EX-10.42






PLATO Learning, Inc.




Fiscal 2005 Executive Annual Incentive Plan




Objectives: The Fiscal 2005 Executive Annual Incentive Plan is a reward program that directly
supports the achievement of financial goals and key strategic operational goals.



Eligibility: Employees in the named jobs are eligible to be considered for participation in the
Plan: President & CEO; Chief Financial Officer; Chief Technology Officer; Sr. Vice President
Operations; Vice President, Human Resources; Vice President, School Market and Evaluation; and Vice
President, Instructional Design and Research. The Company reserves the right to determine whether
an executive will actually participate in the Plan. Eligible employees will receive a notification
letter indicating they are eligible to participate in the Plan.



Performance Measures: Payment will be based on the level of achievement of the financial goals and
operational goals shown in this table.



	 	 	 	 	 
	 	 	Weighting
	Financial Goals	 	 	 	 
	1. Pre-tax earnings – Target[x] 1
	 	 	70	%
	 
	 	 	 	 
	Sub total
	 	 	70	%
	 
	 	 	 	 
	Operational Goals2:
	 	 	 	 
	1. Restructure the business to reduce SG&A costs [x]3
	 	 	10	%
	2. Complete the 3 year growth plan [x]
	 	 	5	%
	3. Increase the growth rate of the elementary market [x]4
	 	 	5	%
	4. Improve cost/development scheduling and market acceptance of
products and services[x]
	 	 	5	%
	5. Improve leadership effectiveness as measured by increased
diversity representation, quality of new hires and retention of key
talent
	 	 	5	%
	 
	 	 	 	 
	Sub total
	 	 	30	%
	 
	 	 	 	 







1The amount excludes restructuring and executive termination changes.


2Achievement of the operational goals can generally be substantiated. The level of
achievement is somewhat subjective in the case of near achievement or over achievement of
operational goals therefore it is to be determined by the Board in consultation with the CEO.


3Represents a [x] reduction from 2004 expenses [x] and excludes the impact of
restructuring and executive termination changes, as well as the impact of revenue changes on
commission and bad debt expense.


4Measured on the increase in elementary courseware orders (rather than revenue).



Target Incentive: Each executive’s payment will be based on their Annual Base Salary in
effect (on October 31, 2005), their Target Incentive percent, and the level of achievement of the
performance measures. Each executive’s Target Incentive is expressed as a percent of their Annual
Base Salary and shown in this table.



	 	 	 	 	 
	Executive	 	Target Incentive
	President & CEO
	 		75	%
	Chief Financial Officer
	 		40	%
	Chief Technology Officer
	 		35	%
	Sr. Vice President, Operations
	 		35	%
	Vice President, Human Resources
	 		30	%
	Vice President, School Market and Evaluation
	 		25	%
	Vice President, Instructional Design and Research
	 		25	%







Actual Payment: The plan rewards executives for achievement of goals and also encourages
performance that substantially exceeds goals. This chart shows how the actual payment will
increase (as a percent of the Target Incentive) as performance is increased. A threshold or
minimum level of performance has been established. Straight-line interpolation will be used to
determine the payment for any level of achievement falling between the stated levels of
performance. This is illustrated in the chart below.



	 	 	 
	Performance	 	Actual Payment
	% Of Goal Achievement	 	% Of Target Incentive
	 70%

85%

100%

115%

130%

145%

160%

	 	50%

75%

100%

125%

150%

175%

200%







General Provisions:


The obligations of the Company, as set forth in this document shall be subject to modification
in such manner and to such extent as the CEO and the Board of Directors deems necessary by
agreement, or as may be necessary to comply with any law, regulation or governmental order
pertaining to compensation. The Compensation Committee will receive the recommendations of the CEO
for the cash payment amount, and any actions related to termination of employment and/or change in
control, and after due deliberation determine the payment amount.



This Plan shall be cancelled in the event of termination of employment with the company. To remain
eligible for a cash payment amount from the Plan, a participant must be continuously employed by
the Company from date of hire or November 1, 2004, which ever is later, through the date of the
Plan payout (no later than December 31, 2005), except for the following circumstances:



Death or Disability. If a Participant dies or becomes disabled before October 31, 2005,
his/her cash payment amount will be prorated for the number of days the Participant was an active
PLATO employee. For the purposes of this Plan “Disability” means that as a result of physical or
mental incapacity Executive is unable for a period of 120 consecutive days during any consecutive
180-day period to perform his duties hereunder on a full-time basis. In the case of death, the
payment amount will be given to the Participant’s estate according to current law and established
guidelines and practices.



Unpaid Leave of Absence. If a Participant is on an unpaid leave of absence anytime between
November 1 2004 and October 31, 2005 his/her cash payment amount will be prorated on a daily basis
to exclude the time he/she was on such leave.



Termination with Cause or without Good Reason. In the event a Participant’s employment
with the Company is terminated with Cause or without Good Reason (as defined in Section 6 of their
employment agreement) after November 1, 2004 and before October 31, 2005 his/her cash payment
amount will be prorated for the number of days the Participant was an active PLATO employee.



Termination without Cause or with Good Reason. In the event a Participant’s employment
with the Company is terminated without Cause or with Good Reason (as defined in Section 6 of their
employment agreement) after November 1, 2004 and before October 31, 2005 his/her cash payment
amount will be prorated for the number of days the Participant was an active PLATO employee.



Change in Control. If at any time during fiscal year 2005 there is a Change in Control
event the incentive payment will be pro-rated through the end date of the Change in Control. The
payment amount will be based on 100% of the Target Incentive.