Exhibit 10.08

EDUCATION MANAGEMENT CORPORATION

NONQUALIFIED STOCK OPTION AGREEMENT

(Performance-Vesting)

THIS AGREEMENT (the “Agreement”), is made effective as of December 7, 2006 (the
“Date of Grant”), between Education Management Corporation, a Pennsylvania
corporation, and the participant set forth on the signature page hereto (the
“Participant”):

R E C I T A L S:

WHEREAS, the Company has adopted the Education Management Corporation 2006 Stock
Option Plan (the “Plan”), which Plan is incorporated herein by reference and
made a part of this Agreement to the extent set forth in Section 14 below.
Capitalized terms not otherwise defined herein or by reference herein shall have
the meanings given thereto in the Plan; and

WHEREAS, the Committee has determined that it is in the best interests of the
Company and its shareholders to grant an Option to the Participant pursuant to
the Plan, the Employment Agreement between the Participant and the Company (the
“Parties”) dated as of even date herewith (the “Employment Agreement”), and the
terms set forth herein.

NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth,
the Parties agree as follows:

1. Grant of the Option. The Company hereby grants to the Participant the right
and option (the “Option”) to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate of the number of Shares set forth on
the signature page hereto, subject to adjustment as set forth in the Plan. The
Option Price shall be as set forth on the signature page hereto, which the
Parties agree is not less than the fair market value of a Share as of the date
hereof.

2. Duration. Subject to the provisions of the Plan and this Agreement, the
Participant may exercise all or any part of the Vested Portion of the Option at
any time prior to the tenth anniversary of the Date of Grant. The Option may not
be cancelled or forfeited without the Participant’s prior written consent prior
to such tenth anniversary, other than as expressly provided (x) in Section 8(b)
of the Plan (relating to “Transactions”) or (y) in this Agreement.

3. Vesting. Subject solely to the provisions of Sections 4(a), 4(b) and 4(c)
below and Section 8(b) of the Plan, the Option shall vest and become exercisable
with respect to the Shares then subject to it at the times, and to the degree,
set forth in the following schedule, upon one or more Realization Events:

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Cash on Cash Return Realized by Principal

Stockholders on Invested Capital

  

Applicable Percentage

200%    20% of the Shares then subject to the Option 250%    40% of the Shares
then subject to the Option (treating Shares in respect of which the Option has
already been exercised as, for this purpose, then still subject to the Option)
300%    60% of the Shares then subject to the Option (treating Shares in respect
of which the Option has already been exercised as, for this purpose, then still
subject to the Option) 350%    80% of the Shares then subject to the Option
(treating Shares in respect of which the Option has already been exercised as,
for this purpose, then still subject to the Option) 400%    100% of the Shares
then subject to the Option

For purposes of this Agreement, “Cash on Cash Return” shall mean the aggregate
gross cash return (e.g., without deduction for taxes or for amounts invested by
the Principal Stockholders in Shares) realized by the Principal Stockholders on
all of the capital invested by them in Shares. Such return shall include cash
(and marketable securities) realized as a result of any disposition or exchange
of Shares owned by the Principal Stockholders, as well as cash (and marketable
securities) received as dividends or other distributions in respect of Shares
owned by the Principal Stockholders. The Cash on Cash Return targets shall be
separately calculated for, and must be separately satisfied with respect to,
capital invested in Shares by the Principal Stockholders after the Effective
Date, so that the applicable Cash on Cash Return target stated as a percentage
equals 100 + ((x/36) times (y-100)), where x = the number of months that have
elapsed from the date of investment through the date the return is being
measured, (provided that x shall not exceed 36), and y = the applicable Cash on
Cash Return percentage from the schedule above; provided, however, that for
purposes of such calculation, returns shall first be attributed to the earliest
capital invested.1 If one or more of the Principal Stockholders ceases to own
any Shares, Cash on Cash Return shall thereafter be determined based solely on
the returns realized

 

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1 For purposes of illustration, to achieve a 60% Applicable Percentage, (i) a
300% Cash on Cash Return would have to be realized on the Principal
Stockholders’ initial capital investment and (ii) on subsequently invested
capital measured on a realized return to the Principal Stockholders two years
following the date of investment, the Cash on Cash Return needed on that
subsequently invested capital would be equal to 233% (100 + ((24/36) *
(300-100)) = 233).

 

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by the remaining Principal Stockholder(s). Immediately following a Realization
Event described in clause (ii) of the definition thereof in Section 2(w) of the
Plan (a “Clause (ii) Realization Event”), the sum of (x) the Fair Market Value
of the remaining Shares owned by the Principal Stockholders, plus (y) the Fair
Market Value of property previously received by the Principal Stockholders in
respect of Shares in forms other than cash (or marketable securities), shall be
considered as cash proceeds received by the Principal Stockholders, and there
shall be no further vesting thereafter; provided, however, that in the event
that some or all of the proceeds received (or to be received) by the Principal
Stockholders in respect of any disposition of Shares owned by them is in the
form of contingent payments or proceeds (e.g., installment sale proceeds,
earn-out proceeds, escrow amounts, etc.), then, at the time that such contingent
payments or proceeds (if any) are received by the Principal Stockholders, the
Cash on Cash Return shall be recalculated and the Applicable Percentage above
increased if necessary to reflect the receipt of such payments or proceeds.
Notwithstanding the foregoing, to the extent that a Clause (ii) Realization
Event has not occurred as of the nine-year and six-month anniversary of the Date
of Grant and there are any contingent payments or proceeds that have not been
received by the Principal Stockholders (or property previously received by the
Principal Stockholders that has not already been reduced to cash or marketable
securities) as of that date, then the Fair Market Value of such contingent
payments or proceeds (or property) shall be determined and the Cash on Cash
Return shall be recalculated and the Applicable Percentage above increased, if
necessary. The portion of the Option which has become vested and exercisable as
described in Section 3 is hereinafter referred to as the “Vested Portion.”

4. Termination of Employment.

(a) If the Participant’s Employment is terminated by the Company for Cause or by
the Participant for any reason (other than a termination due to the
Participant’s death, Disability or Retirement (as such term is defined in the
Shareholders’ Agreement attached hereto as Exhibit A)), the Option shall,
whether or not vested, automatically be canceled without payment of
consideration therefor.

(b) If the Participant’s Employment is terminated by the Participant due to the
Participant’s Retirement, the Option shall, to the extent not then or previously
vested and exercisable, automatically be canceled without payment of
consideration therefor, and the Vested Portion of the Option shall remain
exercisable until thirty days following the date of termination of Employment.

(c) If the Participant’s Employment is terminated by the Company other than for
Cause, or by the Participant for Good Reason (as defined in the Employment
Agreement) the Option shall, to the extent not then or previously vested and
exercisable, automatically be canceled without payment of consideration
therefor, and the Vested Portion of the Option shall remain exercisable until
the tenth anniversary of the Date of Grant.

 

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(d) If the Participant’s Employment is terminated due to the Participant’s death
or Disability, the Option shall, to the extent not then or previously vested and
exercisable, automatically be canceled without payment of consideration
therefor, and the Vested Portion of the Option shall remain exercisable until
the first anniversary of the date of termination of Employment.

5. Exercise of Option.

(a) Subject to Section 2, the Vested Portion of the Option may be exercised by
delivering to the Company at its principal office written notice of intent to so
exercise; provided that the Option may be exercised with respect to whole Shares
only. Such notice shall specify the number of Shares for which the Option is
being exercised (the “Purchased Shares”) and shall be accompanied by payment in
full of the Option Price in cash or by check or wire transfer; provided,
however, that, in the sole discretion of the Committee, payment of such
aggregate Option Price may instead be made, in whole or in part, by one or more
of the following: (i) provided that the Company is not then contractually
prohibited from permitting exercise in this fashion, the delivery to the Company
of a certificate or certificates representing Shares, duly endorsed or
accompanied by a duly executed stock power, which delivery effectively transfers
to the Company good and valid title to such Shares, free and clear of any
pledge, commitment, lien, claim or other encumbrance (such Shares to be valued
at their aggregate Fair Market Value on the date of such exercise), provided
that if a certificate or certificates representing Shares in excess of the
amount required are delivered, a certificate (or other satisfactory evidence of
ownership) representing the excess number of Shares shall promptly be returned
by the Company, (ii) a reduction in the number of Purchased Shares to be issued
upon such exercise having a Fair Market Value on the date of exercise equal to
the aggregate Option Price in respect of the Purchased Shares, provided that the
Company is not then contractually prohibited from permitting exercise in this
fashion, or (iii) other cashless exercise procedures approved by the Committee.
The Participant shall not have any rights to dividends or other rights of a
stockholder with respect to Shares subject to the Option until the Participant
has given written notice of exercise of the Option, paid the Option Price in
full for such Shares and, if applicable, has satisfied any other conditions
pursuant to the Plan or this Agreement (including provisions for the payment of
applicable withholding taxes, which provisions may be made in any of the ways in
which the Option Price may be paid). Notwithstanding anything to the contrary
contained in this Agreement or the Plan, for purposes of this Section 5(a), the
Fair Market Value of a Share shall, to the extent necessary to avoid incurring
“additional tax,” interest or penalties under Section 409A of the Code, not be
treated as greater than the “fair market value” of a Share determined
consistently with Section 409A of the Code and the regulations and guidance
promulgated thereunder.

(b) Notwithstanding any other provision of the Plan or this Agreement to the
contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and Federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange

 

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(collectively, the “Legal Requirements”) that the Committee shall in its sole
discretion determine to be necessary or advisable, unless an exemption to such
registration or qualification is available and satisfied. The Committee may
establish additional procedures as it deems necessary or desirable in connection
with the exercise of the Option or the issuance of any Shares upon such exercise
to comply with any Legal Requirements. Such procedures may include but are not
limited to the establishment of limited periods during which the Option may be
exercised or that following receipt of the notice of exercise, and prior to the
completion of the exercise, the Participant will be required to affirm the
exercise of the Option following receipt of any disclosure deemed necessary or
desirable by the Committee.

(c) The Company shall, upon payment in accordance with Section 5(a) above of the
Option Price for Purchased Shares, deliver such Shares as soon as reasonably
practicable to the Participant and pay all original issue and transfer taxes and
all other fees and expenses incident to such delivery. All Shares delivered upon
any exercise of the Option shall, when delivered, (i) be duly authorized,
validly issued, fully paid and nonassessable, (ii) be registered for sale, and
for resale, under U.S. state and federal securities laws to the extent that
other Shares issued under the Plan are then so registered or qualified and
(iii) be listed, or otherwise qualified, for trading on any securities exchange
or securities market on which other Shares issued under the Plan of the same
class are then listed or qualified.

(d) In the event of the Participant’s death, the Vested Portion of the Option
shall remain (or become) exercisable by the Participant’s executor or
administrator, or the person or persons to whom the Participant’s rights under
this Agreement shall pass by will or by the laws of descent and distribution, or
the person or persons to whom such rights have passed under Section 9, as the
case may be, to the extent set forth in Section 4 (and the term “Participant”
shall be deemed to include such heir or legatee or permitted transferee). Any
such heir or legatee or permitted transferee of the Participant shall take
rights herein granted subject to the terms and conditions hereof.

6. Shareholders’ Agreement. The Participant acknowledges and agrees that the
effectiveness of this Option is subject to the Participant becoming a party to
the Shareholders’ Agreement (attached hereto as Exhibit A) and that he will be
subject to the provisions thereof with respect to the Option and the Purchased
Shares. The Participant agrees that any provisions of the Shareholders’
Agreement will supersede any provisions of the Plan or this Agreement to the
contrary; provided, however, that, notwithstanding the definition of “Equity
Call Purchase Price” in Section 8(c) of the Shareholders’ Agreement, the
purchase price described in clause (i) of such definition of “Equity Call
Purchase Price” shall apply only upon a termination of the Participant’s
Employment (x) by the Participant without Good Reason (as defined in the
Employment Agreement) and not for death, Disability or Retirement or (y) by the
Company for Cause, and the purchase price described in clause (ii) of such
definition of “Equity Call Purchase Price” shall apply in all other
circumstances. Except for the foregoing, the provisions of Section 8 of the
Shareholders’ Agreement shall apply without modification.

 

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7. No Right to Continued Employment. The granting of the Option evidenced hereby
and this Agreement shall impose no obligation on the Company or any Affiliate to
continue the Employment of the Participant and shall not lessen or affect the
Company’s or its Affiliates’ right to terminate the Employment of the
Participant.

8. Legend on Certificates. The certificates representing the Shares purchased by
exercise of the Option shall be subject to such stop transfer orders and other
restrictions as the Committee may reasonably deem advisable under the Plan or
the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions, provided, however, that any such legends shall be removed,
promptly upon the Participant’s reasonable written request, to the extent that
the grounds that supported requiring the legend no longer apply.

9. Transferability. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of one or more beneficiaries to whom
the Option shall be transferred, in whole or in part, upon the death of the
Participant shall not constitute a prohibited assignment, alienation, pledge,
attachment, sale, transfer or encumbrance.

10. Taxes. Prior to the issuance of any Shares upon exercise of the Option, the
Participant shall be required to satisfy any applicable withholding taxes in
respect of the Option in accordance with Section 5(a) above. Subject to the
foregoing, the Participant shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
All amounts and benefits due to the Participant under this Agreement are subject
to Section 7 of the Employment Agreement.

11. Securities Laws. In connection with the acquisition of any Shares pursuant
to the exercise of the Option, the Participant will make or enter into such
written representations, warranties and agreements as the Committee may
reasonably request in order to comply with any Legal Requirements or with this
Agreement.

12. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party hereto at such other
address as either party may hereafter designate in writing to the other. Any
such notice shall be deemed effective upon receipt thereof by the addressee.

13. Choice of Law. This Agreement shall be governed by and construed in
accordance with its express terms, and otherwise in accordance with the laws of
the State of New

 

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York without giving effect to the principles of conflicts of law, provided that
the provisions set forth herein that are required to be governed by the
Pennsylvania Business Corporation Law of 1988, as amended, shall be governed by
the Pennsylvania Business Corporation Law of 1988, as amended.

14. Option Subject to Plan. By entering into this Agreement, the Participant
agrees and acknowledges that the Participant has received and read a copy of the
Plan. The Option is subject to the Plan to the extent that the Plan is not
inconsistent with this Agreement. The terms and provisions of the Plan, as it
may be amended from time to time, are hereby incorporated herein by reference.
In the event of any inconsistency between (x) any term or provision of this
Agreement and (y) any term or provision of the Plan or any other Company
Arrangement (as defined in the Employment Agreement), other than the Employment
Agreement, the terms and provisions of this Agreement will govern and prevail.

15. Right to Timely Exercise. In the event that any holder of Shares will
receive cash, securities or other property in respect of Shares in connection
with a Change in Control, Realization Event, Exit Sale (as defined in the
Shareholders’ Agreement), or Transaction (each a “Covered Transaction”), or that
the Participant becomes entitled to participate in a Tag-Along Offer (as defined
in the Shareholders’ Agreement) or to exercise registration rights (each also a
“Covered Transaction”), then the Company shall take such steps as are necessary
to enable the Participant (if he so elects and to the extent the Option is, or
becomes, vested and exercisable upon the occurrence of such Covered Transaction)
to exercise the Option at a time and in a fashion that will entitle him to
receive in exchange for any Shares thus acquired the same consideration, on a
per-Share basis, as is received in such Covered Transaction by other holders of
Shares, to the extent that the Participant is otherwise entitled to participate
in such Covered Transaction.

16. Miscellaneous. Sections 8.2, 8.7 and 8.11 of the Employment Agreement
(relating, respectively, to amendments and waivers, severability, and general
interpretation principles) shall be deemed incorporated herein in full, with the
references to the “Employment Agreement” in such Sections being treated as
references to this Agreement and the references to the “Executive” in such
Sections being treated as references to the Participant. In addition, there
shall be submitted for arbitration (as provided in Section 8.6 of the Employment
Agreement) any dispute, controversy or claim related to whether the
Participant’s termination of Employment was for Cause or Good Reason.

17. Signature in Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. Signatures delivered by
facsimile shall be effective for all purposes.

[signature page follows]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement, effective as of
the Date of Grant.

 

EDUCATION MANAGEMENT

CORPORATION

By:  

 

Name:   Edward J. West Title:  

Executive Vice President and

Chief Financial Officer

 

Agreed and acknowledged as of

the date first above written:

 

[EXECUTIVE], Individually

Number of performance-vesting

Shares subject to the Option:                     

Option Price: $50.00