100%
 
Because the vesting schedule was different before April 1, 2000, two special
rules apply:
 

 
•
 
First, the change in vesting schedule does not have the effect of reducing
anyone’s vesting percentage. For example, if you had 3 years of service before
April 1, 2000 and therefore were 20% vested, you remain 20% vested even under
the new schedule.

 

 
•
 
Second, if you had at least 3 years of service before April 1, 2000, you will
always get the better of the old schedule or the new schedule. This means, for
example, that after a total of 4 years of service, you will advance to being 40%
vested (according to the old schedule) and after 5 years of service, you will
advance to being 100% vested (according to the new schedule).

 
Plan Year Ends Every December 31
 
Plan Number 001
 
WELCOME TO THE PLAN!
 
Introduction.    This is the Retirement Plan sponsored by Education Management
Corporation, which we will call “the sponsor.” It is maintained by the sponsor
and the other participating employers identified above in the section called
“Quick-Reference Information” under the heading “Other Participating Employers.”
 
Please note:    The sponsor used to maintain two separate plans — the Retirement
Plan and the Employee Stock Ownership Plan. To simplify administration and make
it easier for you to understand your retirement benefits, they have now been
consolidated into a single plan, and this is it.
 
Individual accounts.    Simply put, the plan consists of a series of individual
accounts set up for the employees who are in the plan. Actually, an employee may
have a number of different accounts:
 

 
•
 
a 401(k) account (if you choose to trade off pay for contributions to the plan),

 

 
•
 
a match account (again, if you choose to trade off pay for contributions to the
plan),

 

 
•
 
a profit sharing account,

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•
 
an employer stock account (if you are eligible to participate in the ESOP
portion of the plan), and

 

 
•
 
a rollover account (if you roll money into this plan from another plan).

 
Employees who were in this plan (that is, the Retirement Plan) before May 1,
1992 and who made after-tax employee contributions also have an after-tax
contribution account for those after-tax employee contributions.
 
Contributions.    Money goes into your 401(k) account if you choose to trade off
pay for a contribution to the plan. If you do, the employer matches your 401(k)
contributions (assuming you have completed one year of service, as described
later in the plan); the matching contributions go into your match account.
 
The employer is permitted (but not required) to make additional
contributions—beyond your 401(k) contributions and any matching contributions.
Your share of any additional contributions goes into your profit sharing
account.
 
Payments.    While the money is in the plan, it is invested in accordance with
your investment instructions (except for any employer stock account, of course,
which is invested in employer stock). Then, after you leave the company, you are
entitled to all of the money in your 401(k) account (and any rollover account or
after-tax employee contribution account, if you have one). Depending on the
length of your service, you may be entitled to part or all of the money in your
match account and your profit sharing account and the stock in your employer
stock account.
 
Please note:    Federal law may require withholding or other taxes on the money
that you are paid from this plan. The plan administrator will naturally comply
with any such law. But for the sake of simplicity, we will say here in the plan
that you will receive “all the money.” Just keep in mind that “all the money” is
before any required withholding or other taxes.
 
Plan and summary plan description.    The plan document—that’s what this is—sets
out the rules for how and when you get into the plan, how and when money goes
into your accounts, what happens to the money while it’s in the plan, and how
and when you can get the money out.
 
This plan is written in simple, easy-to-understand language. Therefore, it
serves as both the plan document and the “summary plan description” required by
federal law.
 
Ordinary names.    Throughout the plan, we will refer to things by their
ordinary names. We will call this plan simply “the plan.” We will call the
sponsor which is identified in the section called “Quick-Reference Information”
simply “the sponsor.” When we say “employer,” we mean the sponsor or one of the
other participating employers—whichever one employs you. When we say “you,” we
mean you the employee (or former employee) who participates in the plan. When we
say “Code,” we mean the federal Internal Revenue Code of 1986, as in effect from
time to time.
 
There is one exception to this rule. From time to time, we will refer to your
“pay” or “compensation.” Unfortunately, those terms have highly technical
meanings, which can change for different purposes under the

Retirement Plan    Page 3

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plan. The various technical definitions are set forth at the end of the plan
under the heading “Miscellaneous.”
 
Effective Date.    This edition of the plan generally takes effect on August 1,
2001 and applies only to participants who have at least one hour of service on
or after that date. We say “generally” because there are a few provisions that
take effect on other dates; when those provisions come along, we will say
exactly when they take effect.
 
This restatement of the Education Management Corporation Retirement Plan is
conditional upon approval by the Internal Revenue Service. Sometimes, the IRS
asks for minor, technical changes in order to give their approval, but if any
such changes are made, we will let you know.
 
HOW YOU GET INTO THE PLAN
 
Introduction.    Before you can get any benefit from the plan, you have to get
into the plan. This part of the plan document explains how you get in.
 
The eligibility requirements.    There are three requirements in order to be
eligible to get into the plan:
 

 
•
 
First, you have to be an employee of the employer. Remember, when we say “the
employer,” we mean the sponsor or one of the other participating
employers—whichever one employs you. Independent contractors are not employees
of the employer, nor are workers whose services are leased from a leasing
organization (such as “temps”), and they are therefore not eligible for the
plan.

 

 
•
 
Second, you must be classified by the employer as a salaried, clerical or hourly
employee and must not be (a) matriculated in an employer with an enrollment
agreement (i.e., a student) or (b) a member of a collective bargaining unit
unless the collective bargaining agreement provides for participation in this
plan.

 

 
•
 
Third, you must have worked for the employer for 30 days.

 
Any special arrangements that might be made for employees of new participating
employers are described at the end of the plan in the section called “Special
Arrangements for New Participating Employers.”
 
Actually getting in.    As soon as you meet all of the eligibility requirements
at the same time, you are enrolled in the plan on the first of the next month.
Enrollment is automatic; you don’t have to fill out any forms just to get into
the plan. But you do have to take action if you want to:

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•
 
trade off pay for contributions to the plan, as explained in the following
section called “Trading Off Your Pay for Contributions to the Plan,” or

 

 
•
 
direct the investment of your accounts into any investment option other than the
default investment option, as explained later in the section called “Making Your
Own Investment Decisions,” or

 

 
•
 
name a beneficiary for any benefits that may be payable after your death, as
explained in the section called “In Case of Death.”

 
If things change.    If at any time you cease to be an employee of the employer
or you cease to be employed in the classification of employees who are eligible
to get into the plan, then your participation in the plan ceases immediately and
automatically. (If you later return to employment with the employer in the
classification of eligible employees, you will participate in the plan again
immediately. It may be necessary to take action to re-start your 401(k)
contributions, as described in the next section.)
 
Of course, after you leave the plan, you may still be entitled to receive the
money in your account. (We will discuss this later in the section called “When
You Retire or Terminate Employment.”) And you remain entitled to direct the
investment of the money in your account until it is paid or forfeited.
 
TRADING OFF YOUR PAY FOR CONTRIBUTIONS TO THE PLAN
 
Introduction.    You may have heard about plans called “401(k)” plans. That’s
what this is. It offers you the opportunity to trade off your pay for
contributions to the plan. It is particularly attractive because, under the
current federal income tax law, you don’t pay current federal income tax on the
amount of pay that you trade off for a contribution to the plan.
 
Please note:    While free from federal income tax, these amounts are still
subject to Social Security tax (FICA) and state and local income tax in
Pennsylvania and a few other states.
 
How much you can trade off.    You can trade off any percentage of your pay,
expressed in whole numbers, up to 15% of your pay.
 
How to do it.    If you would like to trade off some of your pay in return for a
contribution to the plan, get in touch with Fidelity, using the toll-free number
shown in the materials that you receive from Fidelity. You will authorize the
employer to reduce your pay by a certain percentage and, instead of paying it to
you in cash, to put that amount into your 401(k) account in the plan.

Retirement Plan    Page 5

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There are several simple rules for making contributions by this method (these
rules were created by the IRS):
 

 
•
 
You must enter into an enforceable agreement with the employer to do this. (This
is handled by Fidelity, which forwards your authorization to the employer to be
implemented in the payroll system and sends you a confirmation in the mail.)

 

 
•
 
The agreement only applies to pay that you earn after the agreement is entered
into. (In other words, you can’t make this type of contribution retroactively).

 

 
•
 
You can terminate the agreement at any time by notifying Fidelity, but the
agreement still applies to all pay that was earned while the agreement was in
effect. (In other words, you can’t terminate the agreement retroactively.)

 

 
•
 
You can change your agreement at any time, but the change will take effect at
the beginning of the following month.

 
Whenever a contribution is made by this method, you will see it on your pay
stub. From this point forward in the plan, we will call these your “401(k)
contributions.”
 
Possible but unlikely limit.    It is possible, though highly unlikely, that
contributions under this section of the plan would create a situation where
total contributions were greater than the amount permitted as a deduction under
the Code. If that were to happen, contributions under this section would be
limited (or, if already made, would be returned to the employer) beginning with
those that represent the greatest percentage of pay, so that the correction
would have the effect of imposing a maximum permissible percentage somewhat
lower than 15%. If any contributions made on your behalf under this section of
the plan are returned to the employer, of course they will promptly be paid to
you and will be treated as taxable income for the year in which they were
contributed to the plan.
 
MATCHING CONTRIBUTIONS
 
Introduction.    In order to encourage employees to make 401(k) contributions
(in other words, to encourage savings for retirement), the employer agrees to
make an additional contribution to the plan on your behalf if you make 401(k)
contributions. This is called a matching contribution and it is an additional
contribution on top of your pay.
 
Special eligibility rule.    Although you are eligible to make 401(k)
contributions on the first of the

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month after 30 days of employment with the employer, you are not eligible for
matching contributions until the next January 1 or July 1 after you have
completed one year of service. This doesn’t necessarily mean 12 months. You may
be credited with a “year of service” after just 900 hours of service. This is
explained later in the plan under the heading “How the Length of Your Service Is
Calculated.”
 
Rate of match.    The employer agrees to make an additional contribution to the
plan of $1 for every dollar of 401(k) contributions that you choose to make up
to 3% of your pay plus $.50 for every dollar of 401(k) contributions from 4% to
6% of your pay. Here is a table showing the match that would apply to various
levels of 401(k) contributions:
 
401(k) Contributions

--------------------------------------------------------------------------------

  
Match

--------------------------------------------------------------------------------

 
1%
  
1
%
2%
  
2
%
3%
  
3
%
4%
  
3.5
%
5%
  
4
%
6%–15%
  
4.5
%

 
Matching contributions are made each pay period. With one exception, the
matching contribution is calculated separately for each pay period, based on
your 401(k) contributions for that pay period alone, not on a cumulative basis
during the plan year. For example, if your rate of 401(k) contributions is less
than 6% for a particular pay period (so you’re not getting the maximum available
matching contribution), you can’t make it up by boosting your rate to more than
6% in some future pay period. And if your 401(k) contributions reach the dollar
limit described later in the plan in the section called “Maximum Amount of
401(k) Contributions” (and therefore stop) before the end of the year, your
matching contributions will stop at the same time.
 
As an exception, however, effective January 1, 1999, if you have maintained a
rate of 401(k) contributions of 6% or more throughout the plan year but your
matching contributions stop because you reach the dollar limit on 401(k)
contributions before the end of the year, the employer will make a “catch-up”
matching contribution, as soon as administratively possible at the end of the
plan year, in whatever additional amount is necessary to provide you with the
maximum available matching contribution for the plan year.
 
Form of matching contribution.    Matching contributions will ordinarily be made
in cash. But there are two possible exceptions. First, the employer is permitted
(but not required) to make matching contributions in employer stock. Second, if
forfeitures from employer stock accounts are used to make the matching
contribution, either in whole or in part, those forfeitures may be applied
either in the form of employer stock or by selling the stock and applying them
in cash.
 
Reports.    The employer’s matching contribution is added to your match account.
When the employer contributes in this manner, you will see it on your periodic
statements from the trustee, Fidelity.
 
Investment.    To the extent that the matching contribution is made in employer
stock, your match account will be shown as invested in employer stock. Keep in
mind that this is still your match account, not an “employer stock account,”
which is something different that is explained later in the plan in the section
called

Retirement Plan    Page 7

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“The Former ESOP and Employer Stock Accounts.” You can direct that the employer
stock in your match account be sold and the proceeds invested in one or more of
the available investment options, as explained later in the section called
“Making Your Own Investment Decisions.”
 
PROFIT SHARING CONTRIBUTIONS
 
Introduction.    In addition to 401(k) contributions that you choose to make,
and the matching contributions that go with them, the employer can make profit
sharing contributions whenever it chooses to do so. The employer is under no
obligation to contribute to the plan in this manner. If the employer contributes
in this manner, its contribution is on top of your pay. That is, the employer
makes the contribution out of its own money; you don’t have to trade off any pay
to get it. We will call these “profit sharing contributions.”
 
Who shares in profit sharing contributions.    If the employer makes a profit
sharing contribution, the amount is allocated as of the last day of the plan
year (currently, December 31) among the individual accounts of all the
participants in the plan who meet all three of these requirements:
 

 
•
 
you have become eligible to receive matching contributions by the last day of
that plan year and

 

 
•
 
you completed a year of service during that plan year (see “How the Length of
Your Service Is Calculated,” later in the plan, for what constitutes a “year of
service”) and

 

 
•
 
you were employed by the employer on the last day of the plan year, currently
December 31 (or you retired during the year, became disabled during the year or
died during the year).

 
Keep in mind that only employees who have become eligible for matching
contributions are entitled to share in profit sharing contributions. If you do
not become eligible for matching contributions until January 1, you do not share
in the profit sharing contributions for the preceding year.
 
How much you get.    Profit sharing contributions are divided in proportion to
each employee’s pay from the employer during that year—so everybody gets an
amount equal to the same percentage of pay added to his or her account.
 
Reports.    A profit sharing contribution by the employer is added to your
profit sharing account. When the employer contributes in this manner, you will
see it on your periodic statements from the trustee, Fidelity.

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THE FORMER ESOP AND EMPLOYER STOCK ACCOUNTS
 
Introduction.    The ESOP loan has been paid off, so no more ESOP contributions
by the employer are contemplated (as explained near the end of the plan in the
section called “Special ESOP Provisions”). But participants may still have
employer stock accounts, reflecting contributions to the ESOP when it was a
separate plan, so it is useful to describe employer stock accounts.
 
Who has an employer stock account.    Not everyone in the plan has an employer
stock account. There are two categories of employees who have employer stock
accounts:
 

 
•
 
Everyone who had an account in the Education Management Corporation Employee
Stock Ownership Plan before it was merged into this plan, effective April 7,
1999, still has an employer stock account. It is the same account that he or she
had under the ESOP; now it is maintained under this plan instead.

 

 
•
 
Everyone who received an allocation of ESOP contributions or forfeitures through
the end of 1999 or receives an allocation of ESOP forfeitures after 1999 also
has an employer stock account, in which those ESOP contributions or forfeitures
are held.

 
Who would share in ESOP contributions.    Though no more employer contributions
are contemplated for the ESOP portion of the plan, this section describes how an
employer contribution would be allocated among participants if it were to be
made. ESOP contributions would be allocated as of the last day of the plan year
(currently, December 31) among the employer stock accounts of employees in the
plan who meet all of these requirements:
 

 
•
 
You were employed on the last day of the plan year by an employer that
participates in the ESOP feature of the plan (or you retired from such an
employer during the year, became disabled from such an employer during the year,
or died during the year while employed by such an employer).

 
Please note: Not all employers who participate in the 401(k) feature of the plan
participate in the ESOP feature. To find out if your employer participates in
the ESOP feature, look at the list of participating employers on Appendix A at
the end of this plan: employers that do not participate in the ESOP are denoted
with an asterisk.
 

 
•
 
You have become eligible to receive matching contributions by the last day of
that year.

 

 
•
 
You completed a year of service during that plan year (see “How the Length of
Your Service Is Calculated,” later in the plan, for what constitutes a “year of
service”).

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Keep in mind that only employees who have become eligible for matching
contributions are entitled to share in ESOP contributions. If you do not become
eligible for matching contributions until January 1, you do not share in any
ESOP contributions for the preceding year.
 
How much you get.    ESOP contributions would be divided in proportion to each
eligible employee’s pay from the employer during that year—so everybody would
get an amount equal to the same percentage of pay added to his or her employer
stock account. (If you are still technically employed by the sponsor or another
employer that participates in the ESOP, so that you would be entitled to share
in ESOP contributions or forfeitures, but some of your pay comes from another
employer that does not participate in the ESOP feature, your pay from both
employers would be taken into account for this purpose.)
 
Reports.    Your share of ESOP contributions would be added to your employer
stock account as of the last day of the plan year. You would see the amount on
your statements from the trustee, Fidelity.
 
INCOMING ROLLOVERS
 
Introduction.    There is one other way that money can come into the plan for
you. That is when money is transferred from another plan. It is called a
“rollover,” and this section will explain how it works.
 
Direct rollover.    If you are entitled to get money from a pension, profit
sharing or stock bonus plan, and it constitutes an “eligible rollover
distribution” under the Code, that plan must offer you the opportunity to have
the money transferred directly to another plan (instead of paid to you in cash)
if you can find a plan that will take it.
 
This plan will take a direct transfer of that type, if all of the other rules of
this section are met. (This is what the law calls a “direct rollover.”)
 
Indirect rollover.    Instead of choosing a direct rollover from that other plan
to this plan, you may choose to take the money in cash from that other plan. If
you do, and you get what the law calls an “eligible rollover distribution,” you
can still make a rollover to this plan if:
 

 
•
 
you deliver a check to the plan administrator not later than the 60th day after
you received the money from the other plan, or

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•
 
put the money in a “conduit” individual retirement account within 60 days after
you received the money from the other plan, never make any other contributions
to that conduit IRA, and then transfer all of that money to this plan; and

 

 
•
 
all of the other rules of this section are met.

 
The rules of the Code for indirect rollovers are very strict and can be very
tricky. This plan does not attempt to explain those rules. You should consult
the tax advisor of your choice.
 
Rules applicable to both types of rollover.    This plan will not accept any
rollover that does not comply with the requirements of the Code. Foremost among
them is the requirement that the rollover come from a pension, profit sharing or
stock bonus plan that is qualified under section 401(a) of the Code.
 
In addition, this plan is set up to be generally exempt from the joint and
survivor annuity rules of the Code. This plan will not accept any transfer of
assets from another plan if the effect would be to make this a “transferee plan”
subject to those rules.
 
Approval of plan administrator.    If you would like to make a rollover to this
plan, get in touch with the trustee (Fidelity), which can give you the forms.
The plan administrator has complete authority to deny any requested rollover if
the person requesting the rollover is unable or unwilling to satisfy the plan
administrator that the rollover complies with these rules and will not
jeopardize the intended status and operation of the plan.
 
Separate accounting.    If the plan accepts a rollover on your behalf, that
rollover will be put into a separate account for you—separate from your 401(k)
account, your match account, your profit sharing account and your employer stock
account (if any).
 
WHAT HAPPENS TO THE MONEY WHILE IT’S IN THE PLAN
 
Introduction.    As required by law, the individual accounts of the employees in
the plan are held in trust by the trustee identified at the beginning of the
plan in the section called “Quick-Reference Information” under the heading
“Trustee.” A trust is a pool of assets held by an individual or company (such as
a bank) who is called the “trustee.” All contributions to the plan are paid to
the trustee.
 
“Exclusive benefit”.    The trustee holds the assets of the plan for the
exclusive benefit of the employees in the plan—that is, exclusively for the
purposes of providing benefits to participants and beneficiaries of the plan and
defraying the reasonable expenses of administering the plan.

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Investment.    Assets held by the trustee are invested by the trustee in
accordance with the terms of the plan. Except for employer stock accounts, the
plan gives you free choice among a number of different investment funds (as
described in the following section of the plan). Employer stock accounts are
invested in employer stock, as described in more detail near the end of the plan
in the section called “Special ESOP Provisions.”
 
Recordkeeping.    Though the money is all pooled together for investment
purposes, you still have one or more individual accounts. The plan administrator
is responsible for keeping track of your individual accounts.
 
The investments are valued daily. But the government requires us to say here
that the plan administrator will figure out the total value of the investments
of the plan at the end of every year. If the value has gone up since the last
valuation, then all of the accounts will be increased in the same proportion. If
the value has gone down since the last valuation, then all of the accounts will
be decreased in the same proportion. The plan administrator will give you
periodic reports of the value of your account.
 
Return of contributions.    Except for a few unusual circumstances, once the
employer puts money into the plan, the money can never come back to the
employer. Here are the exceptions:
 

 
•
 
If the employer made the contribution by mistake of fact, then it can be
returned within 1 year after the contribution was made.

 

 
•
 
All contributions by the employer are made on the condition that they are
deductible by the employer for federal income tax purposes. If any part of a
contribution is disallowed, that part of the contribution can be returned to the
employer within 1 year after disallowance of the deduction.

 

 
•
 
If this plan fails to qualify initially for favorable tax treatment under the
Code, then all contributions can be returned to the employer, as long as an
application for determination on the plan was filed with the Internal Revenue
Service by the due date of the employer’s return for the taxable year in which
the plan was adopted.

 
MAKING YOUR OWN INVESTMENT DECISIONS
 
Introduction.    This plan allows you to have considerable control over how your
money is invested. This section of the plan will explain how you do it. Keep in
mind that this section applies to all of your accounts except your employer
stock account, which is invested in employer stock (but can be diversified after

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age 55 and 10 years of participation in the plan), as described in more detail
near the end of the plan in the section called “Special ESOP Provisions.”
 
The choices.    The plan offers a number of choices. They are listed on Appendix
B, which is a separate sheet that forms a part of this plan and which also
includes a brief description of each alternative (taken from information
published by Fidelity).
 
The choices may change from time to time. When they do, you will be given a new
Appendix B showing all of the choices that are in effect after the change is
made.
 
Please note:    If matching contributions are made in employer stock, your match
account will be invested in employer stock to that extent, rather than in any of
the investments shown on Appendix B. But you may direct the trustee at any time
to sell the employer stock and re-invest the proceeds in one or more of the
investments shown on Appendix B, as explained below under the heading
“Implementing your choices.” Just remember that employer stock is not one of the
investment options on Appendix B, so you can never move your money in the other
direction—that is, you can never go from any of the investments shown on
Appendix B into employer stock.
 
Getting information.    The plan administrator cannot tell you which investment
choice is best for you; that is your decision alone, and the plan administrator
is not licensed as an investment advisor.
 
But the plan administrator will provide you with more specific information about
the choices, including exactly what each fund is invested in, who runs each
fund, and how each fund has performed in the past. We hope this information will
be helpful to you in making your choices.
 
Implementing your choices.    When you first join the plan, you will make your
investment choices by contacting the trustee, Fidelity, at the toll-free number
shown in the materials that you receive from Fidelity. After joining the plan,
you can change your investment choices whenever you like during normal business
hours. Just call Fidelity at the toll-free number shown in the materials that
you receive from Fidelity. A representative will guide you through making the
change.
 
If for any reason there is no current investment direction on file for you with
the trustee, the plan hereby requires that your accounts (other than your
employer stock account, if any) be invested in the Managed Income Portfolio, and
neither the plan administrator nor the trustee nor any other fiduciary of the
plan shall have any authority or discretion to direct otherwise. The same
applies to any portion of your investment direction that becomes out of date,
such as if you have chosen a particular fund and that fund is no longer offered
(unless a substitute fund is automatically provided).
 
Your responsibility.    In return for complete freedom to choose how your
accounts are invested among the available investment funds, you take complete
responsibility for your choices. No one else is responsible for helping you or
keeping you from making bad decisions. In fact, no one monitors your decisions
at all.

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This plan is designed to take advantage of section 404(c) of the Employee
Retirement Income Security Act of 1974, as amended, which means that the plan
administrator and the trustee and all other fiduciaries of the plan are relieved
of any and all responsibility for the investment decisions that you make.
 
WHEN YOU RETIRE OR TERMINATE EMPLOYMENT
 
Introduction.    This is a retirement plan. The purpose is for both you and the
employer to save for your retirement. This section will explain when you can get
your money (or stock, in the case of an employer stock account).
 
Normal retirement after age 65.    If your employment with the employer
terminates any time on or after your 65th birthday, you are entitled to all the
money in your 401(k) account, match account, and profit sharing account, as well
as all of the money in your after-tax contribution account and rollover account,
if you have them. In addition, you are entitled to all of the stock and cash in
your employer stock account (and cash equal to any fractional share of stock).
 
Early retirement after age 55.    If your employment with the employer
terminates any time before age 65 but after age 55 and you have completed at
least 5 years of service, you are entitled to all the money in your 401(k)
account, match account, and profit sharing account, as well as all of the money
in your after-tax contribution account and rollover account, if you have them.
In addition, you are entitled to all of the stock and cash in your employer
stock account (and cash equal to any fractional share of stock). (To figure out
your length of service, see the section entitled “How Your Length Of Service Is
Calculated.”)
 
Disability.    If you become totally and permanently disabled, then you are
entitled to all the money in your 401(k) account, match account, and profit
sharing account, as well as all of the money in your after-tax contribution
account and rollover account, if you have them. In addition, you are entitled to
all of the stock and cash in your employer stock account (and cash equal to any
fractional share of stock).
 
For this purpose, “totally and permanently disabled” means that, in the opinion
of a physician selected by the plan administrator, you are unable to engage in
any substantially gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long, continued and indefinite duration.
 
Other termination of employment.    If your employment with the employer
terminates before normal or early retirement or disability (as just described),
you are entitled to receive all the money in your 401(k) account, as well as all
of the money in your after-tax contribution account and rollover account, if you
 
 

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have them.
 
In addition, you are entitled to receive part or all of the money in your match
account, your profit sharing account, and your employer stock account (if you
have them) if you completed enough years of service to become vested. At the
beginning of the plan, in the section called “Quick-Reference Information,”
under the heading “Length Of Service Required For Benefits,” there is a table
showing what percentage of these accounts you get. (To figure out your length of
service, see the section entitled “How Your Length Of Service Is Calculated.”)
 
Forfeitures.    Any portion of your accounts that you are not entitled to when
your employment terminates is forfeited. If you are not vested at all,
forfeiture occurs when your employment terminates, because you are considered to
have taken your entitlement (which is zero) at that time. If you are partially
vested, forfeiture occurs (a) whenever you take the portion that you are
entitled to or (b) otherwise when you have five consecutive break in service
years. (With respect to your employer stock account, forfeitures are taken first
from any cash in your account; they are taken from stock allocated to your
account only as a last resort.)
 
If you are later re-employed, the amount of the forfeiture (with no adjustment
for subsequent gains, losses, or expenses) will be restored to your accounts if,
and only if, you re-pay the full amount that you previously received from the
plan. Re-payment must be made within 5 years after you are first re-employed and
before you suffer 5 break in service years in a row (as described below under
the heading “How The Length Of Your Service Is Calculated”).
 
The money or stock to restore each of your accounts (match, profit sharing or
employer stock) will come from forfeitures from accounts of the same type
occurring during the same year when restoration is required, to the extent that
such forfeitures are available. If not, forfeitures from different types of
accounts may be used. If forfeitures in total are inadequate, the employer will
contribute the balance in cash. Effective January 1, 2000, any balance of
forfeitures during a plan year in excess of what is necessary to restore
accounts during that year will be applied as follows:
 

 
•
 
Forfeitures from profit sharing accounts will be applied toward the employer’s
obligation to contribute under the plan and allocated in the same manner as
required employer contributions, thus reducing the amount of cash contribution
necessary from the employer to make the required contributions. (This change was
previously made effective December 28, 1999.)

 

 
•
 
Forfeitures from matching accounts and employer stock accounts will be applied
in one of the following two ways: (i) forfeitures from both types of accounts
will be applied toward the employer’s obligation to contribute under the plan
and allocated in the same manner as required employer contributions, thus
reducing the amount of cash contribution necessary from the employer to make the
required contributions or (ii) forfeitures from match accounts will be applied
toward the employer’s obligation to make matching contributions and allocated as
if they were matching contributions, thus reducing the amount of cash
contribution necessary from the employer to make the required matches, and
forfeitures from employer stock accounts will be allocated as if they were ESOP
contributions. For the 2000 plan year, method (i) will be used. For plan year
2001 and future years, the Retirement Committee will decide before the plan year
begins whether method (i) or method (ii) will be used for that plan year. (The
Retirement Committee will be exercising its authority to

Retirement Plan    Page 15

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change the plan, as described in the section called “What the Employer Does,”
under the heading “Changing the plan.”) For plan year 2001 and future years, if
for any reason the Retirement Committee has not acted before the plan year
begins, method (ii) will be used for that plan year.
 
Some special rules about termination of employment.    When we say your
“employment with the employer terminates,” we mean that you are no longer
employed by any employer that participates in the plan nor by any other member
of the controlled group of trades or businesses (as described later in the plan
under the heading “How The Length Of Your Service Is Determined”). In addition,
we mean that you have a “separation from service” that permits you to receive
your 401(k) contributions under the rules of section 401(k) of the Code and the
regulations under that section.
 
WHEN PAYMENT IS ACTUALLY MADE
 
Introduction.    The preceding section described what you are entitled to when
you retire or your employment terminates for some other reason. This section
will go on to describe when payment is actually made, which depends on a number
of factors.
 
General rule.    Payment is made as soon as administratively possible after your
termination of employment. If payment is made because you have become totally
and permanently disabled (as described in the preceding section), payment is
made as soon as it is determined that you have suffered total and permanent
disability. This applies to all your accounts: your 401(k) account, after-tax
account, and rollover account (if you have them), as well as your match account,
profit sharing account, and employer stock account (to the extent you are
vested, of course).
 
As an exception to the general rule that this edition of the plan applies only
to participants who complete at least one hour of service on or after August 1,
2001, this section of the plan will be applied to all participants who have not
yet received distribution of their employer stock accounts as of August 1, 2001,
no matter when their employment terminated.
 
Your choices about timing.    If your entitlement is $5,000 or less, you do not
have any choices about timing. You must take the money (or stock) when you are
first entitled to payment. (For distributions before March 22, 1999, there was
an additional rule that your entitlement was never more than $5,000 on the
occasion of any previous distribution.) If your entitlement is $5,000 or less,
the plan administrator will notify you and, if you don’t initiate a withdrawal
by calling the trustee, will direct the trustee to pay you your entitlement.
 
But if your entitlement is more than $5,000, payment will not be made unless and
until you apply for it. This gives you some ability to postpone payment. When
you want to take the money (or stock), start the

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process by calling the trustee (Fidelity) at (800) 835-5092. The process is
described later in the plan in the section called “How to Claim Your Money or
Stock.”
 
The law says that, after your employment terminates, you must receive the money
(or stock) no later than 60 days after the close of the plan year in which your
employment terminated (or you attain age 65, if later) unless you choose not to
take it. If you don’t apply for the money by that date, we will interpret your
silence as your choice not to take the money yet.
 
Latest possible date to take the money (or stock).    While you have some
ability to postpone payment of your benefit, you can’t postpone it forever. Once
your employment has terminated and you have reached age 70½, you must at least
begin to take the money by April 1 of the following year (that is, April 1 of
the year following the year in which your employment with the employer
terminates or you attain age 70½, whichever comes later). Then you must take
more by the end of that plan year and every following plan year on a schedule
that does not extend beyond your life expectancy (or the joint life expectancies
of you and your designated beneficiary). Life expectancy is determined by tables
issued by the Internal Revenue Service and will be re-determined every year. (Of
course, you may take all the money to which you are entitled at any time after
age 70½; you need not string it out.)
 
Please note:    There is a stricter rule for 5% owners. Any employee who is a 5%
owner upon attainment of age 70½ must begin to take the money by April 1 of the
following year even if he or she remains employed.
 
The plan administrator will pay you whatever is necessary to comply with this
provision of the law (section 401(a)(9) of the Code, including the “minimum
incidental death benefit” rules) even if you don’t apply for payment. Payments
that are required to be made under this section can not be transferred to
another plan in a direct rollover.
 
HOW PAYMENT IS MADE
 
Introduction.    When your employment has terminated and the time comes for
payment, the next question is, In what form is the payment made? This section
will answer that question.
 
All accounts other than employer stock account.    The form of payment for all
accounts other than your employer stock account (if you have one) is payment in
a single sum by check made payable to you. (If any of your match account remains
invested in employer stock, the trustee will sell the stock and distribute the
cash.)

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Please note:    Before August 1, 2001, there was an alternative available for
those who were members of the Retirement Plan before May 1, 1992, namely, the
purchase of an annuity contract. Due to a change in the regulations, that
alternative is eliminated from this edition of the plan, effective with respect
to annuity starting dates later than 90 days after you receive notification of
this change by way of a “summary of material modifications” (or annuity starting
dates on or after January 1, 2003, if that comes first). If that alternative
still applies to you and you would like to receive your benefit in the form of
an annuity, see the previous edition of the plan in the section called
“Alternative Form of Payment for Grandfathered Members.”
 
Employer stock account.    Now that the stock of Education Management
Corporation is publicly traded, the form of payment of your employer stock
account is the same form in which your account is invested. That is, any stock
in your account is paid in stock, either by having the stock issued in your name
and sending the actual stock certificate to you or your account at some
institution or, if the trustee can do it, by making a wire transfer to a
brokerage account that you designate. Any cash is paid in the form of cash,
except that you have the right to demand payment of the cash portion of your
account in stock. Any remaining partial share of stock is paid in cash, of
course.
 
You may take payment of your employer stock account in a single payment. Or, if
you prefer, you may take your account in annual installments over two, three,
four or five years. If you take it in installments, each annual payment is equal
to the amount in your account, divided by the number of remaining payments. For
example, if you chose to take your employer stock account in annual installments
over five years, when the first payment was to be made, there would be 5
remaining payments, so you would get 1/5 of the amount in your account at that
time. The next year, there would be 4 remaining payments, so you would get 1/4
of the amount in your account at that time. Eventually, in the fifth year, there
would be only 1 remaining payment, so you would get 1/1 (that is, all) of the
amount in your account at that time.
 
After receiving stock from the trustee, it’s yours to keep or sell on the open
market, as you see fit. (The stock is publicly traded.)
 
There is one possible exception to the rule that payment of your employer stock
account is made in the same form in which your account is invested. If you are
required to take part of your account out of the plan because of the rules
explained in the previous section under the heading “Latest possible date to
take the money (or stock),” the requirement will be met first by taking money
out of accounts other than your employer stock account. But if the requirement
cannot be satisfied without taking stock out of your employer stock account, you
will be offered the opportunity to take the amount of stock necessary to satisfy
the requirement. If you do not do so, however, the trustee will be forced to
sell enough stock to satisfy the requirement and then will pay you in cash. (As
an exception to the general rule that this edition of the plan applies only to
participants who complete at least one hour of service on or after August 1,
2001, this paragraph will be applied to all participants who are required to
take distributions on or after August 1, 2001, no matter when their employment
terminated.)
 
Having the money transferred directly to another plan.    Rather than taking the
money (or stock) and paying taxes on it when the time comes for payment, you may
be able to make a “direct rollover” to another plan. Direct rollovers can be
made to plans of these types:

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•
 
a pension, profit sharing or stock bonus plan that is qualified under section
401(a) of the Code, or

 

 
•
 
an individual retirement account or individual retirement annuity (IRA), or

 

 
•
 
an annuity plan described in section 403(a) of the Code.

 
This might happen, for example, if you get another job and the plan of your new
employer will accept the transfer. Naturally, this plan will not make the
transfer if the other plan will not accept it.
 

 
•
 
All payments from this plan are eligible for direct rollover except the
following:

 

 
•
 
any payment to the extent that it is required because you have reached age 70½,

 

 
•
 
effective for payments after 1999, any hardship distribution of 401(k)
contributions, and

 

 
•
 
any payment under an annuity contract that has been purchased for and given to
you as described near the end of the plan in the section called “Alternative
Form of Payment for Grandfathered Members.”

 
If the money that you are about to receive is eligible for direct rollover to
another plan, the plan administrator will notify you and give you at least 30
days to decide whether you would like to have a direct rollover to another plan.
On the other hand, you don’t have to wait 30 days; you may take the money or do
the direct rollover as soon as 7 days after receiving notification from the plan
administrator, as long as you sign the appropriate form waiving your right to
consider your decision for 30 days.
 
“Put” option.    In the unusual event that the stock of Education Management
Corporation that you receive is subject to a restriction under any federal or
state securities law, any regulation thereunder, or an agreement affecting the
security, that would make the security not as freely tradable as a security not
subject to restriction, you are entitled to make Education Management
Corporation buy the stock back from you for cash. This is officially known as a
“put option” and it also applies to any beneficiary of yours. Here are the
rules:
 

 
•
 
You can exercise the put option at any time within 60 days after you get the
stock or during a corresponding window period of 60 days during the following
plan year. (The time will be extended by any period during which Education
Management Corporation is prohibited by law from buying the stock back from
you.)

 

 
•
 
You exercise your put option by notifying Education Management Corporation in
writing.

 

 
•
 
Education Management Corporation will buy the stock back from you at fair market
value, as determined by the ESOP Committee. Or, with the consent of Education
Management Corporation, the trustee may buy the stock back from you at fair
market value.

 

 
•
 
If the stock was distributed to you within a single taxable year and represented
your complete entitlement under the plan, payment for your stock will be made in
substantially equal installments (at least annually) over a period of not more
than 5 years, as chosen by the purchaser, with the first payment within 30 days

Retirement Plan    Page 19

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after you exercise the put option. The unpaid installments will bear a
reasonable rate of interest and will be adequately secured by the purchaser.
 

 
•
 
On the other hand, if the stock is coming to you in installments, payment for
your stock will be made within 30 days after you exercise the put option with
respect to each installment.

 
HOW TO CLAIM YOUR MONEY OR STOCK
 
Introduction.    This section of the plan describes how to get your money when
the time comes.
 
Pre-approved payments.    The plan administrator keeps the trustee (Fidelity) up
to date about the employment status, vesting status, etc., of participants in
the plan. That means, when the time comes for you to get your money, you can
(and should) simply call Fidelity.
 
Based on the information already in your file from the plan administrator,
Fidelity will talk with you about the options that are available. When you
decide what you would like to do, Fidelity will provide you with the application
forms. Complete and return them to Fidelity. If the information on file at
Fidelity shows that you are entitled to payment, Fidelity will simply make the
payment:
 

 
•
 
For all accounts other than your employer stock account, you can expect to
receive payment from Fidelity within 7 to 10 days.

 

 
•
 
For your employer stock account, payments will be processed on the 15th of each
month and again on the last day of each month. It takes Fidelity about 4 to 6
weeks to issue a paper stock certificate. If you would prefer a wire transfer to
a brokerage account of your choosing, ask Fidelity whether wire transfers are
available. If so, Fidelity will provide you with the necessary information. Wire
transfers (if available) can be made in 7 to 10 days.

 
Making a formal claim.    If for any reason Fidelity does not give you a payment
that you believe you are entitled to, or if you have any other type of claim
under the plan, you need to make a formal claim to the plan administrator. Write
to the plan administrator at the address shown at the beginning of the plan in
the section called “Quick-Reference Information” explaining what you want and
why you believe you are entitled to it.
 
If your claim is granted, the plan administrator will get in touch with Fidelity
to make sure that payment is made. If your claim is denied, the plan
administrator will respond to you in writing, point out the specific

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reasons and plan provisions on which the denial is based, describe any
additional information needed to complete the claim, and describe the appeal
procedure.
 
Appeal.    If your claim is denied and you disagree and want to pursue the
matter, you must file an appeal in accordance with the following procedure. You
cannot take any other steps unless and until you have exhausted the appeal
procedure. For example, if your claim is denied and you do not use the appeal
procedure, the denial of your claim is conclusive and cannot be challenged, even
in court.
 
To file an appeal, write to the appeals authority identified at the beginning of
the plan in the section called “Quick-Reference Information” stating the reasons
why you disagree with the denial of your claim. You must do this within 60 days
after the claim was denied. In the appeal process, you have the right to review
pertinent documents. You have the right to be represented by anyone else,
including a lawyer if you wish. And you have the right to present evidence and
arguments in support of your position.
 
The appeals authority will issue a written decision within 60 days. The appeals
authority may, in its sole discretion, decide to hold a hearing, in which case
it will issue its decision within 120 days. The decision will explain the
reasoning of the appeals authority and refer to the specific provisions of this
plan on which the decision is based.
 
Discretionary authority.    The plan administrator and appeals authority shall
have and shall exercise complete discretionary authority to construe, interpret
and apply all of the terms of the plan, including all matters relating to
eligibility for benefits, amount, time or form of benefits, and any disputed or
allegedly doubtful terms. In exercising such discretion, the plan administrator
and appeals authority shall give controlling weight to the intent of the sponsor
of the plan. All decisions of the appeals authority in the exercise of its
authority under the plan (or of the plan administrator absent an appeal) shall
be final and binding on the plan, the plan sponsor and all participants and
beneficiaries.
 
PAYMENT BEFORE TERMINATION OF EMPLOYMENT

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Introduction.    Normally, your accounts will be paid after you retire (or your
employment terminates for some other reason). But there are a few circumstances
in which you can take money out of certain accounts even before your employment
has terminated. This part of the plan explains those times.
 
Withdrawal of after-tax contributions.    If you were a member of this plan
(that is, the Retirement Plan) before May 1, 1992 and you made after-tax
contributions, you may withdraw all or any portion of those contributions at any
time upon request, except that if the value of your after-tax contribution
account has declined below the amount of contributions that you made, you may
only withdraw the lesser amount, of course.
 
Age 59½.    When you reach age 59½, you may withdraw all or any portion of your
401(k) account upon request, except that withdrawal may not be made more often
than once during each plan year, and the minimum withdrawal is $500.
 
Age 70½.    After you reach age 70½, you may take all the money in all your
accounts at any time upon request, even if you are still employed by the
employer.
 
Hardship.    If you suffer immediate and heavy financial need (whether or not
you are still employed by the employer), you may be able to get some or all of
your 401(k) contributions out of the plan. There are general eligibility rules,
but there is also a “safe harbor.” The “safe harbor” means that you qualify
automatically for a hardship withdrawal under particular, narrow circumstances.
We will describe the safe harbor eligibility rules first.
 
Safe harbor.    Under the safe harbor eligibility rules, the following four
types of financial need automatically qualify for a hardship withdrawal:
 

 
•
 
medical expenses that would be deductible under section 213 of the Code,

 

 
•
 
purchase of a principal residence for the employee,

 

 
•
 
payment of college or graduate school tuition (for the next school term only)
for the employee, spouse, children or other dependents, or

 

 
•
 
the need to prevent eviction of the employee or foreclosure on his or her
personal residence.

 
If you have one of those financial needs, you can get a hardship withdrawal (no
more than the amount of the financial need, of course), provided that:
 

 
•
 
you have obtained all distributions and loans available under all plans of the
employer;

 

 
•
 
all qualified plans of the employer provide that your 401(k) contributions and
employee contributions (if applicable under the plan) will be suspended for at
least 12 months following the distribution (this plan so provides if you choose
to use this safe harbor); and

 

 
•
 
all qualified plans of the employer provide that the 401(k) contributions made
during the year of

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the distribution will count against the $10,500 limit on 401(k) contributions
(described later in this plan) for the calendar year following the calendar year
of the distribution (this plan so provides if you choose to use this safe
harbor).
 
General eligibility rules.    If you do not have one of the four “safe harbor”
financial needs, or if you choose not to use the safe harbor, you may still
qualify for a hardship withdrawal. The plan administrator will determine whether
your financial need is immediate and heavy within the meaning of the plan,
taking into account whether the need was predictable and within your control.
 
The amount of hardship distribution that you can receive from the plan under the
general eligibility rules is only that which is necessary to respond to the need
after all other resources reasonably available to you have been exhausted. All
other resources available to you will be considered to have been exhausted only
if you truthfully affirm that the need cannot be met by insurance reimbursement,
reasonable liquidation of your assets or assets of your husband or wife or minor
children that are reasonably available to you, cessation of 401(k) contributions
or employee contributions under any plan of the employer, borrowing from
commercial sources or other distributions or non-taxable loans from any
employer.
 
Source of hardship distribution.    A hardship distribution can be made from the
contributions that were made by trading off pay. This really means just the
contributions, not any earnings on those amounts, except that, if you were a
member of the plan before January 1, 1989 and you made 401(k) contributions,
then the earnings on those contributions up through December 31, 1988 can be
taken into account.
 
Application.    If you suffer immediate and heavy financial need and want a
hardship distribution from the plan, call the trustee (Fidelity). Fidelity will
review your circumstances against the requirements of the plan and let you know
whether a hardship withdrawal is available and, if so, how much. If you wish to
proceed, Fidelity will then provide you with the appropriate forms. Just
complete the forms and return them to Fidelity.
 
BORROWING MONEY FROM YOUR ACCOUNTS
 
Introduction.    This is a retirement plan, and we do not encourage people to
take loans from their accounts. Nevertheless, active employees (not retirees or
other former employees) may borrow from their 401(k) account (and after-tax
account and rollover account, if any), and this section of the plan will
describe how much you can get and how to do it.
 
Eligibility.    Loans are available only to members of the plan who are
receiving a paycheck from the

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employer. For example, loans are available to active employees, employees on
paid leave of absence and former employees who are receiving severance pay. But
loans are not available to other former employees (such as retirees) or to
employees on unpaid leave of absence. In addition, under the law, loans are not
available to anyone who is treated as an owner-employee under section 408(d) of
ERISA or to the members of their families.
 
Number.    You may have one home loan (as described below) and one personal loan
(as described below) but you may not have more than one of each kind (that is,
you may not have more than two loans).
 
Amount.    The minimum loan is $1,000. The maximum loan is one-half of the sum
of your 401(k) account and, if you have them, your rollover account and
after-tax contribution account. The amount is judged at the time of your
application for the loan.
 
As an exception, you may never have loans outstanding of more than $50,000 from
all plans of the employer and any other members of the same controlled group of
trades or businesses. And the limit of $50,000 is reduced by the amount by which
you have paid off any loans within the previous twelve months.
 
EXAMPLE:    In January, you took out a loan of $30,000. By December, you have
paid it down to $25,000. Though the present balance is $25,000 and you might
think that you could get another $25,000 loan, the amount that you paid off
during the past year—$5,000—counts against the $50,000 limit, so you can’t get a
loan of more than $20,000 now.
 
Promissory note.    Loans from the plan must be evidenced by a legally
enforceable promissory note.
 
Term.    You may choose the term of the loan, except that the term for a
personal loan may not be more than five years and the term for a home loan may
not be longer than twenty years. A “home loan” is a loan that is used to acquire
a dwelling unit that, within a reasonable time after the loan is made, will be
used as your principal residence. (Home improvement loans, loans to buy a second
home, and loans to buy homes for other members of the family do not qualify as
loans used to acquire a dwelling unit that will be used as your principal
residence.) All other loans are “personal loans.”
 
Interest.    Loans bear interest at the same rate charged by the employer’s
principal bank on loans of the same type. Specifically, loans used to acquire a
dwelling unit that will be used as your principal residence bear the same
interest rate as mortgage loans. All other loans bear the same rate of interest
as secured personal loans. The rate is the rate quoted by the bank on the first
business day of the month in which you request the loan.
 
Source and application of funds.    The money to make a loan is obtained by
liquidating investments in your 401(k) account. (If you have a rollover account
or after-tax contribution account in addition to your 401(k) account, the money
is taken from all of them proportionately.) The promissory note is then
considered an asset of that account or accounts. When made, repayments (both
principal and interest) are credited proportionately to the account or accounts
from which the money was originally taken to make the loan.

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Repayment.    Repayment must be made on a schedule set out in (or attached to)
the promissory note, requiring payment of principal and interest in regular,
substantially equal installments over the term of the loan. Repayment must be
made by payroll deduction from each paycheck.
 
As an exception, the duty to pay according to the payment schedule will be
suspended (but not for more than one year) while you are on a leave of absence
without pay. When you return from the leave, the installment payments will
resume in the original amount and the term of the loan will be extended by the
same number of payments which were suspended. If such an extension would extend
the term of the loan beyond five years (in the case of a personal loan) or
twenty years (in the case of a home loan), however, a new installment payment
schedule will be established instead, under which the new installment payments
are sufficient to pay off the remaining balance of the loan by the end of the
maximum five- or twenty-year period.
 
As another exception, the duty to pay according to the payment schedule will be
suspended if, and for as long as, you are performing military service within the
meaning of the federal Uniformed Services Employment and Reemployment Rights Act
of 1994. When you cease to perform such service, the installment payments will
resume in the original amount and the term of the loan will be extended by the
same number of payments which were suspended.
 
Security.    As a condition of receiving a loan, you must post collateral by
pledging as security for the loan fifty percent of your vested accrued benefit
under the plan at the time when the loan is made.
 
Pre-payment.    You may pay the outstanding balance of a loan at any time
without penalty for pre-payment.
 
Default.    If you fail to make the full amount of any required installment
payment by payroll deduction, the loan will be considered in default, and the
entire outstanding balance due and payable immediately, on the last day of the
calendar quarter following the calendar quarter in which the installment payment
was due. This may occur, for example, when your employment with the employer
terminates or if you declare bankruptcy.
 
If your loan goes into default and you do not pay the outstanding balance, the
outstanding balance will be considered a “deemed distribution” for tax purposes
to the extent provided in regulations of the Internal Revenue Service. When you
take a distribution from the plan, the plan administrator will foreclose on your
vested accrued benefit that was pledged as security for the loan in order to
satisfy the unpaid balance of the loan, effectively offsetting the unpaid
balance of the loan against the amount otherwise payable from the plan.
 
In addition, all loans will be due and payable immediately upon distribution of
assets in the event of termination of the plan.
 
How to apply.    To get the ball rolling, call the trustee (Fidelity) at (800)
835-5092. You will need to know the identification number that the trustee has
assigned to this plan for its internal purposes, which is 90094. Fidelity will
check on the amount available in your account and talk to you about how much you
would like, what the monthly payments would be, and what the length of the loan
would be.

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When you are happy with the terms of the loan, Fidelity will generate the loan
application and send it to you. All you have to do is sign where indicated and
return it to Fidelity. If your loan is approved, you should expect to get a
check from the trustee in 7 to 10 days. The payroll department will
automatically start to withhold the loan payments from your paycheck.
 
IN CASE OF DEATH
 
Introduction.    If you die before your entitlement has been paid (such as while
you are still employed by the employer), the plan will pay out all of the money
(and stock) in all your accounts under the plan, regardless of how long you have
worked for the employer. Whom it is paid to, and how, depends on a number of
factors. This section will explain.
 
Please note:    If you are married at the time of your death, your choice of
beneficiary cannot be honored for certain portions of your accounts unless your
husband or wife consented before you died, in accordance with the rules
explained in this section. This is called “spousal consent” and it is explained
in this section under the heading “Naming your beneficiary and getting spousal
consent.”
 
If you’re married.    If you were married at the time of your death, the money
(or stock) will be paid to your surviving husband or wife in a single payment,
unless, before your death, you named some other beneficiary with the written
consent of the husband or wife who survives you (as described below). If the
recipient is your surviving husband or wife, he or she may make a direct
rollover into an IRA.
 
Please note:    There is a temporary exception for participants who were members
of this plan (that is, the Retirement Plan) before May 1, 1992 and who are
married when they die and who die within a certain period. That period ends 90
days after you are notified of the elimination of the option to receive benefits
in the form of an annuity (or on January 1, 2003, if that comes first), as
provided in this edition of the plan. If you are described in this paragraph and
die within that period, your death benefits are governed by the previous edition
of the plan, under which some of your accounts are subject to spousal consent
and some are not.
 
If you’re not married.    If you are not married at the time of your death, then
the money will be paid to whomever you named as your beneficiary before your
death. (If you and your husband or wife die simultaneously, so that you do not
have a “surviving spouse,” you will be treated as if you were unmarried at the
time of your death, and this paragraph will apply.)
 
Naming your beneficiary and getting spousal consent.    You can name your
beneficiary at any time before your death by completing a form from the plan
administrator and returning it to the plan administrator.

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(This function is not handled by Fidelity.) Your beneficiary is whomever you
last named on the records of the plan administrator.
 
Please note:    Only you can change your beneficiary, and you can only do it by
filing a new beneficiary designation with the plan administrator. In particular,
death or divorce does not automatically change your beneficiary. Whenever there
are major changes in your life such as death or divorce, you are well advised to
double-check your beneficiary designation with the plan administrator to assure
that it remains as you intend.
 
If you have named a beneficiary in place of your surviving husband or wife, your
choice of beneficiary will not be honored unless your surviving husband or wife
has consented in writing (or can’t be located). The plan administrator has a
form for this purpose, which must be completed, signed by your husband or wife,
witnessed by a notary public, and filed with the plan administrator before you
die.
 
If you complete and file the form with the plan administrator and then want to
change your mind (that is, you would like to go back to having your husband or
wife as your beneficiary), you can withdraw the form just by filing a new
beneficiary form with the plan administrator any time before you die.
 
If money should be paid to a beneficiary, but you have not named a beneficiary
or your beneficiary does not survive you, the money will be divided among the
people in the first of the following classes that contains a survivor: (a) your
surviving husband or wife, (b) your children, (c) your parents, (d) your
brothers and sisters, or (e) your estate.
 
Claiming your accounts.    To claim the money, your husband, wife or other
beneficiary should contact the plan administrator, get an application form, and
follow the same procedure as you would have done to claim the money. While we
expect payment to happen as soon as administratively possible after your death,
we must recite here, in accordance with IRS rules, that all of your accounts
must be completely paid out not later than five years after your death.
 
CHILD SUPPORT, ALIMONY AND PROPERTY DIVISION IN DIVORCE
 
Introduction.    The plan will honor certain court orders made in the context of
family law—child support, alimony and division of property in divorce. This
means that part of your account may have to be paid to someone else; you may not
get all that you are expecting. This section of the plan will explain when and
how that can happen.

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What a domestic relations order is.    It is a judgment, decree or order of a
court (including approval of a property settlement) made pursuant to state
domestic relations law (including a community property law) that provides child
support, alimony payments, or marital property rights to your spouse, former
spouse, child or other dependent.
 
The plan will not honor a domestic relations order unless it specifies:
 

 
•
 
that it applies to this plan,

 

 
•
 
your name and last known mailing address, as well as the name and last known
mailing address of anyone else who is supposed to get payments,

 

 
•
 
the amount or percentage of your benefits that are supposed to be paid to
someone else, or the manner in which the amount or percentage is to be
determined, and

 

 
•
 
the number of payments or the period to which the order applies.

 
Also, the plan will not honor a domestic relations order if it attempts to
require the plan to:
 

 
•
 
provide increased benefits,

 

 
•
 
provide any type or form of benefit, or any option, that is not already provided
for here in the plan document (except to the extent specifically permitted by
the Code), or

 

 
•
 
pay to anyone any benefits that are already required to be paid to someone else
under a previous domestic relations order.

 
What happens when a domestic relations order comes in.    When a domestic
relations order comes to the plan administrator, the plan administrator will
first notify you and everyone else who is supposed to get part of your benefit
under the order that the order has come in. The plan administrator will also
tell you about the following procedure for deciding whether to honor the order.
 
Next, the plan administrator will separately account for the benefits that,
under the order, would be paid to someone other than you and hold onto them
while deciding whether to honor the order.
 
Next, the plan administrator will decide whether the plan should honor the
order, applying the rules that are described in this section of the plan. When
the decision is made, the plan administrator will notify you and everyone else
who is supposed to get part of your benefit.
 
If the plan administrator decides that the plan will honor the order, the plan
administrator will proceed to make the payments required by the order (or
schedule them for future payment, if they are not due yet). If the plan
administrator decides that the plan cannot honor the order, the plan
administrator will make payment as if there had been no order.

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In the unlikely event that the plan administrator cannot decide whether the plan
should honor the order within 18 months after the first payment should have been
made under the order, the plan administrator will make payments as if there had
been no order until the decision is made, and then make future payments (but no
past payments) in accordance with the decision.
 
HOW THE LENGTH OF YOUR SERVICE IS CALCULATED
 
Introduction.    The length of your service with the employer can matter for two
reasons under the plan: for becoming eligible for matching contributions and for
deciding what portion of your account you are entitled to if you leave before
retirement or disability. This part of the plan will explain how to calculate
the length of your service.
 
Two notes before we start. First, this section of the plan describes the rules
currently in effect. Other rules may have been in effect for earlier periods,
such as before ERISA took effect and before the Retirement Equity Act took
effect. Those earlier rules continue to apply to service that was rendered
before those laws took effect. Second, any special arrangements that might be
made for employees of new participating employers are described at the end of
the plan in the section called “Special Arrangements for New Participating
Employers.”
 
12-Month periods.    The plan looks at how many hours of service you have in
certain 12-month periods.
 
Becoming eligible for matching contributions.    For the purpose of becoming
eligible for matching contributions, the first 12-month period runs from your
date of hire to the first anniversary of your date of hire. After that, the
12-month period is the plan year, beginning with the plan year in which the
first anniversary of your date of hire occurs.
 
Portion of your account.    For the purpose of determining what portion of your
account you are entitled to if you leave before retirement or disability, the
12-month periods are plan years. At the beginning of the plan, in the section
called “Quick-Reference Information,” it shows what the plan year is.
 
Years of service.    Your length of service is measured in full years. You get
credit for a year of service if you complete 900 hours of service during that
12-month period. You get credit for the year whenever you have accumulated 900
hours of service, regardless of what happens during the rest of the year. (This
is entirely independent of whether you are working in the classification of
employees covered by the plan.)

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However, years of service can be cancelled by breaks in service, as explained
below.
 
Full-time employees.    Full-time employees are credited with 45 hours of
service for each week in which they receive credit for one hour of service for
performing services for the employer. A full-time employee for this purpose is
any employee who works the regularly scheduled full work week as established by
normal office hours for the location where the employee is employed.
 
Part-time faculty.    Part-time faculty are credited with 1.88 hours of service
for each one hour of actual classroom time in recognition of the required
preparation for classroom time. For this purpose, any faculty member who is
assigned to teach less than a full work week will be considered part-time
faculty.
 
Other part-time employees.    Part-time employees other than faculty receive
credit for each clock hour for which the employee is paid (or entitled to
payment) by the employer. It doesn’t matter how much you are paid for that hour;
an overtime hour is still one hour.
 
Working hours.    Hours of service naturally include hours when you are actually
working as an employee.
 
Non-working hours.    They also include hours when you are still an employee but
not working due to vacation, holiday, illness, layoff, jury duty, military
service, and leave of absence, if you are paid (or entitled to payment) for
those hours by the employer. The number of hours credited for a time when you
were not working is the number of regularly scheduled working hours in the
period for which you are paid. For example, if a day consists of 8 regularly
scheduled working hours and you are paid for a day of vacation, you get credit
for 8 hours of service.
 
As an exception, no more than 501 hours of service will be credited for any one,
continuous period during which you were not working (or, in the case of back
pay, would not have been working).
 
As another exception, payments made solely to comply with workers’ compensation,
unemployment compensation, or disability insurance laws, and payments that
reimburse you for medical expenses, do not result in credit for hours of
service.
 
Back pay.    If for some reason you don’t work for some period but are later
granted back pay for that time, hours of service include hours for which you are
granted back pay. Credit for hours of service is allocated to the period when
the work was (or would have been) performed.
 
Breaks in service.    If you complete fewer than 100 hours of service during one
of these 12-month periods, that is a “break in service.”
 
The one exception is if you are absent due to pregnancy, birth (or placement for
adoption), or caring for a child immediately after birth (or placement). If you
don’t have more than 100 hours of service in the year when absence begins but
the hours that would normally have been credited for the absence during that
year would bring your total over 100, then that 12-month period will not count
as a break in service. (If you have more than 100 hours in the year when the
absence begins, but you don’t have more than 100 hours in the following

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year, this rule applies to the second year instead. That is to say, if you
remain absent during the following year and the hours that would normally have
been credited for the absence during the following year would bring your total
over 100, then the following year will not count as a break in service.)
 
How breaks in service cancel years of service.    A break in service cancels
your credit for all prior years of service temporarily—until you return to work
and complete another year of service.
 
A break in service cancels your credit for all prior years of service
permanently if:
 

 
•
 
when the first break in service occurred, you had no entitlement to any portion
of any account derived from employer contributions (within the meaning of
section 410(a)(5)(D)(iii) of the Code); and

 

 
•
 
you have at least 5 break in service years in a row; and

 

 
•
 
the number of break in service years is at least equal to your prior years of
service.

 
EXAMPLE:    You accumulate 2 years of service. Then you have 1 break in service.
Then you return to work. When you return, you have credit for no years of
service (the break in service has temporarily cancelled all prior service
credit). But suppose that, after returning to work, you complete another full
year of service. Then you regain credit for the first 2 years, and you have
credit for a total of 3 years of service.
 
EXAMPLE:    You accumulate 2 years of service. Then you have 5 consecutive
breaks in service. Then you return to work. You have credit for no years of
service, but even if you work another full year of service, you will still not
regain any of your prior years of service. They were permanently cancelled
because you had 5 consecutive breaks in service, which was equal to or greater
than your prior service credit.
 
Service with related employers.    Service with someone other than the employer
still counts for the purpose of calculating the length of your service with the
employer under this section of the plan if it was performed at a time when the
employer maintained this plan and it was performed for:
 

 
•
 
a corporation which, at that time, was under common control with the employer
under section 414(b) of the Code, or

 

 
•
 
a trade or business which, at that time, was under common control with the
employer under section 414(c) of the Code, or

 

 
•
 
an entity which, at that time, was a member of an affiliated service group with
the employer under section 414(m) of the Code, or

 

 
•
 
an entity which, at that time, was required to be aggregated with the employer
under section 414(o) of the Code (including the regulations under that section).

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Please note: service with related employers does not count for any other purpose
under the plan. Specifically, you are not entitled to get into the plan or to
get a share of the employer contributions if you are working for anyone other
than the employer.
 
WHEN YOU RETURN FROM MILITARY SERVICE
 
Introduction.    There are a few special rules to accommodate employees who
enter military service and then return to employment with the employer, and they
are listed in this section. These rules apply only to employees who are entitled
to re-employment under the federal Uniformed Services Employment and
Reemployment Rights Act of 1994 (which is called “USERRA”), as it may be amended
from time to time, which contains detailed rules about what “military service”
is, how long an employee can be absent, when the employee must return, and other
conditions such as an honorable discharge. If you do not meet the requirements
of USERRA, this section of the plan does not apply to you.
 
Please note:    It is your responsibility to let the plan administrator know if
you are returning from military service, so that this section of the plan can be
appropriately applied.
 
Break in service.    If you are entitled to re-employment and are in fact
re-employed in accordance with USERRA, you will not be considered to have
incurred a break in service (as described in the preceding section of the plan)
by reason of that military service.
 
401(k) contributions.    You obviously were not in a position to make 401(k)
contributions to the plan during your military service. But if you are entitled
to re-employment and are in fact re-employed in accordance with USERRA, you are
entitled to “make up” those contributions. Here’s how:
 

 
•
 
Besides the amount of contributions that you could ordinarily get by trading off
your pay for contributions to the plan, you may trade off additional pay (that
is, pay for work performed after you are re-employed) for additional
contributions to the plan.

 

 
•
 
The maximum amount of additional contributions that you can get by trading off
your pay is the maximum amount that you could have gotten if you had not been
absent in military service.

 

 
•
 
You can make these additional 401(k) contributions any time beginning on your
re-employment and ending after a period equal to three times your period of
military service (or five years, whichever comes first). For example, if your
military service lasted 10 months, you can make these additional 401(k)
contributions

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over
 
a period of 30 months, beginning with your date of re-employment.

 
Matching contributions.    If you choose to make the additional 401(k)
contributions referred to in the preceding paragraph, your employer contribution
account will be credited with the corresponding matching contributions that it
would have received if you had not been absent in military service. (Your
account will not be credited with investment earnings on those amounts that you
might have earned if you had not been absent in military service.)
 
Profit sharing contributions and ESOP contributions.    If you are entitled to
re-employment and are in fact re-employed in accordance with USERRA, your profit
sharing account will be credited with the employer profit sharing contributions
(and your employer stock account will be credited with the ESOP contributions)
that you would have received if you had not been absent in military service.
This means contributions only; your account will not be credited with investment
earnings on those amounts or forfeitures that you might have received if you had
not been absent in military service.
 
Your “pay”.    For the purpose of this section of the plan, you will be treated
as though you received pay at the same rate that you would have received if you
had not been absent in military service (including raises, for example, that you
would have received if you had not been absent). If the amount of pay cannot be
determined with reasonable certainty, you will be treated as though you
continued to receive pay during your absence at the same rate as your average
rate of pay from the employer during the 12 months before you entered military
service.
 
Percentage of entitlement to employer accounts.    If you are entitled to
re-employment and are in fact re-employed in accordance with USERRA, you will be
given credit for that period of military service when the plan administrator
calculates the percentage of your employer contribution accounts to which you
are entitled on the table under the heading “Length Of Service Required For
Benefits” in the section called “Quick-Reference Information.”
 
Limits and testing.    Contributions made under this section of the plan because
of USERRA:
 

 
•
 
will not be taken into account at all for the purpose of the utilization test
described in the section entitled “Maximum Amount of 401(k) Contributions” or
the section entitled “Maximum Amount of Matching Contributions”;

 

 
•
 
will not cause the plan to fail to meet the requirements in the section entitled
“Improvements When the Plan is Top-Heavy”;

 

 
•
 
will be subject to the limits in the year when they would have been paid if you
had not entered military service (rather than the year in which they are
actually paid under this section) for the purpose of the $10,500 limit described
in the section entitled “Maximum Amount of 401(k) Contributions” and the section
entitled “Maximum Amount of Total Contributions” and will be ignored when
applying those limits to the other contributions actually paid for those years.

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WHAT THE PLAN ADMINISTRATOR DOES
 
Introduction.    The plan administrator has all rights, duties and powers
necessary or appropriate for the administration of the plan. Many of those
functions are described elsewhere in the plan. This section will mention some
others.
 
Please note:    The description in this section of certain responsibilities
imposed by law is solely for convenient reference by the plan administrator and
is not intended to alter or increase those duties or transform them into
contractual duties.
 
Reporting and disclosure.    The plan administrator will provide a copy of this
plan to each new member of the plan no later than 90 days after joining the
plan.
 
The plan administrator will prepare and file the annual return/report (Form
5500) for the plan each year, if required. For that purpose, the plan
administrator will retain an independent qualified public accountant (within the
meaning of ERISA) to perform such services as ERISA requires.
 
After filing the annual return/report, the plan administrator will distribute to
all participants and to all beneficiaries receiving benefits the “summary annual
report” if required by ERISA.
 
The plan administrator will furnish to any participant or beneficiary, within 30
days of a written request, any and all information required by ERISA to be
provided, including copies of the plan and any associated trust agreements and
insurance contracts. The participant must pay the plan the actual cost of
copying (unless that is more than the maximum permitted by ERISA, in which case
the plan administrator will charge the maximum permitted by ERISA).
 
Bonding.    The plan administrator will assure that all “plan officials” who are
required by ERISA to be covered by a fidelity bond are so covered.
 
Numerical testing.    It is the responsibility of the plan administrator to
monitor compliance with the following sections of the plan regarding (1) the
maximum amount of 401(k) contributions, (2) the maximum amount of matching
contributions, (3) the maximum amount of total contributions, and (4) top-heavy.
It is the plan administrator’s responsibility to take whatever action is
required by those sections.
 
Prohibited transactions.    ERISA prohibits a variety of transactions, most
involving “parties in interest.” The plan administrator will not cause the plan
to engage in any transaction that is prohibited by ERISA.

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Expenses.    The expenses of administering the plan will be paid out of the plan
assets. They may include, for example, fidelity bond premiums, trustee and
investment management fees, and professional fees.
 
If the plan administrator is a full-time employee of the employer, then the plan
administrator will not receive any compensation from the plan for serving as
plan administrator but will be reimbursed for expenses.
 
Limitation.    The plan administrator does not have any authority or
responsibility to perform any of the functions that are described in the
following section as employer functions. Specifically:
 

 
•
 
The plan administrator must accept as a fact the employment information
furnished by the employer. The plan administrator has no authority or
responsibility with regard to the employment relationship, and any disputes over
the employment history are strictly between the employer and the employee. To
the extent possible, the plan administrator will, of course, give effect under
the plan to any new or corrected employment information furnished by the
employer.

 

 
•
 
The plan administrator has no authority or responsibility for collecting
employer contributions.

 
WHAT THE EMPLOYER DOES
 
Introduction.    The sponsor and the participating employers have functions
entirely different from the administration functions that are performed by the
plan administrator. This section will identify those functions.
 
Establishment.    The sponsor was responsible for establishing the plan in the
first place. That included establishing all the terms of the plan as set forth
in this document.
 
Contributions.    The employer contributes to the plan as described above in the
sections entitled “Trading Off Your Pay For Contributions To The Plan,”
“Matching Contributions,” “Profit Sharing Contributions,” and “The Former ESOP
and Stock Accounts.” In addition, the employer may, but does not have to, pay
any expenses of the plan, so that they are not charged against the plan assets.

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Employment records.    Since the plan administrator does not employ the
employees who are members of the plan and does not keep employment records, it
is the responsibility of the employer to provide to the plan administrator
whatever information the plan administrator needs to apply the rules of the
plan.
 
Insurance and indemnification.    The employer will provide fiduciary liability
insurance to, or otherwise indemnify, every employee of the employer who serves
the plan in a fiduciary capacity against any and all claims, loss, damages,
expense, and liability arising from any act or failure to act in that capacity
unless there is a final court decision that the person was guilty of gross
negligence or willful misconduct.
 
Changing the plan.    The sponsor has the right to change the plan in any way
and at any time and does not have to give any reason for doing so. These changes
can be retroactive.
 
For example, the plan names the plan administrator, the trustee, and the appeals
authority (they’re all shown at the beginning of the plan in the section called
“Quick-Reference Information”). The sponsor has the right to amend the plan to
replace any of those individuals or firms at any time and without giving any
reason.
 
Exceptions.    The Code says that no amendment can be adopted that would make it
possible for the assets of the plan to be used for, or diverted to, purposes
other than the exclusive benefit of participants and beneficiaries, and the plan
adopts that language but only to the extent (and with the same meaning) required
by the Code.
 
The plan also adopts, but only to the extent and with the same meaning required
by the Code, the Code prohibition on amendments which have the effect of
reducing the “accrued benefit” of any member of the plan (including the
provision of the Code which imposes the same prohibition on amendments
eliminating or reducing an early retirement benefit or a retirement-type subsidy
or eliminating an optional form of payment).
 
Changes made by the sponsor may be made by resolution of the board of directors
of the sponsor adopted in accordance with the by-laws of the sponsor.
Alternatively, changes that do not materially increase the liability of the
sponsor or any participating employer under the plan may be made by the
Retirement Committee of the sponsor, as long as any such amendment is reflected
in a writing that is formally designated as an amendment to this plan, is
adopted by the unanimous consent of the members of the Retirement Committee, and
is broadly applicable to participants under the plan (rather than targeted at
any individual or small group of participants). For this purpose, the decision
to admit a new participating employer will be considered as not materially
increasing the liability of the sponsor or any participating employer under the
plan.
 
Ending the plan.    The plan has no set expiration date; when it was
established, it was not intended to be temporary. Nevertheless, the sponsor has
the right to end the plan (in whole or in part) at any time and without giving a
reason for doing so. The procedure for the sponsor to end the plan is the same
as for changing the plan, as described in the preceding paragraph. In addition,
any participating employer may withdraw from participation in the plan at any
time and without giving a reason for doing so.
 
If there is a “termination” or “partial termination” of the plan within the
meaning of Treasury Regulation 1.411(d)-2 (sorry, but it’s too difficult to try
to describe what that is, particularly because it is not the same as ending the
plan) or a complete discontinuance of contributions, everyone who is affected by
the termination

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or partial termination or complete discontinuance of contributions and who is
still a member of the plan at that time will automatically be advanced to 100%
on the table at the beginning of the plan in the section called “Quick-Reference
Information” under the heading “Length Of Service Required For Benefits,”
regardless of their length of service. For this purpose, those whose employment
previously terminated at a time when their percentage was zero will be
considered to have been “cashed out” at zero and will no longer be considered
participants.
 
MAXIMUM AMOUNT OF 401(K) CONTRIBUTIONS
 
Introduction.    The Code puts a couple of different limits on the amount that
you can cause the employer to contribute to the plan by trading off your pay.
This part of the plan describes them.
 
$10,500 limit.    Contributions that you cause the employer to make by trading
off your pay cannot be more than $10,500 in any one calendar year. And we are
not talking just about this plan. This limit applies to any and all plans of any
and all employers, including 401(k) plans, simplified employee pension plans,
and 403(b) tax-sheltered annuities.
 
The $10,500 figure applies to the year 2001. But the IRS changes it from time to
time according to the cost-of-living, and the new figure automatically applies
here. The plan administrator can tell you what the exact figure is for each
year. In the paragraphs that follow, however, we’ll keep saying “$10,500” just
because it’s easier that way.
 
If the $10,500 limit is exceeded.    There are two ways in which the $10,500
limit might be exceeded. First, although this plan prohibits 401(k)
contributions of more than $10,500, a mistake might be made. In that case, as
soon as the mistake is discovered, the plan administrator will simply return any
and all 401(k) contributions that were more than $10,500 for a given plan year,
adjusted for any income or loss experienced while the excess was in the plan.
 
Second, although 401(k) contributions to this plan are not more than $10,500,
you might have worked for some other employer during part of the year and the
total of 401(k) contributions made to this plan and the plan of that other
employer might be more than $10,500. In that case, you may withdraw all or part
of the excess from this plan (not more than the 401(k) contributions that were
actually made to this plan, of course), as long as you give the plan
administrator written notice which is received by the plan administrator no
later than March 15 of the calendar year following the year in which the excess
401(k) contributions were made. Then the plan administrator will return the
amount that you have designated, adjusted for any income or loss experienced
while the excess was in the plan.

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Utilization test.    How much employees at the top of the organization can trade
off pay for contributions depends on how much all the other employees trade off
their pay for contributions. You only have to worry about this if you are at the
top of the organization. We will call these people “restricted employees.”
 
Who the restricted employees are.    The restricted employees are determined
each year. They are anybody who owned 5% or more of the employer during that
year or the preceding year. They are also anybody who had compensation from the
employer during the preceding year of more than $85,000. (That’s the figure for
2001. The figure changes slightly from year to year according to the
cost-of-living. The plan administrator can tell you what the exact figure is
each year.)
 
Special rules for former employees.    Former employees are considered
restricted employees if they were restricted any time after age 55 or they were
restricted when they left the employer.
 
Special rule for non-resident aliens.    Non-resident aliens who have no
U.S.-source income are not taken into account at all when applying this part of
the plan.
 
Performing the utilization test.    First, the plan administrator will identify
all the restricted employees who are eligible to choose 401(k) contributions to
the plan for the plan year being tested (whether or not they have chosen to
trade off pay for contributions). The plan administrator will figure, separately
for each such employee, what percent of pay he or she has traded off for
contributions. For employees who have chosen not to trade off pay for
contributions, this percentage will be zero. The plan administrator will then
average all of those percentages.
 
Second, the plan administrator will focus on the year before the year being
tested, identifying those individuals who were not restricted employees but were
eligible to choose 401(k) contributions to the plan for that plan year (whether
or not they chose to trade off pay for contributions). The plan administrator
will figure, separately for each such employee, what percent of pay he or she
traded off for contributions during the preceding year. Once again, for
employees who chose not to trade off pay for contributions, this percentage will
be zero (except to the extent that the employer chooses to make “qualified
nonelective contributions” as described below). The plan administrator will then
average all of those percentages. (As an exception for 1997 only, instead of
using the year before the year being tested, the administrator may use the year
being tested.)
 
Please note:    In calculating these averages, the plan administrator may take
advantage of any special rules provided in the law or in published guidance from
the IRS. For example, for plan years beginning after 1998, the plan
administrator may exclude from the calculation entirely individuals who are not
restricted employees and who have neither attained age 21 nor completed one year
of service with the employer, as long as the coverage rules of section 410(b) of
the Code can be met without taking those individuals into account.
Alternatively, the plan administrator may consider all individuals who have
neither attained age 21 nor completed one year of service with the employer,
whether they are restricted employees or not, as a separate plan for this
purpose, as long as the coverage rules of section 410(b) of the Code would be
met by both this plan and the separate plan.

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In calculating these percentages, the plan administrator will take into account
only pay that, but for the choice to trade it off for contributions to the plan,
would have been received by the employee in the appropriate plan year or is
attributable to services performed in that plan year and would have been
received by the employee within 2½ months after the end of the plan year. In
addition, 401(k) contributions will be taken into account for a plan year only
if not contingent on participation or performance of services after the end of
the plan year and actually paid to the trustee not later than 12 months after
the end of the plan year.
 
If the average for the employees who are not restricted was less than 2% in the
preceding year, the average for the restricted employees in the year being
tested cannot be more than twice that percentage. If the average for the
employees who are not restricted was between 2% and 8% in the preceding year,
the average for the restricted employees in the year being tested cannot be more
than 2 percentage points higher. If the average for the employees who are not
restricted was more than 8% in the preceding year, the average for the
restricted employees in the year being tested cannot be more than 1.25 times
that percentage.
 
If the utilization test reveals a problem.    If the average for the restricted
employees is higher than it should be, the plan administrator will correct the
problem by paying the contributions back to the restricted employees, as
follows.
 
Step 1—Calculating the total amount to be returned.    The plan administrator
will take the restricted employee with the highest percentage of 401(k)
contributions and figure out how much of that employee’s 401(k) contributions
would have to be returned to that employee so that his or her percentage would
be reduced enough to solve the problem for the whole group, but not more than
would make the percentage of that employee’s 401(k) contributions equal the
percentage for the restricted employee with the second-highest percentage.
 
If the problem has not been solved for the group as a whole, then the plan
administrator will figure out how much of the 401(k) contributions of both of
those people (the restricted employee with the highest percentage and the
employee with the second-highest percentage) would have to be returned so that
their percentage would be reduced enough to solve the problem for the whole
group, but not more than would make the percentage for those two employees equal
the percentage for the restricted employee with the third-highest percentage.
 
If the problem has not been solved for the group as a whole, the plan
administrator will keep doing this until the problem is solved. Then the
administrator will complete step one by totalling the dollar amount of the
contributions that would have to be returned to solve the problem. That is the
total amount that will have to be returned.
 
Step 2—Calculating how much is returned to each restricted employee.    Now the
administrator will take the restricted employee with the highest dollar amount
of 401(k) contributions and return that employee’s 401(k) contributions to him
or her until (a) the total amount that has to be returned (as determined in step
one) has been returned or (b) the dollar amount of that employee’s 401(k)
contributions has been reduced to the dollar amount of the restricted employee
with the second-highest dollar amount of 401(k) contributions.
 
If the total amount that has to be returned has not yet been returned, then the
plan administrator will

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return the 401(k) contributions of those two employees (the restricted employee
with the highest dollar amount and the employee with the second-highest dollar
amount) to those two employees until (a) the total amount that has to be
returned (as determined in step one) has been returned or (b) the dollar amount
of those two employees’ 401(k) contributions has been reduced to the dollar
amount of the restricted employee with the third-highest dollar amount of 401(k)
contributions.
 
If the total amount that has to be returned (as determined in step one) has not
yet been returned, the plan administrator will keep doing this until the total
amount that has to be returned has been returned. It is understood that, after
returning 401(k) contributions by this method, if the utilization test were to
be run again, it might still not be passed, but the IRS has stated in Notice
97-2 that this is the method to be used and when this method has been followed,
the utilization test is considered to have been satisfied.
 
Returning excess contributions.    The concept of returning any excess
contributions (due to either the $10,500 limit or the limitation on restricted
employees) is simply to reverse the contributions—as if they had never been
made. If the contributions had never been made, of course, the employee would
have received those amounts as pay and would have had to pay federal income tax
on them. So you have to pay income tax on them when you get them back.
 
When you get the excess contributions back depends on why you are getting them
back:
 

 
•
 
If you are getting them back because of the $10,500 limit, you will get them
back (including the allocable income or loss) by April 15 of the following year.
The returned contributions are included in your taxable income for the previous
year (the year when they were contributed), while the income on them is included
in your taxable income for the year when you actually receive it.

 

 
•
 
If you are getting them back because of the utilization test, you will get them
back (including allocable income or loss) by the end of the following plan year.
The returned contributions and any allocable income are included in your taxable
income for the year in which you actually receive them. (The only exception is
the unlikely event that you get them back before March 15 of the following year,
in which case they are included in your taxable income for the previous year.)

 
The allocable income or loss is that portion of the total income or loss for the
year for your 401(k) account which bears the same proportion to the total as the
excess 401(k) contributions for the year bear to the account balance of your
401(k) account at the end of the year (minus the income (or plus the loss) on
that account for the year).
 
The amount of excess contributions returned to you because of the annual dollar
limit will be reduced by any excess contributions previously returned to you
because of the limitation on restricted employees for the plan year beginning
with or within your taxable year. And the amount of excess contributions
returned to you because of the limitation on restricted employees will be
reduced by any excess contributions previously returned to you because of the
annual dollar limit for your taxable year ending with or within the plan year.
 
Combining plans.    If two or more plans are aggregated for purposes of section
401(a)(4) of the Code or section 410(b) of the Code (other than section
410(b)(2)(A)(ii)), then all 401(k) contributions made

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under both plans will be treated as made under a single plan, for the purpose of
this section of the plan. (Of course, the aggregated plans must comply with
sections 401(a)(4) and 410(b) as though they were a single plan.) In addition,
if a restricted employee is eligible to trade off contributions under two or
more plans of the employer, those cash-or-deferred arrangements will be treated
as a single arrangement, unless the applicable rules would prohibit permissive
aggregation of those arrangements.
 
MAXIMUM AMOUNT OF MATCHING CONTRIBUTIONS
 
Introduction.    Besides limiting the amount of 401(k) contributions that can be
made on behalf of restricted employees, the Code also limits the amount of
matching contributions that can be made for restricted employees—both by
themselves and when considered in combination with the 401(k) contributions.
This part of the plan describes these additional limitations.
 
Matching contributions by themselves.    The plan administrator will test the
matching contributions by themselves by running the same test as described in
the preceding section (“Maximum Amount of 401(k) Contributions”), taking into
account only those employees who have satisfied the special eligibility rule for
matching contributions and using matching contributions rather than their 401(k)
contributions.
 
Matching contributions in combination.    If the utilization test for 401(k)
contributions (described in the preceding section of the plan) and the
utilization test for matching contributions (described in the preceding
paragraph of this section) both show that the average for the restricted
employees is more than 1.25 times the average for all other employees (after any
corrective distributions), then the plan administrator must run this additional
test.
 
Step 1.    The plan administrator will add the average percentage for the
restricted employees under the trade-off test (already calculated under the
preceding section of the plan) and the average percentage for the restricted
employees under the matching test (already calculated under the preceding
paragraph of this section).
 
Step 2.    The plan administrator will look at the average percentage for all
other employees under the trade-off test (already calculated under the preceding
section of the plan) and the average percentage for all other employees under
the matching test (already calculated under the preceding paragraph of this
section) and

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identify which is larger.
 
Step 3.    The plan administrator will take the larger number in Step 2 and
multiply by 1.25, then take the smaller number and either add 2 percentage
points or double it (whichever produces the lower number), and then add those
two numbers together.
 
Step 4.    The plan administrator will take the smaller number in Step 2 and
multiply by 1.25, then take the larger number and either add 2 percentage points
or double it (whichever produces the lower number), and then add those two
numbers together.
 
Step 5.    The plan administrator will see if the number in Step 1 is larger
than both the number in Step 3 and the number in Step 4. If it is larger than
both of them, the test is failed. If it is smaller than either of them, the test
is passed.
 
If this test of matching contributions reveals a problem.    If the matching
contributions fail the tests in this section (either by themselves or in
combination with the 401(k) contributions), then the plan administrator will
return the excess matching contributions in the same manner as under the
preceding section of the plan (which specifies how excess 401(k) contributions
are returned). Alternatively, the employer may, but is not required to, solve
the problem in whole or in part by making additional “qualified nonelective
contributions” to the 401(k) accounts of employees who are not restricted, as
described in the preceding section of the plan, as long as those contributions
satisfy the requirements of Reg. § 1.401(m)-1(b)(5).
 
MAXIMUM AMOUNT OF TOTAL CONTRIBUTIONS
 
Introduction.    Federal law sets a limit on how much money can go into your
accounts in this plan in any one year. This section describes the limit. You
don’t have to worry about this, though; the plan administrator will pay
attention to this section and make sure that the limit is not exceeded.
 
25% of pay limit.    The total of employer contributions, employee contributions
(if applicable), and forfeitures allocated to your accounts for any one plan
year cannot be more than 25% of your compensation from the employer (or $30,000,
whichever is less). (As the $30,000 figure rises in accordance with the cost of
living, the new figure will automatically be applied here.)
 
As an exception, forfeitures of stock that was acquired with the proceeds of an
exempt loan will not count against the limit if no more than one-third of the
employer contributions to this plan for a year which are deductible under
section 404(a)(9) of the Code are allocated to highly compensated employees—all
within the

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meaning of section 415(c)(6) of the Code.
 
If this limitation would be exceeded as a result of the allocation of
forfeitures, a reasonable error in estimating your annual compensation, a
reasonable error in determining the amount of 401(k) contributions that may be
made on your behalf within this limitation, or any other facts and circumstances
that the Commissioner of Internal Revenue finds justifies relief under this
paragraph, the excess amounts otherwise allocable to your account for that plan
year will be used to reduce employer contributions for the next plan year (and
succeeding plan years, as necessary) for you, as long as you are covered by the
plan at the end of that plan year. However, if you are not covered by the plan
at the end of that plan year, the excess amounts will be held unallocated in a
suspense account for that plan year and allocated and reallocated in the next
plan year to all of the remaining participants in the plan in accordance with
the rules set forth in subparagraph Treas. Reg. § 1.415-6(b)(6)(i). Furthermore,
the excess amounts will be used to reduce employer contributions for the next
plan year (and succeeding plan years, as necessary) for all of the remaining
participants in the plan.
 
And, though it may never apply, the IRS requires us to say that the $30,000
limit is reduced by employer contributions allocated to any individual medical
account which is part of a pension or annuity plan and contributions on behalf
of a member of the concentration group, as described below under the heading
“Improvements When the Plan Is Top-Heavy,” to a separate account for
post-retirement medical benefits pursuant to Code section 419A(d) prior to the
employee’s separation from service.
 
If there’s more than one defined contribution plan.    All “defined
contribution” plans of the employer (that’s what this is) are considered to be
one plan, so that, if the employer runs any other defined contribution plans,
the limit applies to the total contributions under all of those plans. These may
be plans qualified under section 401(a) of the Code, annuity plans under section
403(a), annuity contracts under section 403(b), or simplified employee pension
plans under section 408(k). But the limitation of this section of the plan will
be applied first to the other plan or plans, reducing the annual additions under
those plans to elimination before any reduction is applied under this plan.
 
“Employee contributions” does not include rollover contributions from another
plan and does not include employee contributions to a simplified employee
pension plan that are excludable from gross income under section 408(k)(6) of
the Code.
 
If there’s also a defined benefit plan.    Due to a change in the law, this
section no longer applies, beginning with the 2000 plan and limitation year.
 
Related employers.    For the purpose of this section of the plan, all related
employers are considered to be a single employer to the extent required by Code
sections 414(b), (c), (m), and (o) and 415(h).

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IMPROVEMENTS WHEN THE PLAN IS TOP-HEAVY
 
Introduction.    The plan administrator has to monitor the plan year by year to
see if the benefits of the plan are concentrated in a group of employees that we
will call the “concentration group.” If so, the plan is said to be “top-heavy”
and several improvements are automatically made in the plan for that year. This
section of the plan describes what the plan administrator does to figure out if
the plan is top-heavy and what improvements are made if it is.
 
Please note:    This plan has never been top-heavy and is unlikely ever to
become top-heavy. But the IRS makes us put these provisions in the document just
in case.
 
Who is in the concentration group.    The plan administrator will first figure
out who is in the concentration group for a given plan year. This is what the
plan administrator will do:
 
Officers.    List each officer on the last day of each of the five preceding
plan years and how much he or she made each year. Delete from the list anyone
who did not make more than ½ the defined benefit dollar limit in section 415 of
the Code for that year.
 
Find the highest number of employees of the employer at any time during the five
preceding plan years, excluding employees who have not completed 6 months of
service, employees who normally work less than 17½ hours per week, employees who
normally work during not more than 6 months during any year, employees who have
not attained age 21, and employees included in a collective bargaining unit. And
then delete from the list of officers as follows:
 

 
•
 
If the number of employees is less than 30, delete all but the 3 officers having
the greatest aggregate compensation during those five years.

 

 
•
 
If the number of employees is more than 30 but less than 500, take 10 percent of
that number, round to the next highest whole number, and then delete all but the
resulting number of officers having the greatest aggregate compensation during
those five years.

 

 
•
 
If the number of employees is more than 500, delete all but the 50 officers
having the greatest aggregate compensation during those five years.

 
Everybody left on the list is in the concentration group.
 
5% Owners.    List all employees who owned more than 5% of the value of the
stock or voting power of the stock of the employer on the last day of the
preceding plan year. All those people are in the concentration group.

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1% Owners.    Separately for each of the five preceding years, list all
employees who owned more than 1% (but not more than 5%) of the value of the
stock or voting power of the stock of the employer on the last day of each year.
Delete anyone who did not make more than $150,000 that year. (That figure is
adjusted for the cost of living every year.) Everybody left on the list is in
the concentration group.
 
½% Owners.    Separately for each of the five preceding years, list all
employees who owned more than ½% of the value of the stock or voting power of
the stock of the employer at any time during those five plan years. Delete the
entry for any year if the employee did not make more than the defined
contribution dollar limit in 415 that year. Select the 10 entries having the
highest ownerships. (In case of a tie in ownership, the one with the higher
compensation wins.) Those ten people are in the concentration group.
 
Performing the concentration test.    To test for top-heaviness, the plan
administrator will identify all pension, profit sharing and stock bonus plans of
the employer in which any member of the concentration group participated in any
of the preceding five years. (This includes plans that have previously been
terminated if they were maintained at any time during those five years.) In
addition, if any of those plans relies on the existence of some other plan in
order to meet the coverage or nondiscrimination rules, then that other plan will
also be thrown into the test. All of them will be tested together as if they
were one plan.
 
Defined benefit plans.    For each defined benefit plan, the plan administrator
will calculate the present value of each participant’s accrued benefit as of the
valuation date coincident with or last preceding the end of the last plan year,
as if the participant terminated on the valuation date, using the same actuarial
assumptions for all plans. This will include the value of nonproportional
subsidies and accrued benefits attributable to nondeductible employee
contributions (whether voluntary or mandatory). If there is no uniform accrual
method under all such defined benefit plans, the plan administrator will
determine the accrued benefit by applying the slowest accrual rate permitted
under the “fractional rule” of Code section 411(b)(1)(C).
 
Defined contribution plans.    For each defined contribution plan (including
this one), the plan administrator will calculate the account balance of each
participant, as of the valuation date coincident with or last preceding the end
of the last plan year. This will include contributions due by the last day of
the last plan year.
 
Add-backs.    For both defined benefit and defined contribution plans, the plan
administrator will add back in the value of all distributions made in those five
years, except to the extent already taken into account.
 
Exclusions.    The plan administrator will exclude from the total all accrued
benefits and account balances of persons who were members of the concentration
group for prior years but are not members of the concentration group for the
year being tested. The plan administrator will also exclude from the total all
rollovers except those which (1) were not made at the initiative of the employee
or (2) came from a plan of an employer required to be aggregated with this
employer under section 414 of the Code.
 
Concentration percentage.    The plan administrator will divide the total
accrued benefits and account balances of the members of the concentration group
by the total accrued benefits and account balances of everyone in the plans. If
the result is more than 60%, all the plans are top-heavy. If the result is 60%
or less, none of the plans are top-heavy.

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Exception.    If the percentage is more than 60%, but would not be more than 60%
if another plan were added to the group of plans that are being tested (and that
plan is one which could be added without taking the group out of compliance with
the coverage and nondiscrimination rules), then none of the plans are top-heavy.
 
Changes if the plan is top-heavy.    There are three changes that apply for a
particular plan year if the plan is top-heavy for that year.
 
Benefits in the event of termination of employment before retirement.    If the
plan is top-heavy for a particular year, then the schedule at the beginning of
the plan in the section called “Quick-Reference Information” under the heading
“Length Of Service Required For Benefits” may be changed for everyone who has at
least one hour of service after the plan became top-heavy.
 

 
•
 
If that schedule provides for 100% after 5 years of service, it is changed to
100% after 3 years of service.

 

 
•
 
If it provides for gradually increasing percentages from 3 to 7 years of
service, it is changed to provide the same progression but from 2 to 6 years of
service.

 

 
•
 
If it already provides a schedule which is better than 100% after 3 years or
graded from 2 to 6 years, then there is no change in the schedule.

 
If, in a future year, the plan is no longer top-heavy, the schedule in
“Quick-Reference Information” is reinstated, except that the reinstatement of
the original schedule is treated as an amendment to the plan subject to the two
limitations described below in the “Miscellaneous” section under the heading
“Changes in the Vesting Schedule.”
 
Minimum contribution.    For a year when the plan is top-heavy, each member of
the plan who is not a member of the concentration group will receive an employer
contribution on top of his pay of at least 3%, with three exceptions:
 

 
•
 
The percentage is not required to be greater than the highest percentage
received for that year by anyone who is a member of the concentration group. In
figuring that percentage, contributions made by trading off pay are counted as
contributions, as are matching contributions.

 

 
•
 
If the employer also maintains a defined benefit plan that is top-heavy and that
plan provides that the concentration requirements will be met by providing the
minimum required accrual in that defined benefit plan, then there is no minimum
contribution required in this plan.

 

 
•
 
If the employer also maintains a defined benefit plan that is top-heavy and that
plan does not provide that the concentration requirements will be met by
providing the minimum required accrual in that defined benefit plan, then the
minimum contribution in this plan is 5%.

 
The minimum contribution requirement applies to everyone in the plan who has not
separated from

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service by the end of the plan year, including those who have not completed 900
hours of service during the year and those who have not chosen to trade off pay
for contributions. The minimum contribution requirement cannot be met by
counting contributions made by trading off pay or matching contributions.
 
Maximum amount of total contributions.    Due to a change in the law, this
subsection no longer applies, effective with the 2000 plan and limitation year.
 
SPECIAL ESOP PROVISIONS
 
Introduction.    Since the Education Management Corporation Employee Stock
Ownership Plan has been merged into this plan (the Education Management
Corporation Retirement Plan), there are a number of special provisions from the
Employee Stock Ownership Plan that need to be preserved in this plan. This
section contains them.
 
The nature of an ESOP.    This type of ESOP borrows money from a bank and uses
it to buy stock of the sponsor—Education Management Corporation. The stock is
held as collateral for the loan. Then, from year to year, the employer makes
cash contributions to the plan that are used to pay down the loan.
 
As the loan is paid down each year, a corresponding amount of stock no longer
needs to be held as collateral for the loan. The stock that is released is
allocated among the employer stock accounts of the employees who are in the
plan.
 
Over time, the idea is that the loan will be completely paid off, which means
that all of the stock will be released and allocated to the accounts of the
employees in the plan. As a matter of fact, in this plan, that has already
happened: the loan has been paid off and the stock has all been allocated to the
employer stock accounts of the employees in the plan.
 
Investment.    Investments of employer stock accounts are made at the direction
of the plan administrator. Since this is in part an ESOP, however, the assets of
the employer stock accounts must be invested primarily in stock of Education
Management Corporation. (If any future ESOP contributions are made or dividends
are paid, the trustee must use them to buy more stock of Education Management
Corporation to the extent that stock is available on terms that the plan
administrator considers prudent.)
 
Technically, this includes any “qualifying employer security” within the meaning
of section 407(d)(5) of ERISA that also meets the requirements of section 409(l)
of the Code. This includes common stock issued by Education Management
Corporation that is readily tradable on an established securities market, as
well as noncallable preferred stock (as long as it is convertible at any time
into readily tradable common stock and the

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conversion price was reasonable when the noncallable preferred stock was
acquired by this plan). The full definition is set out later in this section,
but we will call this simply “stock” or “employer stock.”
 
Purchases of stock must be made at a price which, in the judgment of the plan
administrator, does not exceed the fair market value of the stock. Sales of
stock may be made to any person, except that if the buyer is a “disqualified
person” under section 4975(e)(2) of the Code, the sales price may not be less
than the fair market value of the stock and no commission can be charged on the
sale. All sales will comply with section 408(e) of ERISA.
 
There may also be a small amount of cash in employer stock accounts. It may be
invested in bank accounts, certificates of deposit, securities, short-term funds
maintained by the trustee, or any other kind of investment in accordance with
the trust agreement, or it may simply be held in cash.
 
“Employer securities”.    We said earlier that the stock must constitute
“employer securities” under Code section 409(l). Here is the text of Code
section 409(l) so there is no doubt about what we mean:
 
“(1)  IN GENERAL.—The term ‘employer securities’ means common stock issued by
the employer (or by a corporation which is a member of the same controlled
group) which is readily tradable on an established securities market.
 
“(2)  SPECIAL RULE WHERE THERE IS NO READILY TRADABLE COMMON STOCK.—If there is
no common stock which meets the requirements of paragraph (1), the term
‘employer securities’ means common stock issued by the employer (or by a
corporation which is a member of the same controlled group) having a combination
of voting power and dividend rights equal to or in excess of—
 
“(A)  that class of common stock of the employer (or of any other such
corporation) having the greatest voting power, and
 
“(B)  that class of common stock of the employer (or of any other such
corporation) having the greatest dividend rights.
 
“(3)  PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.—Noncallable preferred
stock shall be treated as employer securities if such stock is convertible at
any time into stock which meets the requirements of paragraph (1) or (2)
(whichever is applicable) and if such conversion is at a conversion price which
(as of the date of the acquisition by the tax credit employee stock ownership
plan) is reasonable. For purposes of the preceding sentence, under regulations
prescribed by the Secretary, preferred stock shall be treated as noncallable if
after the call there will be a reasonable opportunity for a conversion which
meets the requirements of the preceding sentence.
 
“(4)  APPLICATION TO CONTROLLED GROUP OF CORPORATIONs.—
 
“(A)  IN GENERAL.—For purposes of this subsection, the term “controlled group of
corporations” has the meaning given to such term by section 1563(a) (determined
without regard to subsections (a)(4) and (e)(3)(C) of section 1563 ).

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“(B)  WHERE COMMON PARENT OWNS AT LEAST 50 PERCENT OF FIRST TIER SUBSIDIARY.—For
purposes of subparagraph (A), if the common parent owns directly stock
possessing at least 50 percent of the voting power of all classes of stock and
at least 50 percent of each class of nonvoting stock in a first tier subsidiary,
such subsidiary (and all other corporations below it in the chain which would
meet the 80 percent test of section 1563(a) if the first tier subsidiary were
the common parent) shall be treated as includible corporations.
 
“(C)  WHERE COMMON PARENT OWNS 100 PERCENT OF FIRST TIER SUBSIDIARY.—For
purposes of subparagraph (A), if the common parent owns directly stock
possessing all of the voting power of all classes of stock and all of the
nonvoting stock, in a first tier subsidiary, and if the first tier subsidiary
owns directly stock possessing at least 50 percent of the voting power of all
classes of stock, and at least 50 percent of each class of nonvoting stock, in a
second tier subsidiary of the common parent, such second tier subsidiary (and
all other corporations below it in the chain which would meet the 80 percent
test of section 1563(a) if the second tier subsidiary were the common parent)
shall be treated as includible corporations.
 
“(5)  NONVOTING COMMON STOCK MAY BE ACQUIRED IN CERTAIN CASES.—Nonvoting common
stock of an employer described in the second sentence of section 401(a)(22)
shall be treated as employer securities if an employer has a class of nonvoting
common stock outstanding and the specific shares that the plan acquires have
been issued and outstanding for at least 24 months.”
 
Voting.    In a number of instances, you may be entitled to direct how the stock
in your employer stock account is voted when votes of the shareholders of
Education Management Corporation are taken. This section applies equally to any
beneficiary of yours who may have an account under the plan. Here they are:
 

 
•
 
If any class of stock in the plan is required to be registered under section 12
of the Securities Exchange Act of 1934, as amended, then you are entitled to
instruct the plan administrator how to vote the stock in your employer stock
account to the extent required under section 409(e) of the Code.

 

 
•
 
As to any stock acquired by the ESOP with the proceeds of a loan with respect to
which the lenders exclude from federal taxable income a portion of the interest
pursuant to section 133 of the Code, you are entitled to instruct the plan
administrator how to vote the stock in your employer stock account, to the
extent required under section 133(b)(7)(A) of the Code.

 

 
•
 
In any event, you are entitled to direct the plan administrator how to vote the
stock in your employer stock account with respect to any vote of shareholders on
any corporate merger, consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets, or a similar
transaction, to the extent required by Sections 401(a)(22) and 409(e) of the
Code and regulations thereunder.

 
If you do not instruct the plan administrator how to vote the stock in your
employer stock account (or if there is any stock that is not allocated to the
accounts of the members of the plan), the plan administrator is entitled to
instruct the trustee how to vote the stock, assuming that the instructions of
the plan administrator are consistent with ERISA.
 
Diversification.    If you have reached age 55 and you have participated in the
ESOP for at least ten years, you may choose to have some of the stock in your
employer stock account sold and the proceeds transferred

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to your profit sharing account here in the plan, where it will be invested in
accordance with the investment instructions then in effect for your profit
sharing account. This is called “diversification.”
 
In measuring your period of participation in the ESOP, your participation in the
ESOP while it was a separate plan before April 7, 1999 will obviously count;
participation in this consolidated plan on and after April 7, 1999 will also
count. And since the ESOP was only established effective January 1, 1989, ten
years of participation in the ESOP obviously can’t happen until the end of 1998.
 
Your “window of opportunity.”    The opportunity to diversify your employer
stock account begins as soon as you have attained age 55 and completed 10 years
of participation in the plan (or upon the adoption of this edition of the plan,
if later). For example, once this edition of the plan is adopted, if you have
already completed 10 years of participation in the plan, it begins on your 55th
birthday. On the other hand, if you reach age 55 before you have completed 10
years of participation in the plan, it begins after you have completed 10 years
of participation.
 
The opportunity continues for the rest of that plan year (the plan year in which
you attained age 55 and completed 10 years of participation) and then for the
next six full plan years.
 
EXAMPLE:    Your participation in the ESOP began effective January 1, 1989. You
remain a participant through December 31, 1998, so that, as of January 1, 1999,
you have completed 10 years of participation in the plan. This edition of the
plan is adopted on April 7, 1999. Then you attain age 55 on September 12, 1999.
You may diversify the investment of your employer stock account beginning on
September 12, 1999. The opportunity continues for the rest of the 1999 and then
for the next six full plan years — the years 2000, 2001, 2002, 2003, 2004 and
2005.
 
What portion of your account can be diversified.    There’s a formula to
determine what portion of your account can be diversified. It is:
 

 
•
 
25% (or, in the case of the last year in which you can diversify, 50%) of the
number of shares of stock that have ever been allocated to your account as of
the most recent December 31 minus

 

 
•
 
the number of shares that you have previously asked to have diversified under
this section.

 
EXAMPLE:    You may diversify the investment of your employer stock account
beginning on September 12, 1999. As of December 31, 1998, the total number of
shares of stock ever allocated to your account was 100 shares. That means you
may diversify up to 25 shares of stock beginning on September 12, 1999.
 
EXAMPLE CONTINUED:    Suppose you choose to diversify 10 shares of stock in
January of the year 2000. You still have the opportunity to diversify through
the year 2005. Suppose that no additional shares are allocated to your account.
Since the total number of shares ever allocated to your account is 100 and you
have previously chosen to diversify 10 shares, you may diversify up to 15 more
shares at any time through the year 2005.

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EXAMPLE CONTINUED:    Suppose you diversify another 15 shares during the year
2001. You have now diversified 25 shares, so you are at the limit of 25%. But in
the year 2005, the limit rises to 50%, so during the year 2005, you may
diversify up to another 25 shares (for a total of 50 shares out of 100).
 
How.    Call the trustee (Fidelity) whenever you are eligible to diversify. The
trustee will verify your eligibility against the information provided by the
plan administrator, calculate the number of shares that are available to be
diversified, and take your direction to diversify part or all of those shares.
 
What happens.    After receiving your call, the trustee (Fidelity) will take out
of your employer stock account the number of shares that you have chosen to
diversify. It will then sell them as soon as administratively possible on the
open market. The money that it receives from selling those shares will be
deposited in your profit sharing account here in the plan, where it will
automatically be invested in accordance with the investment instructions then in
effect for your profit sharing account.
 
“Nonterminable” protections and rights.    With one exception, stock will never
be subject to a put, call or other option or a buy-sell or similar arrangement
while held by and when distributed from this plan. The exception is that stock
may be subject to a put option to the extent provided earlier in the plan in the
section called “How Payment Is Made” under the heading “‘Put’ Option.”
 
This prohibition remains effective despite the fact that the ESOP loan has been
repaid and regardless of whether the plan remains an ESOP in the future. And the
provision of the plan regarding put options also remains effective despite the
fact that the ESOP loan has been repaid and regardless of whether the plan
remains an ESOP in the future.
 
Non-allocation under Code section 409(n).    While there is no stock acquired in
a transaction for which the seller has elected favorable tax treatment under
section 1042 of the Code that remains unallocated at the present time, this
section expresses a rule that was applied when the stock was allocated, for
historical purposes only.
 
No employer securities, or other assets attributable to or in lieu of such
employer securities, acquired in such a transaction may be allocated directly or
indirectly, to the Accounts of:
 

 
•
 
such seller;

 

 
•
 
any individual who is related to the seller (within the meaning of Section
267(b) of the Code), or

 

 
•
 
any other individual who owns (directly or by attribution, after the application
of section 318(a) of the Code applied without regard to the employee trust
exception in section 318(a)(2)(B)(i) of the Code) more than 25% of (A) any class
of outstanding stock of the employer or any affiliate, or (B) the total value of
any class of outstanding stock of the employer or of any affiliate.

 
The restriction on allocations to persons described in the first or second
bullet points shall apply only

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during a nonallocation period which shall begin on the date of the section 1042
sale and end on the later of (A) the tenth (10th) anniversary of the date of the
section 1042 sale, or (B) the date of the allocation attributable to the last
payment of principal and/or interest on the exempt loan incurred with respect to
the section 1042 sale.
 
The restriction on allocation to persons described in the second bullet point
shall not apply to participants who are lineal descendants of the seller, except
that the aggregate amount allocated to the benefit of all such lineal
descendants during the nonallocation period shall not exceed 5% of the employer
securities (or other amounts attributable to or in lieu thereof) held by the
trust attributable to a section 1042 sale of employer securities to the trust by
any person who is related (within the meaning of section 267(c)(4) to such
lineal descendants.
 
An individual shall be restricted under the third bullet point if he or she is
described by that clause at any time during the one-year period ending on the
date of the section 1042 sale or as of the date employer securities are
allocated to participants.
 
MISCELLANEOUS
 
What “pay” or “compensation” means.    With the three exceptions noted below in
this section, when we refer to your “pay” or “compensation” we mean your taxable
wages for the purpose of federal income tax as shown in the box labelled “Wages,
Tips, Other Compensation” on your W-2, plus any amounts excluded solely because
of the nature or location of the services provided. The period used to determine
your pay or compensation for a plan year is the plan year.
 
Adding back salary reduction amounts.    “Pay” or “compensation” also includes
salary reduction amounts under a cafeteria plan (Code section 125), a 401(k)
plan (Code section 402(e)(3)), a tax-sheltered annuity (Code section 403(b)), a
simplified employee pension plan (Code section 402(h)) or an eligible deferred
compensation plan of a tax-exempt organization (Code section 457).
 
“Pay” or “compensation” also includes salary reduction for qualified
transportation fringes (Code section 132(f)) effective January 1, 2001 for the
purpose of the limit described under the heading “Maximum Amount of Total
Contributions” and for the purpose of the rules described under the heading
“Improvements When the Plan Is Top-Heavy” and effective January 1, 2002 for all
other purposes.
 
Excluding extraordinary items.    For all purposes except the limit described
under the heading “Maximum Amount of Total Contributions” and the rules
described under the heading “Improvements When the Plan Is Top-Heavy,” “pay” or
“compensation” does not include:

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•
 
reimbursements or other expense allowances,

 

 
•
 
fringe benefits (cash and non-cash),

 

 
•
 
moving expenses,

 

 
•
 
deferred compensation, or

 

 
•
 
welfare benefits.

 
$170,000 limit on compensation.    As required by section 401(a)(17) of the
Code, compensation in excess of $170,000 (adjusted for the cost of living) is
not taken into account for any purpose under this plan.
 
Leased employees.    If the employer previously leased your services from a
leasing organization but later you become employed by the employer itself, your
length of service includes your service as a leased employee if it was performed
at a time when the employer maintained this plan. (When we say “employer,” we
include related employers, as described above under the heading “How The Length
of Your Service Is Calculated”.) For this purpose, service as a leased employee
is service performed under primary direction or control by the employer,
pursuant to an agreement between a leasing organization and the employer,
regardless of how long you performed that service.
 
Family and medical leave.    Any leave to which you are entitled under the
federal Family and Medical Leave Act of 1993 will not result in the loss of any
“employment benefit” provided by this plan that had accrued prior to the leave
and that would not have been lost if you had remained actively at work during
the leave.
 
Changes in vesting schedule.    If the schedule shown at the beginning of the
plan in the section called “Quick-Reference Information” under the heading
“Length of Service Required for Benefits” is ever changed, there are two
limitations. First, the change will never reduce the percentage that applies to
your account based on employer contributions that were made on top of your pay
through the end of the last year before the change was adopted (or became
effective, if later). Second, if you have 3 or more years of service when the
change is adopted (or becomes effective, if later), you may nevertheless choose
to stay under the schedule that was in effect before the change was made.
 
Non-Alienation.    With the two exceptions provided here, your right to benefits
under the plan cannot be assigned or alienated. This means you cannot sell your
interest in the plan or pledge it as security for a loan. No creditor of yours
can take away your interest in the plan. This provision of the plan is intended
to comply with, and apply just as broadly and as stringently as, section 206(d)
of ERISA and section 401(a)(13) of the Code.
 
The first exception is qualified domestic relations orders described in the
section entitled “Child Support, Alimony and Division of Property in Divorce.”
The second exception is that, effective August 5, 1997, the plan may offset
against your benefit any amount that you are ordered or required to pay to the
plan in the circumstances set forth in section 206(d)(4) of ERISA.
 
Payments to minors.    If the proper recipient of money from the plan is a
minor, or if the plan administrator believes the recipient to be legally
incompetent to receive it, the plan administrator may direct that the payment be
made instead to anyone who has authority over the affairs of the recipient, such
as a parent, guardian, or other relative.

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Payment made in this manner will entirely satisfy the obligation of the plan to
pay the money, and the plan administrator will have no responsibility to see
what happens to the money after it is paid.
 
Unclaimed benefits.    People are expected to claim their money from the plan
when their employment terminates. It is your responsibility to make the claim;
the plan administrator does not have any responsibility to track you down.
 
If you still haven’t claimed your money by the time when it must be paid, the
plan administrator will make a reasonable effort to locate you (such as
inquiring of the employer, sending a letter to your last known address, and
inquiring of the Social Security Administration). If the plan administrator
still can’t find you, the plan administrator will set up an interest-bearing
account with a financial institution in your name in order to get your money out
of the plan. If no financial institution will set up an account in your name
without your participation, the plan administrator will have to assume that you
are dead and pay the money in accordance with the death provisions of the plan.
 
Plan assets sole source of benefits.    The plan assets (held in the trust fund
or by an insurance company) are the only source of benefits under the plan. The
employer and plan administrator are not responsible to pay benefits from their
own money, nor do they guarantee the sufficiency of the trust fund or insurance
contracts in any way.
 
No right to employment.    Many of the requirements of the plan depend on your
employment status, particularly how long you have worked for the employer. But
your employment status is purely a matter between you and your employer; the
plan does not change anything. The fact that your rights under the plan might be
different if your employment history were different does not give you any
different employment rights than if the plan had never existed.
 
Profit sharing and stock bonus plan.    This plan is intended to qualify under
section 401(a) of the Code as a profit sharing plan with a qualified
cash-or-deferred arrangement and, to the extent of the employer stock accounts,
as a stock bonus plan.
 
Merger of plan.    The Code requires that the plan contain the following
provision (which is also a requirement of ERISA). However, the interpretation
and application of this provision are quite different from what it appears to
say, and we intend that it be interpreted and applied no more strictly than
required by the regulations under the Code:
 
The plan may not merge or consolidate with, or engage in a transfer of assets or
liabilities with, any other plan unless the benefit that each participant in
this plan would receive if both plans terminated immediately after the
transaction is no less than the benefit that the participant would have received
if this plan had terminated immediately before the transaction.
 
Protection of benefits, rights, and features from previous edition of
plan.    Since this document constitutes an amendment and restatement of the
plan, it must preserve, to the minimum extent required

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by section 411(d)(6) of the Code and Treasury Regulation 1.411(d)-4, all
benefits, rights and features required by that Code section and regulation to be
protected against reduction. While we believe that this document preserves all
such benefits, rights and features, as a failsafe we recite here that the terms
of all such benefits, rights, and features, to the extent entitled to protection
under this restatement of the plan, are hereby incorporated by reference from
the prior plan document.
 
Governing law.    The plan is subject to ERISA and therefore governed
exclusively by federal law except where ERISA provides otherwise. If state law
ever applies to the interpretation or application of the plan, it shall be the
law of the state where the employer has its principal place of business.
 
No PBGC Coverage.    This plan is not covered by the plan termination insurance
system established under Title IV of ERISA and administered by the Pension
Benefit Guaranty Corporation. As a defined contribution, individual account
plan, it is not eligible for coverage under the law.
 
“Highly compensated employees.”    In the section called “Maximum Amount of
Total Contributions,” under the heading “25% of pay limit,” reference is made to
“highly compensated employees.” That phrase means any employee who owned 5% or
more of the employer during the year in question or the preceding year, as well
as any employee who had compensation from the employer during the preceding year
of more than $85,000. (The dollar figure changes slightly from year to year
according to the cost-of-living. The plan administrator can tell you what the
exact figure is for this year.) Non-resident aliens who have no U.S.-source
income are not taken into account when applying this definition.
 
Statement of ERISA rights.    Regulations of the federal government require that
the following “Statement of ERISA Rights” appear in this document, and we are
reproducing it here with quotation marks. Not all of the statement is
necessarily accurate or applies to this plan. Neither the employer nor the plan
administrator takes any responsibility for the accuracy or completeness of this
statement, which is made to you by the federal government, not by anyone
connected with the plan:
 
“As a participant in this plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides that all plan participants shall be entitled to:
 
“Examine, without charge, at the plan administrator’s office and at other
specified locations, such as worksites and union halls, all plan documents,
including collective bargaining agreements and copies of all documents filed by
the plan with the U.S. Department of Labor, such as detailed annual reports and
plan descriptions.
 
“Obtain copies of all plan documents and other plan information upon written
request to the plan administrator. The administrator may make a reasonable
charge for the copies.
 
“Receive a summary of the plan’s annual financial report. The plan administrator
is required by law to furnish each participant with a copy of this summary
annual report.
 
“Obtain a statement telling you whether you have a right to receive a pension at
normal retirement age

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(age 65) and if so, what your benefits would be at normal retirement age if you
stopped working under the plan now. If you do not have a right to a pension, the
statement will tell you how many more years you have to work to get a right to a
pension. This statement must be requested in writing and is not required to be
given more than once a year. The plan must provide the statement free of charge.
 
“In addition to creating rights for plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your plan, called ‘fiduciaries’ of the plan, have a duty
to do so prudently and in the interest of you and other plan participants and
beneficiaries. No one, including your employer or any other person, may fire you
or otherwise discriminate against you in any way to prevent you from obtaining a
pension benefit or exercising your rights under ERISA. If your claim for a
pension benefit is denied in whole or in part you must receive a written
explanation of the reason for the denial. You have the right to have the plan
review and reconsider your claim. Under ERISA, there are steps you can take to
enforce the above rights. For instance, if you request materials from the plan
and do not receive them within 30 days, you may file suit in a federal court. In
such a case, the court may require the plan administrator to provide the
materials and pay you up to $100 a day until you receive the materials, unless
the materials were not sent because of reasons beyond the control of the
administrator. If you have a claim for benefits which is denied or ignored, in
whole or in part [and you have exhausted the plan’s claim and appeal procedure],
you may file suit in a state or federal court. If it should happen that plan
fiduciaries misuse the plan’s money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. The court will decide who should
pay court costs and legal fees. If you are successful the court may order the
person you have sued to pay these costs and fees. If you lose, the court may
order you to pay these costs and fees, for example, if it finds your claim is
frivolous. If you have any questions about this statement or about your rights
under ERISA, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U. S. Department of Labor, listed in your telephone
directory, or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U. S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210.”
 
Service of legal process may be made on the plan administrator or any trustee.
 
SPECIAL ARRANGEMENTS FOR NEW PARTICIPATING EMPLOYERS
 
Introduction.    When a new school joins the EDMC family, it is sometimes
appropriate to make special arrangements for the employees of that school, in
order to bring them into this plan in a way that harmonizes with the plan that
they were in before. If a special arrangement is made, this section describes
it.

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Illinois Institute of Art.    In determining the length of your service for
getting into this plan (that is, the Retirement Plan) effective January 1, 1996
and for deciding what portion of your account you are entitled to if you leave
before age 65, hours of service in the employ of Ray College of Design from
January 1, 1995 to November 8, 1995 are taken into account as hours of service
under the plan to the same extent as if Ray College of Design had been a
participating employer during that period.
 
New York Restaurant School.    In determining the length of your service for
getting into this plan (that is, the Retirement Plan) effective January 1, 1997
and for deciding what portion of your account you are entitled to if you leave
before age 65, hours of service in the employ of New York Restaurant School,
Inc. from January 1, 1996 to August 2, 1996 are taken into account as hours of
service under the plan to the same extent as if New York Restaurant School, Inc.
had been a participating employer during that period.
 
In addition, any individual who was an employee of New York Restaurant School,
Inc. immediately prior to August 2, 1996 and was eligible to participate in the
New York Restaurant School, Inc. 401(k) Profit Sharing Plan and becomes an
employee eligible to participate in this plan by reason of New York Restaurant
School’s becoming a participating employer on or about August 2, 1996 is
eligible to participate in this plan effective September 1, 1996 notwithstanding
the semi-annual entry dates otherwise provided in the section entitled “How You
Get Into the Plan.”
 
Art Institutes International Portland, Inc.    In determining the length of your
service for getting into this plan (that is, the Retirement Plan) effective
April 1, 1998 and for deciding what portion of your account you are entitled to
if you leave before age 65, hours of service in the employ of Bassist College
from January 1, 1997 to February 26, 1998 are taken into account as hours of
service under the plan to the same extent as if Bassist College had been a
participating employer during that period.
 
Massachusetts Communications College.    The requirement of one year of service
in order to join this plan (that is, the Retirement Plan) shall not apply to any
employee who, immediately prior to January 1, 2000, was an employee of
Massachusetts Communications College and a participant in the Massachusetts
Communications College 401(k) Plan and Trust.
 
In addition, in determining the length of your service for getting into this
plan (that is, the Retirement Plan) effective January 1, 2000 and for deciding
what portion of your account you are entitled to if you leave before age 65,
hours of service in the employ of Massachusetts Communications College from
January 1, 1999 through December 31, 1999 are taken into account as hours of
service under the plan to the same extent as if Massachusetts Communications
College had been a participating employer during that period.
 
In addition, if hours of service by employees of Massachusetts Communications
College for years before 1999 can be substantiated by December 31, 2000, then in
determining the length of your service for deciding what portion of your account
you are entitled to if you leave before age 65, hours of service in the employ
of Massachusetts Communications College for years before 1999 will be taken into
account as hours of service under the plan to the same extent as if
Massachusetts Communications College had been a participating employer during
that period. As an exception, no more than five years of service will be
credited under this paragraph to any employee who upon entering this plan is a
“restricted employee” as described in the section called “Maximum Amount of 
401(k) Contributions.”

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Art Institute of Charlotte.    The requirement of one year of service in order
to join this plan (that is, the Retirement Plan) shall not apply to any employee
who, immediately prior to January 1, 2000, was an employee of the American
Business & Fashion Institute, Inc. and a participant in the American Business &
Fashion Institute, Inc. 401(k) Profit Sharing Plan.
 
In addition, in determining the length of your service for getting into this
plan (that is, the Retirement Plan) effective January 1, 2000 and for deciding
what portion of your account you are entitled to if you leave before age 65,
hours of service in the employ of the American Business & Fashion Institute,
Inc. from January 1, 1999 through December 31, 1999 are taken into account as
hours of service under the plan to the same extent as if the American Business &
Fashion Institute, Inc. had been a participating employer during that period.
 
In addition, if hours of service by employees of the American Business & Fashion
Institute, Inc. for years before 1999 can be substantiated by December 31, 2000,
then in determining the length of your service for deciding what portion of your
account you are entitled to if you leave before age 65, hours of service in the
employ of the American Business & Fashion Institute, Inc. for years before 1999
will be taken into account as hours of service under the plan to the same extent
as if the American Business & Fashion Institute, Inc. had been a participating
employer during that period. As an exception, no more than five years of service
will be credited under this paragraph to any employee who upon entering this
plan is a “restricted employee” as described in the section called “Maximum
Amount of 401(k) Contributions.”
 
Art Institute of Las Vegas.    In determining the length of your service for the
purpose of eligibility to receive matching contributions and for deciding what
portion of your account you are entitled to if you leave before age 65, hours of
service in the employ of the Interior Design Institute, Inc. before it was
acquired by Education Management Corporation are taken into account as hours of
service under the plan to the same extent as if the Interior Design Institute,
Inc. had been a participating employer during that period. As an exception, no
more than five years of service will be credited under this paragraph to any
employee who upon entering this plan is a “restricted employee” as described in
the section called “Maximum Amount of 401(k) Contributions.”
 
Art Institute of California.    In determining the length of your service for
the purpose of eligibility to receive matching contributions and for deciding
what portion of your account you are entitled to if you leave before age 65,
hours of service in the employ of LJAAA, Inc. before it was acquired by
Education Management Corporation are taken into account as hours of service
under the plan to the same extent as if LJAAA, Inc. had been a participating
employer during that period. As an exception, no more than five years of service
will be credited under this paragraph to any employee who upon entering this
plan is a “restricted employee” as described in the section called “Maximum
Amount of 401(k) Contributions.”

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APPENDIX A TO THE
EDUCATION MANAGEMENT CORPORATION
RETIREMENT PLAN
 
Participating Employers As of August 1, 2001
(* denotes employer that does not participate in ESOP feature)
 
The Art Institute of Atlanta, Inc.
6600 Peachtree Dunwoody Road
100 Embassy Row
Atlanta, GA 30328
 
TAIC, Inc.*
d/b/a The Art Institute of California
10025 Mesa Rim Road
San Diego, CA 92121
(effective January 1, 2001)
 
The Art Institute of Charlotte, Inc.*
1515 Mockingbird Lane, Suite 600
Charlotte, NC 28209
(effective January 1, 2000)
 
The Art Institute of Colorado, Inc.
1200 Lincoln Street
Denver, CO 80203
 
The Art Institute of Dallas, Inc.
8080 Park Lane, Suite 100
Dallas, TX 75231
 
The Art Institute of Ft. Lauderdale, Inc.
1799 SE 17th Street
Ft. Lauderdale, FL 33316
 
The Art Institute of Houston, Inc.
1900 Yorktown
Houston, TX 77056
 
The Art Institutes International
at San Francisco, Inc.*
 
1170 Market Street
San Francisco, CA 94102
(effective December 19, 1997)
 
The Art Institute of Las Vegas, Inc.*
4225 S. Eastern Avenue, Suite 4
Las Vegas, NV 89119
(effective July 1, 2001)
 
The Art Institute of Los Angeles, Inc.*
Santa Monica Business Park, Building S
2900 31st Street, Suite 150
Santa Monica, CA 90405
(effective January 13, 1997)
 
The Art Institute of Los Angeles
—Orange County, Inc.*
3601 West Sunflower Avenue
Santa Ana, CA 92704
(effective January 1, 2000)
 
The Art Institutes International Minnesota, Inc.*
15 South 9th Street
LaSalle Building
Minneapolis, MN 55402
(effective January 28, 1997)
 
The Art Institute of Pittsburgh
420 Boulevard of the Allies
Pittsburgh, PA 15219
 
The Art Institute of Philadelphia, Inc.
1622 Chestnut Street

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Philadelphia, PA 19103
 
The Art Institute of Phoenix, Inc.*
2233 West Dunlap Avenue
Phoenix, AZ 85021
 
The Art Institute of Portland, Inc.*
2000 Southwest Fifth Avenue
Portland, OR 97201
(effective April 1, 1998)
 
The Art Institute of Seattle, Inc.
2323 Elliott Avenue
Seattle, WA 98121
 
The Art Institute of Washington, Inc.*
The Ames Center
1820 N. Fort Meyer Drive
Arlington, VA 22209
(effective January 1, 2000)
 
The Art Institute OnLine, Inc.*
420 Boulevard of the Allies
Pittsburgh, PA 15219
 
The Illinois Institute of Art, Inc.*
350 North Orleans, Suite 136-L
 
Chicago, IL 60654
 
The Illinois Institute of Art at Schaumburg, Inc.*
1000 Plaza Drive, Suite 1000
Schaumburg, IL 60173
 
Massachusetts Communications College*
142 Berkeley Street
Boston, MA 02116
(effective January 1, 2000)
 
NCPT, Inc.
6600 Peachtree Dunwoody Road
100 Embassy Row
Atlanta, GA 30328
 
The National Center for Professional Development
—University Division, Inc.
6600 Peachtree Dunwoody Road
100 Embassy Row
Atlanta, GA 30328
 
The New York Restaurant School, Inc.*
75 Varick Street, 16th Floor
New York, NY 10013

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APPENDIX B TO THE
EDUCATION MANAGEMENT CORPORATION
RETIREMENT PLAN
 
Investment Options Effective July 6, 2001
 
Managed Income Portfolio (Fidelity).     This is a commingled pool of the
Fidelity Group Trust for Employee Benefit Plans. Its objective is to preserve
principal while earning interest income. It invests in investment contracts
offered by major insurance companies and other approved financial institutions
and in certain types of fixed income securities. A small portion of the fund is
invested in a money market fund to provide daily liquidity.
 
Fidelity Intermediate Bond Fund.    This is a mutual fund that invests in all
types of U. S. and foreign bonds, including corporate or U. S. government
issues. Normally, it selects bonds considered medium to high quality
(“investment grade”) while maintaining an average maturity of 3 to 10 years.
These bond prices will go up and down more than those of short-term bonds.
 
Invesco Equity Income Fund.    This is a mutual fund that seeks to provide
current income. Capital growth is an additional, but secondary, objective of the
fund. Normally, at least 65% of the fund’s assets are invested in
dividend-paying common stocks. Up to 10% of its assets may be invested in stocks
which do not pay dividends. The rest may be invested in corporate and other
types of bonds.
 
Spartan U. S. Equity Index Fund.    This fund, managed by Bankers Trust, seeks
to provide investment results that correspond to the total return of common
stocks publicly traded in the United States. In seeking this objective, the fund
attempts to duplicate the composition and total return of the S&P 500. The fund
uses an “indexing” approach and allocates its assets similarly to those of the
index. The fund’s composition may not always be identical to that of the S&P
500.
 
Fidelity Freedom Funds.    These are mutual funds that invest in a combination
of Fidelity equity, fixed-income, and money market funds. They allocate their
assets among those funds according to an asset allocation strategy that becomes
increasingly conservative as each Freedom Fund approaches its target retirement
date. The Freedom Funds are:
 
Fidelity Freedom 2000 Fund—targeted to investors expecting to retire around
2000.
Fidelity Freedom 2010 Fund—targeted to investors expecting to retire around
2010.
Fidelity Freedom 2020 Fund—targeted to investors expecting to retire around
2020.
Fidelity Freedom 2030 Fund—targeted to investors expecting to retire around
2030.
Fidelity Freedom 2040 Fund—targeted to investors expecting to retire around
2040.
Fidelity Freedom Income Fund—targeted to investors who have retired.
 
Please note:    The Fidelity Freedom Funds replace three other Fidelity funds
that were previously available—Fidelity Asset Manager, Fidelity Asset Manager:
Growth, and Fidelity Asset Manager: Income. Effective July 6, 2001, no money may
be contributed or transferred to those three Asset Manager funds.
 
Please note also:    If you have chosen any of those three Asset Manager
funds—Fidelity Asset Manager, Fidelity Asset Manager: Growth, or Fidelity Asset
Manager: Income—as the destination for new contributions going into the plan,
then effective July 6, 2001, those new

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contributions will automatically be re-directed by Fidelity into the Fidelity
Freedom Fund that corresponds to your birth date, as shown on the table in the
following paragraph.
 
Please note, finally:    Participants with money in any of those Asset Manager
funds—Fidelity Asset Manager, Fidelity Asset Manager: Growth, and Fidelity Asset
Manager: Income—are urged to move the money into other investment options
available under the plan. Any money remaining in any of those three Asset
Manager funds at September 30, 2001 (that is, 90 days later) will automatically
be transferred by Fidelity into the Fidelity Freedom Fund that corresponds to
your birth date, as shown on this table:
 
Year of Birth

--------------------------------------------------------------------------------

  
Fidelity Freedom Fund

--------------------------------------------------------------------------------

1900-1934
  
Freedom Income
1935-1940
  
Freedom 2000
1941-1950
  
Freedom 2010
1951-1960
  
Freedom 2020
1961-1970
  
Freedom 2030
1971-1980
  
Freedom 2040

 
Fidelity Magellan Fund.    This is a growth mutual fund that seeks long-term
capital appreciation by investing in the stocks of both well-known and lesser
known companies with potentially above-average growth potential and a
correspondingly higher level of risk. Securities may be of foreign, domestic,
and multinational companies.
 
Fidelity Growth Company Fund.    This is a mutual fund that seeks long-term
capital appreciation by investing primarily in common stocks and securities
convertible into common stocks. It may invest in companies of any size with
above-average growth potential, though growth is most often sought in smaller,
less well known companies in emerging areas of the economy. The stocks of small
companies often involve more risk than those of larger companies.
 
Ariel Fund.    This is a mutual fund managed by Ariel Capital Management, Inc.
It seeks long-term capital appreciation. It normally invests 80% of its assets
in equity securities with market capitalizations under $1.5 billion. It may
invest the remaining 20% in investment grade debt securities. It seeks
environmentally responsible companies; it may not invest in issuers primarily
involved in the manufacture of weapons systems, nuclear energy or tobacco.
 
Franklin Small Cap Growth Fund A.    This is a mutual fund managed by Franklin
Advisers, Inc. It seeks to increase the value of investments over the long term
through capital growth. It invests primarily in equity securities of small
capitalization growth companies, which generally have market capitalizations of
less than $1.5 billion at the time of the investment. The fund may also invest
up to 25% of its assets in foreign securities, which involve special risks,
including economic and political uncertainty and currency fluctuation.
 
Fidelity Diversified International Fund.    This is a mutual fund whose
objective is capital growth. It normally invests at least 65% of total assets in
foreign securities. It normally invests primarily in common stocks. Stocks are
selected by using a computer-aided quantitative analysis supported by
fundamental analysis. In exchange for greater potential rewards, foreign
investments, especially in emerging markets, involve greater risks than U. S.
investments and as with any investment, share price and return will fluctuate.
The risks in foreign investments include political and economic uncertainties of
foreign countries, as well as the risk of currency fluctuations.

Page 62    The Education Management Corporation