1.3. Exclusivity. During the Term, the Executive shall devote his full business timeand attention to the business and affairs of the Company, shall faithfully serve the Company, andshall in all material respects conform to and comply with such lawful and reasonable directions andinstructions given to him as are consistent with Sections 1.2 and 1.3hereof. During the Term, the Executive shall use his reasonable best efforts to promote andserve the interests of the Company and shall not engage in any other business activity, whether ornot such activity shall be engaged in for pecuniary profit. Notwithstanding the foregoingprovisions of this Section 1.3, but subject to the other provisions of this Employment Agreement,the Executive may (i) engage in charitable activities and community affairs, (ii) serve, with theprior approval of the Company’s Chief Executive Officer, on the boards of a reasonable number ofbusiness entities, trade associations and charitable organization, (iii) accept and fulfill areasonable number of speaking engagements, and (iv) manage his personal investments and affairs;provided that such activities do not either individually or in the aggregate materially interferewith the performance of his duties hereunder.Section 2.Compensation.2.1. Salary. As compensation for the performance of the Executive’s serviceshereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of$290,000.00, payable in accordance with the Company’s standard payroll policies (the “BaseSalary”). The Base Salary will be reviewed annually and may be adjusted upward by the Board ofDirectors of the Company (the “Board”) (or a committee thereof) in its discretion.2.2. Annual Bonus. The Executive will be eligible for an annual incentive bonus (the“Annual Bonus”) for each complete fiscal year occurring during the Term. The Executive’starget bonus will be eighty percent (80%) of the Base Salary; provided, however, that the AnnualBonus for fiscal year 2009 will be $100,000. Except for fiscal 2009, the actual Annual Bonus paidfor any year will depend on meeting Company and individual performance standards established by theBoard. The Annual Bonus will be paid in cash within seventy-five (75) days of the end of thefiscal year.2.3. Equity. The Executive will be eligible for grants of stock options pursuant tothe Parent’s Stock Option Plan as determined by the Parent Board or a committee thereof.2.4. Employee Benefits. During the Term, the Executive shall be eligible toparticipate in such health and other group insurance, retirement and other employee benefit plansand programs of the Company as in effect from time to time on the same basis as similarly situatedexecutives of the Company.2.5. Vacation. During the Term, the Executive shall be entitled to paid vacation inaccordance with the Company’s vacation policy as in effect from time to time.2.6. Business Expenses. The Company shall pay or reimburse the Executive for allcommercially reasonable business out-of-pocket expenses that the Executive incurs during the Termin performing his duties under this Employment Agreement upon presentation of documentation and inaccordance with the expense reimbursement policy of the Company as approved by the Board (or acommittee thereof) and in effect from time to time.
 
 

 
2.7. Housing. During the period beginning on the Effective Date and ending on thefirst anniversary of the Effective Date, it is expected that the Executive will perform his dutieshereunder not less than 50% of the time in the Company’s Pittsburgh, PAoffice and the rest of the time at the Company’s Phoenix, AZ office. During this period theExecutive will be reimbursed for up to $2,000.00 per month in temporary living expenses inPittsburgh, PA and will be reimbursed for reasonable travel expenses for travel between Phoenix, AZand Pittsburgh, PA. The Company’s Chief Executive Officer in his discretion will inform theExecutive whether the Executive will be required to move to Pittsburgh, PA after the firstanniversary of the Effective Date. In the event that the Executive moves to Pittsburgh, PA, theCompany will reimburse the Executive for his moving expenses in accordance with Company policy andwill reimburse Executive for up to $60,000 in selling expenses, including sales commission andcustomary closing, in connection with the sale of his house in Phoenix, AZ.Section 3.Employment Termination.3.1. Termination of Employment. The Company may terminate the Executive’s employmenthereunder for any reason during the Term, and the Executive may voluntarily terminate hisemployment hereunder for any reason during the Term, in each case (other than a termination by theCompany for Cause) at any time upon not less than thirty (30) days’ notice to the other Party.Upon any termination of the Executive’s employment hereunder for any reason during the Term, theExecutive shall be entitled to (i) any Base Salary earned but unpaid through the date oftermination; (ii) any other payment or benefit to which he is entitled under the applicable termsof any applicable plan, program, agreement or arrangement of the Company or its affiliates (each, a“Company Arrangement”), including the plans, programs, agreements and arrangements referredto in Sections 2.2 through 2.6 and 8.1 ((i) and (ii) being, collectively, the “AccruedAmounts”); provided, however, that if the Executive’s employment hereunder isterminated (x) by the Company for Cause, or (y) by the Executive voluntarily without Good Reasonand not for death or Disability, then any Annual Bonus earned pursuant to Section 2.2 in respect ofa prior fiscal year, but not yet paid or due to be paid, shall be forfeited.3.2. Certain Terminations.(a) Termination by the Company Other than for Cause; Termination by the Executive for GoodReason. If the Executive’s employment hereunder is terminated by the Company during the Termother than for Cause, or by the Executive with Good Reason, in addition to the Accrued Amounts theExecutive shall be entitled to: (i) a cash payment in each of thetwelve (12) months following the Executive’s termination ofemployment equal to one-twelfth (1/12) of the sum of theExecutive’s Base Salary and target Annual Bonus; provided,however, that if the Executive’s termination of employmentpursuant to this Section 3.2(a) occurs within two (2) yearsfollowing a “Change in Control” (as defined in the Company’s2006 Stock Option Plan)) or the Executive reasonablydemonstrates that the termination was In Anticipation Of aChange in Control, the Executive shall be entitled to a lump sumequal to two (2) times the sum of his Base Salary and targetAnnual Bonus (amounts paid pursuant to this clause (i) hereinreferred to as the “Severance Payment”);
 
 

 
 (ii) the Accrued Amounts and apro-rata Annual Bonus (determined by multiplying the targetAnnual Bonus for the year of termination by a fraction, thenumerator of which is the number of days he was employed by theCompany during such fiscal year and the denominator of which isthe number of days in such fiscal year) (the “Pro-RataAnnual Bonus Payment”); (iii) the continuation of all welfarebenefits, including (to the extent applicable) medical, dental,vision, life and disability benefits pursuant to plansmaintained by the Company under which the Executive and/or theExecutive’s family is eligible to receive benefits and/orcoverage, for the twelve (12)-month period following the date ofthe Executive’s termination, with such benefits provided to theExecutive at no less than the same coverage level as in effectas of the date of termination and the Executive shall pay anyportion of such cost as was required to be borne by keyexecutives of the Company generally on the date of termination;provided, however, that, notwithstanding the foregoing, thebenefits described in this sentence may be discontinued prior tothe end of the twelve (12)-month period to the extent, but onlyto the extent, that the Executive receives substantially similarbenefits from a subsequent employer; and (iv) key executive outplacementservices, in accordance with Company policies for seniorexecutives as in effect on the date of termination (or, at therequest of the Executive, a lump sum payment in lieu thereof, inan amount determined by the Company to be equal to the estimatedcost of those services).The Company’s obligations to make the Payments and provide thebenefits described in this Section 3.2(a) shall be conditioned uponthe Executive’s execution, delivery and non-revocation of a valid andenforceable general release of claims substantially in the formattached hereto as *Exhibit A* (the “Release”).(b) Termination Due to Disability. Upon a determination that the Executive isDisabled, the Company may give notice to the Executive that it intends to replace him. If theExecutive does not return to the performance of his duties on essentially a full-time basis withinthirty (30) days after receiving such notice, the Company may replace the Executive withoutbreaching this Agreement; provided, however, that this Agreement shall not terminate until theanniversary date of this Agreement next following the date that the Executive is determined to beDisabled. For the period from the date the Executive is determined to be Disabled through theearlier of such anniversary date or the date of the Executive’sdeath (the “Disability
 
 

 
Period”), the Company shall continue to provide the Executive all compensation andbenefits provided for in Section 2; provided, however, that the Company’s obligation to pay theExecutive’s Base Salary shall be reduced by the amounts paid to the Executive under any long-termdisability insurance plan sponsored or otherwise maintained by the Company (if any) and that in noevent shall the total annual obligation of the Company under this Agreement to make Base Salarypayments to the Executive during the Disability Period be greater than an amount equal totwo-thirds (2/3) of the Executive’s Base Salary, computed on a pro rata basis beginning with thedate that the Executive is replaced in accordance with this Section 3.2(b) and continuing until theexpiration of the Disability Period.(c) Termination Due to Death. If the Executive’s employment hereunder is terminatedby reason of his death, the Company shall continue to pay the Executive’s Base Salary at the ratein effect at the time of his death to such person or persons as the Executive shall have designatedfor that purpose in a notice filed with the Company, or, if no such person shall have been sodesignated, to his estate, for a period of six (6) months after the Executive’s date of death. TheCompany also shall pay to such person(s) or estate (i) the amount of the Accrued Amounts and a ProRata Annual Bonus Payment for the year of termination and (ii) an amount equal to one-twelfth(1/12) of the Executive’s average annual Bonus paid or payable to the Executive with respect to themost recent three (3) full fiscal years or, if greater, the most recent twelve (12)-month period(in each case, determined by annualizing the bonus paid or payable with respect to any partialfiscal year) that amount being payable in each of the six (6) months following the date oftermination. Any amounts payable under this Section 3.2(c) shall be exclusive of and in additionto any payments which the Executive’s widow, beneficiaries or estate may be entitled to receivepursuant to any pension plan, profit sharing plan, employee benefit plan, or life insurance policymaintained by the Company.(d) Termination at Expiration of the Term at the Company’s Request. If theExecutive’s employment hereunder is terminated solely as a result of the Company’s electing underSection 1.1 not to renew the Employment Agreement at the expiration of the then current Term bygiving notice thereof to the Executive, and the Executive terminates his employment within thirty(30) days after the end of the Term, then such termination of employment shall be considered atermination without Cause hereunder.(e) Definitions. For purposes of this Section 3.2, the following terms shall have thefollowing meanings:(1) “Good Reason” shall mean the occurrence of any of the following events withouteither the Executive’s prior written consent or full cure within thirty (30) days after he giveswritten notice to the Company describing the event and requesting cure: (i) the reassignment ofthe Executive to a position that is not a corporate officer level position or the assignment to theExecutive of duties that are not consistent with such corporate officer level position; (ii) anyrelocation of the Executive’s principal place of employment to a location more than fifty (50)miles from his current principal place of employment; (iii) any material breach by the Company orany of its affiliates of any material obligation to the Executive; or (iv) any failure of theCompany to obtain the assumption in writing of its obligation to perform this Employment Agreementby any successor to all or substantially all of the assets of the Company within fifteen (15) daysafter any merger, consolidation, sale or similar transaction, except wheresuch assumption occurs by operation of law. If the Company fails to cure a Good Reason eventduring the thirty (30) day cure period, the Executive must terminate his employment within sixty(60) days after the expiration of such thirty (30) day period if such termination is to be treatedas for Good Reason based on such uncured Good Reason event.
 
 

 
(2) “Cause” shall mean (i) the Executive’s willful and continued failure to use hisbest efforts to perform his reasonably assigned duties (other than on account of Disability); (ii)the Executive is indicted for, convicted of, or enters a plea of guilty or nolo contendere to, (x)a felony or (y) a misdemeanor involving moral turpitude; (iii) the Executive engages in (x) grossnegligence causing material harm to the Parent, the Company, or its or their business orreputation, (y) willful and material misconduct, or (z) willful and material breach of fiduciaryduty; or (iv) the Executive willfully and materially breaches (x) the restrictive covenantsdescribed in Section 4 of this Employment Agreement or (y) any of the material written policieslisted on *Exhibit B*, as in effect on the Effective Date.(3) “Disability” shall mean the Executive is entitled to receive long-term disabilitybenefits under the long-term disability plan of the Company in which Executive participates, or, ifthere is no such plan, the Executive’s inability, due to physical or mental incapacity, tosubstantially perform his duties and responsibilities under this Employment Agreement for onehundred eighty (180) days out of any consecutive 365 day period.(4) “In Anticipation Of” shall mean that the termination (i) was at the request of athird party that has taken steps reasonably calculated to effect a Change in Control or (ii)otherwise arose in connection with a Change in Control that has been proposed, so long as in eithercase such Change in Control shall actually have occurred.(f) Section 409A. If the Executive is a “specified employee” for purposes of Section409A of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder(“Section 409A”), any Severance Payment required to be made pursuant to Section 3.2 whichis subject to Section 409A shall not be paid until one day after the date which is six (6) monthsfrom the date of termination.3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’semployment shall constitute the exclusive severance payments due the Executive upon a terminationof his employment under this Employment Agreement.3.4. Resignation from All Positions. Upon the termination of the Executive’semployment with the Company for any reason, the Executive shall be deemed to have resigned, as ofthe date of such termination, from all positions he then holds as an officer, director, employeeand member of the board (and any committee thereof) of the Company and any of its subsidiaries andaffiliates.3.5. Cooperation. Following the termination of the Executive’s employment with theCompany for any reason, the Executive agrees to reasonably cooperate with the Company uponreasonable request of the Board and to be reasonably available to the Company with respect tomatters arising out of the Executive’s services to the Company and itssubsidiaries and affiliates. The Company shall reimburse the Executive for expensesreasonably incurred in connection with such matters as agreed by the Executive and the Board and,to the extent the Executive is required to spend substantial time on such matters, the Companyshall compensate the Executive at an hourly rate based on the Executive’s most recent Base Salary.
 
 

 
Section 4.Unauthorized Disclosure; Non-Solicitation; Non-Competition;Proprietary Rights.4.1. Unauthorized Disclosure. The Executive agrees and understands that in theExecutive’s position with the Company, the Executive has been and will be exposed to and has andwill receive non-public information relating to the confidential affairs of the Company and itsaffiliates, including, without limitation, technical information, intellectual property, businessand marketing plans, strategies, customer information, software, other information concerning theproducts, promotions, development, financing, expansion plans, business policies and practices ofthe Company and its affiliates and other non-public forms of information considered by the Companyand its affiliates to be confidential and in the nature of trade secrets (including, withoutlimitation, ideas, research and development, know-how, technical data, customer and supplier lists,pricing and cost information and business and marketing plans and proposals) (collectively, the“Confidential Information”). The Executive agrees that at all times during the Executive’semployment with the Company, except as may be required for the Executive to discharge his duties asan officer of the Company, and thereafter, the Executive shall not disclose such ConfidentialInformation, either directly or indirectly, to any individual, corporation, partnership, limitedliability company, association, trust or other entity or organization, including a government orpolitical subdivision or an agency or instrumentality thereof (each a “Person”) without theprior written consent of the Company and shall not use or attempt to use any such information inany manner other than in connection with his employment with the Company, unless required by law todisclose such information, in which case the Executive shall provide the Company with writtennotice of such requirement as far in advance of such anticipated disclosure as possible. Thisconfidentiality covenant has no temporal, geographical or territorial restriction. Upontermination of the Executive’s employment with the Company, the Executive shall promptly supply tothe Company (or destroy, at the Company’s option) all property, keys, notes, memoranda, writings,lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs,machines, technical data and any other tangible product or document which has been produced by,received by or otherwise submitted to the Executive during or prior to the Executive’s employmentwith the Company, and any copies thereof in his (or capable of being reduced to his) possession;provided that nothing in this Employment Agreement or elsewhere shall prevent the Executivefrom retaining and utilizing: documents relating to his personal benefits, entitlements andobligations; documents relating to his personal tax obligations; his desk calendar, rolodex, andthe like; and such other records and documents as may reasonably be approved by the Company.
 
 

 
4.2. Non-Competition. By and in consideration of the Company’s entering into thisEmployment Agreement and the payments to be made and benefits to be provided by the Companyhereunder, and in further consideration of the Executive’s exposure to the Confidential Informationof the Company and its affiliates, the Executive agrees that the Executive shall not, during theExecutive’s employment with the Company (whether during the Term or thereafter) and for a period oftwelve (12) months thereafter (the “Restriction Period”),directly or indirectly (other than in connection with carrying out his responsibilities forthe Company and its affiliates), own, manage, operate, join, control, be employed by, orparticipate in the ownership, management, operation or control of, or be connected in any mannerwith, including, without limitation, holding any position as a stockholder, director, officer,consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise(as defined below); provided, that in no event shall ownership of three percent (3%) orless of the outstanding securities of any class of any issuer whose securities are registered underthe Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 4.2,so long as the Executive does not have, or exercise, any rights to manage or operate the businessof such issuer other than rights as a stockholder thereof. For purposes of this paragraph,“Restricted Enterprise” shall mean any Person that is actively engaged in any geographicarea in which the Parent, the Company, or any of their respective subsidiaries (the “CompanyGroup”) operates or markets in any business which is in material competition with the businessof any member of the Company Group (i) conducted during the preceding twelve (12) months (orfollowing the Executive’s termination of employment, the twelve (12) months preceding the date oftermination of the Executive’s employment with the Company) or (ii) proposed to be conducted by anymember of the Company Group in its business plan as in effect at that time (or following theExecutive’s termination of employment, the business plan as in effect as of the date of terminationof the Executive’s employment with the Company). During the Restriction Period, upon request ofthe Company, the Executive shall notify the Company of the Executive’s then-current employmentstatus.4.3. Non-Solicitation of Employees. During the Restriction Period (other than inconnection with carrying out his responsibilities for the Company and its affiliates), theExecutive shall not directly or indirectly contact, induce or solicit (or assist any Person tocontact, induce or solicit) for employment any person who is, or within six (6) months prior to thedate of such solicitation was, an employee of any member of the Company Group.4.4. Interference with Business Relationships. During the Restriction Period (otherthan in connection with carrying out his responsibilities for the Company and its affiliates), theExecutive shall not directly or indirectly contact, induce or solicit (or assist any Person tocontact, induce or solicit) any customer or client of any member of the Company Group to terminateits relationship or otherwise cease doing business in whole or in part with any member of theCompany Group, or directly or indirectly interfere with (or assist any Person to interfere with)any material relationship between any member of the Company Group and any of its or their customersor clients so as to cause harm to the Parent or its affiliates.4.5. Extension of Restriction Period. The Restriction Period shall be tolled for anyperiod during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any andall inventions, discoveries, and improvements (whether or not patentable or registrable undercopyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,discovered, reduced to practice, or made by him, either alone or in conjunction with others, duringthe Executive’s employment with the Company and related to the business or activities of theCompany and its affiliates (the “Developments”). Except to the extent any rights in anyDevelopments constitute a work made for hire under the
 
 

 
U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by the Company and/or its applicableaffiliate, the Executive assigns all of his right, title and interest in all Developments(including all intellectual property rights therein) to the Company or its nominee without furthercompensation, including all rights or benefits therefor, including, without limitation, the rightto sue and recover for past and future infringement. The Executive acknowledges that any rights inany developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 etseq. are owned upon creation by the Company and/or its applicable affiliate as the Executive’semployer. Whenever requested to do so by the Company, the Executive shall execute any and allapplications, assignments or other instruments which the Company shall deem necessary to apply forand obtain trademarks, patents or copyrights of the United States or any foreign country orotherwise protect the interests of the Company and its affiliates therein. These obligations shallcontinue beyond the end of the Executive’s employment with the Company with respect to inventions,discoveries, improvements or copyrightable works initiated, conceived or made by the Executivewhile employed by the Company, and shall be binding upon the Executive’s employers, assigns,executors, administrators and other legal representatives. In connection with his execution ofthis Employment Agreement, the Executive has informed the Company in writing of any interest in anyinventions or intellectual property rights that he holds as of the date hereof. If the Company isunable for any reason, after reasonable effort, to obtain the Executive’s signature on any documentneeded in connection with the actions described in this Section 4.6, the Executive herebyirrevocably designates and appoints the Company and its duly authorized officers and agents as theExecutive’s agent and attorney in fact to act for and in the Executive’s behalf to execute, verifyand file any such documents and to do all other lawfully permitted acts to further the purposes ofthis Section 4.6 with the same legal force and effect as if executed by the Executive.4.7. Confidentiality of Agreement. The Parties agree not to disclose the terms ofthis Employment Agreement to any Person (other than in connection with carrying out hisresponsibilities for the Company and its affiliates); provided that (i) the Executive may disclosethis Employment Agreement and/or any of its terms to the Executive’s immediate family, financialadvisors and attorneys, so long as every such Person to whom the Executive makes such disclosureagrees, in writing, not to disclose the terms of this Employment Agreement further and (ii) theCompany may disclose the terms of this Employment Agreement in confidence to its creditors,professional advisors and attorneys, and otherwise when required by law, subpoena, court order orthe like.4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4would result in irreparable injury and damage to the Parent and the Company for which the Parent orthe Company, as applicable, would have no adequate remedy at law; the Executive therefore alsoagrees that in the event of said breach or any threat of breach, the Parent or the Company shall beentitled to an immediate injunction and restraining order, from any court with jurisdiction overthe Executive and the matter, to prevent such breach and/or threatened breach and/or continuedbreach by the Executive and/or any and all Persons acting for and/or with the Executive, withouthaving to prove damages, in addition to any other remedies to which the Parent or the Company maybe entitled at law or in equity, including, without limitation, damages and/or relief pursuant tothe last sentence of this Section 4.8. The terms of this Section 4.8 shall not prevent the Parentor the Company from pursuing any other available remedies for any breach or threatened breachhereof, including, without limitation, the recovery of damages
 
 

 
from the Executive. The Executive and the Company further agree that the provisions of thecovenants contained in this Section 4 are reasonable and necessary to protect the businesses of theCompany and its affiliates because of the Executive’s access to Confidential Information and hismaterial participation in the operation of such businesses. In the event that the Executivewillfully and materially breaches any of the covenants set forth in this Section 4, then inaddition to any injunctive relief, the Executive will promptly return to the Company a pro-rataportion of (i) any Severance Payment (or if the Severance Payment is being paid in installments, nofurther installments will be made) and (ii) any Pro-Rata Annual Bonus Payment that the Company haspaid to the Executive, in each case equal to the product of (x) the amount of the SeverancePayment (which will be zero if the Severance Payment is being paid in installments) or Pro-RataAnnual Bonus Payment, as applicable, and (y) a fraction, the numerator of which is the number ofdays from the date of such breach through the 365th day following the date theExecutive’s employment hereunder terminates, and the denominator of which is 365.Section 5.Representations.Each Party represents and warrants (i) that such Party is not subject to any contract,arrangement, agreement, policy or understanding, or to any statute, governmental rule orregulation, that in any way limits such Party’s ability to enter into and fully perform suchParty’s obligations under this Employment Agreement (including, for avoidance of doubt, theagreements of which forms are appended hereto); (ii) that such Party is not otherwise unable toenter into and fully perform such Party’s obligations under this Employment Agreement (includingthe agreements of which forms are appended hereto); and (iii) that, upon the execution and deliveryof this Employment Agreement by both Parties, this Employment Agreement shall be such Party’s validand binding obligation, enforceable against such Party in accordance with its terms, except to theextent that enforceability may be limited by applicable bankruptcy, insolvency or similar lawsaffecting the enforcement of creditors’ rights generally.Section 6.Non-Disparagement.From and after the Effective Date and following termination of the Executive’s employment withthe Company, the Executive and the Company agree not to make any statement (other than statementsmade by the Executive in connection with carrying out his responsibilities for the Company and itsaffiliates) that is intended to become public, or that should reasonably be expected to becomepublic, and that criticizes, ridicules, disparages or is otherwise derogatory of the other Partyor, in the case of statements about the Company, any of its subsidiaries, affiliates, employees,officers, directors or stockholders. For such purposes, statements by “the Company” shall meanonly (i) the Company by press release or other formally released announcement and (ii) theexecutive officers and directors thereof and not any other employee.Section 7.Taxes.7.1. All amounts paid to the Executive under this Employment Agreement during orfollowing the Term shall be subject to withholding and other employment taxes imposed by applicablelaw.
 
 

 
7.2. If (i) the aggregate of all amounts and benefits due to the Executive under thisEmployment Agreement or under any other Company Arrangement would, if received by the Executive infull and valued under Section 280G of the Internal Revenue Code of 1986, as from time to timeamended (the “Code”), constitute “parachute payments” as defined in and under Section 280Gof the Code (collectively, “280G Benefits”), and if (ii) such aggregate would, if reducedby all federal, state and local taxes applicable thereto, including the excise tax imposed pursuantto Section 4999 of the Code, be less than the amount the Executive would receive, after all taxes,if the Executive received aggregate 280G Benefits equal (as valued under Section 280G of the Code)to only three times the Executive’s “base amount” as defined in and under Section 280G of the Code,less $1.00, then (iii) such 280G Benefits payable in cash, and/or such benefits underperformance-vesting options, if any, in either case as the Executive shall select shall (to theextent that the reduction of such 280G Benefits can achieve the intended result) be reduced oreliminated to the extent necessary so that the aggregate 280G Benefits received by the Executivewill not constitute parachute payments. The determinations with respect to this Section 7.2 shallbe made by an independent auditor (the “Auditor”) paid by the Company. The Auditor shallbe the Company’s regular independent auditor unless the Executive reasonably objects to the use ofthat firm, in which event the Auditor will be a nationally recognized United States publicaccounting firm chosen by the Parties.7.3. It is possible that after the determinations and selections made pursuant toSection 7.2 the Executive will receive 280G Benefits that are, in the aggregate, either more orless than the amount provided under Section 7.2 (hereafter referred to as an “ExcessPayment” or “Underpayment,” respectively). If it is established, pursuant to a finaldetermination of a court or an Internal Revenue Service proceeding that has been finally andconclusively resolved, that an Excess Payment has been made, then the Executive shall promptly payan amount equal to the Excess Payment to the Company, together with interest on such amount at theapplicable federal rate (as defined in and under Section 1274(d) of the Code) from the date of theExecutive’s receipt of such Excess Payment until the date of such payment. In the event that it isdetermined (x) by arbitration pursuant to Section 8.6, (y) by a court or (z) by the Auditor uponrequest by a Party, that an Underpayment has occurred, the Company shall promptly pay an amountequal to the Underpayment to the Executive, together with interest on such amount at the applicablefederal rate from the date such amount would have been paid to the Executive had the provisions ofSection 7.2 not been applied until the date of such payment.7.4. Notwithstanding the foregoing, if it appears that any amount or benefit that is tobe paid to the Executive under this Employment Agreement or any other plan, program, agreement, orarrangement of the Company or any of its affiliates may constitute a “parachute payment” underSection 280G(b)(2) of the Code, the Company shall use its best reasonable efforts to obtainshareholder approval of such payments for purposes of Section 280G(b)(5) of the Code.
 
 

 
Section 8.Miscellaneous.8.1. Indemnification. The Company shall indemnify the Executive to the fullest extentprovided under the Company’s limited liability company agreement and By-Laws, on the same terms andconditions as such indemnification is generally provided to the Company’s officers and directors,in the event that he was or is a party or is threatened to bemade a party to any threatened, pending or completed action, suit or proceeding, by reason ofthe fact that the Executive is or was a director, officer, employee or agent of the Company or anyof its affiliates; provided, however, that the Executive shall not be entitled toindemnification under this Section 8.1 relating to claims, actions, suits or proceedings arisingfrom his breach of this Employment Agreement. The Executive shall be covered under any directorsand officers insurance coverage maintained by the Company with respect to its executive officersfor periods following the Effective Date.8.2. Amendments and Waivers. This Employment Agreement and any of the provisionshereof may be amended, waived (either generally or in a particular instance and eitherretroactively or prospectively), modified or supplemented, in whole or in part, only by writtenagreement signed by the Parties that specifically identifies the provisions affected;provided, that the observance of any provision of this Employment Agreement may be waived,but only in a writing specifically identifying the provision to be so waived, by the Party thatwill lose the benefit of such provision as a result of such waiver. The waiver by either Party ofa breach of any provision of this Employment Agreement shall not operate or be construed as afurther or continuing waiver of such breach or as a waiver of any other or subsequent breach,except as otherwise explicitly provided for in such waiver. Except as otherwise expressly providedherein, no failure on the part of either Party to exercise, and no delay in exercising, any right,power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shalloperate as a waiver thereof, nor shall any single or partial exercise of such right, power orremedy by such Party preclude any other or further exercise thereof or the exercise of any otherright, power or remedy.8.3. Assignment. No rights or obligations of the Company under this EmploymentAgreement may be assigned or transferred by the Company except that such rights and obligations maybe assigned or transferred pursuant to a merger or consolidation, or the sale or liquidation of allor substantially all of the business and assets of the Company, provided that the assignee ortransferee is the successor to all or substantially all of the business and assets of the Companyand such assignee or transferee assumes the liabilities, obligations and duties of the Company, ascontained in this Employment Agreement, either contractually or as a matter of law. In the eventof any merger, consolidation, other combination, sale of business and assets, or liquidation asdescribed in the preceding sentence, the Company shall use its best reasonable efforts to causesuch assignee or transferee to promptly and expressly assume the liabilities, obligations andduties of the Company hereunder. The duties and covenants of Executive under this EmploymentAgreement, being personal, may not be assigned or delegated. All amounts that become payable tothe Executive hereunder shall, in the event of the Executive’s death, be paid to his beneficiary orbeneficiaries designated hereunder. The Executive shall be entitled, to the extent permitted underapplicable law, to select and change a beneficiary or beneficiaries to receive any compensation orbenefit hereunder following the Executive’s death by giving written notice thereof to the Company.
 
 

 
8.4. Notices. All notices, requests, demands, claims and other communicationsprovided for under the terms of this Employment Agreement shall be in writing. Any notice,request, demand, claim or other communication hereunder shall be sent by (i) personal delivery(including receipted courier service) or overnight delivery service, (ii) facsimile during normalbusiness hours, with confirmation of receipt, to the number indicated,(iii) reputable commercial overnight delivery service courier or (iv) registered or certifiedmail, return receipt requested, postage prepaid and addressed to the intended recipient as setforth below:       If to the Company: c/o Goldman Sachs Capital Partners[Redacted]         c/o Providence Equity Partners[Redacted]         Education Management LLC[Redacted]       with a copy to: Fried, Frank, Harris, Shriver & Jacobson, LLP[Redacted]       If to the Executive: John Kline, at his principal office at the Company (during the Term), and at all times to his principalresidence as reflected in the records of the Company.All such notices, requests, consents and other communications shall be deemed to have been givenwhen received. Either Party may change the facsimile numbers or addresses to which notices,requests, demands, claims and other communications to such Party are to be delivered by giving theother Party notice in the manner then set forth.8.5. Governing Law. Except as otherwise required by federal law, this EmploymentAgreement shall be construed and enforced in accordance with, and the rights and obligations of theParties shall be governed by, the laws of the State of New York, without giving effect to theconflicts of law principles thereof.
 
 

 
8.6. Arbitration. Other than with respect to provisions under Section 4 of thisEmployment Agreement, in the event of any dispute, controversy or claim between the Parties thatarises out of or relates to this Employment Agreement, the Executive’s employment with the Company,or any termination of such employment, then either Party may, by written notice to the other,require that such dispute, controversy or claim be submitted to arbitration in accordance with theCommercial Arbitration Rules of the American Arbitration Association (the “AAA”). The arbitrator or arbitrators shall be selected by agreement of the Partiesor, if they do not agree on an arbitrator or arbitrators within thirty (30) days after one Partyhas notified the other of his or its desire to have the matter settled by arbitration, then thearbitrator or arbitrators shall be selected by the AAA in New York, New York. The determinationreached in such arbitration shall be final and binding on the Parties without any right of appealor further dispute, except as otherwise required by applicable law. Unless otherwise agreed by theParties, any such arbitration shall take place in New York, New York.8.7. Severability. Whenever possible, each provision or portion of any provision ofthis Employment Agreement, including those contained in Section 4 hereof, will be interpreted insuch manner as to be effective and valid under applicable law but the invalidity orunenforceability of any provision or portion of any provision of this Employment Agreement in anyjurisdiction shall not affect the validity or enforceability of the remainder of this EmploymentAgreement in that jurisdiction or the validity or enforceability of this Employment Agreement,including that provision or portion of any provision, in any other jurisdiction. In addition,should a court or arbitrator determine that any provision or portion of any provision of thisEmployment Agreement, including those contained in Section 4 hereof, is not reasonable or valid,either in period of time, geographical area, or otherwise, the Parties agree that such provisionshould be interpreted and enforced to the maximum extent which such court or arbitrator deemsreasonable or valid.8.8. Entire Agreement. From and after the date hereof, this Employment Agreement, andthe other agreements being executed in connection herewith, constitute the entire agreement betweenthe Parties, and supersede all prior representations, agreements and understandings (including anyprior course of dealings), both written and oral, between the Parties with respect to the subjectmatter hereof, including, without limitation, the Original Employment Agreement, except withrespect to rights accrued as of the Effective Date (e.g., unpaid salary, unreimbursed businessexpenses, etc.). The terms of this Employment Agreement, and of the agreements of which forms areattached hereto, shall control over those of any inconsistent Company Arrangements with respect tothe subject matter hereof.8.9. Counterparts. This Employment Agreement may be executed in any number ofcounterparts, each of which shall be deemed an original, but all such counterparts shall togetherconstitute one and the same instrument. Signatures delivered by facsimile shall be effective forall purposes.8.10. Binding Effect. This Employment Agreement shall inure to the benefit of, and bebinding on, the successors and assigns of each of the Parties, to the extent provided herein. Inthe event of the Executive’s death or a judicial determination of his incompetence, references inthis Employment Agreement to the Executive shall be deemed, as appropriate, to be references to hisestate, beneficiaries, or legal representatives.8.11. General Interpretive Principles. The name assigned this Employment Agreementand headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this EmploymentAgreement are for convenience of reference only and shall not in any way affect the meaning orinterpretation of any of the provisions hereof. Words of inclusion shall not be construed as termsof limitation herein, so that references to “include,” “includes”and “including” shall not be limiting and shall be regarded as references to non-exclusive andnon-characterizing illustrations. Any reference to a Section of the Code shall be deemed toinclude any successor to such Section.
 
 

 
8.12. Mitigation/Offset. The Executive shall be under no obligation to seek otheremployment or to otherwise mitigate the obligations of the Company under this Employment Agreement,and there shall be no offset against amounts or benefits due Executive under this EmploymentAgreement or otherwise on account of any claim (other than any preexisting debts then due inaccordance with their terms) the Company or its affiliates may have against him or any remunerationor other benefit earned or received by Executive after such termination.IN WITNESS WHEREOF, the Parties have executed this Employment Agreement as of the date firstwritten above.             EDUCATION MANAGEMENT LLC               By: /s/ Todd S. Nelson   /s/ John R. Kline       Name:   JOHN R. KLINE, Individually     Title:  
 
 

 
Exhibit AWAIVER AND RELEASE OF CLAIMS1. In consideration of the payments and benefits to be made under the EmploymentAgreement, dated as of [DATE] (the “Employment Agreement”), to which John Kline (the“Executive”) and Education Management LLC (the “Company”) (each of the Executiveand the Company, a “Party” and collectively, the “Parties”) are parties, thesufficiency of which the Executive acknowledges, the Executive, with the intention of bindinghimself and his heirs, executors, administrators and assigns, does hereby release, remise, acquitand forever discharge the Company and each of its parents, subsidiaries and affiliates (the“Company Affiliated Group”), their present and former officers, directors, executives,shareholders, agents, attorneys, employees and employee benefit plans (and the fiduciariesthereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the“Company Released Parties”), of and from any and all claims, actions, causes of action,complaints, charges, demands, rights, damages, debts, sums of money, accounts, financialobligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law,equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whethernow known or unknown, suspected or unsuspected, which the Executive, individually or as a member ofa class, now has, owns or holds, or has at any time heretofore had, owned or held, arising on orprior to the date hereof, against any Company Released Party that arises out of, or relates to, theEmployment Agreement, the Executive’s employment with the Company, or any termination of suchemployment, including claims (i) for severance or vacation benefits, unpaid wages, salary orincentive payments, (ii) for breach of contract, wrongful discharge, impairment of economicopportunity, defamation, intentional infliction of emotional harm or other tort, (iii) for anyviolation of applicable state and local labor and employment laws (including, without limitation,all laws concerning unlawful and unfair labor and employment practices) and (iv) for employmentdiscrimination under any applicable federal, state or local statute, provision, order orregulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, theAmericans with Disabilities Act (“ADA”), the Executive Retirement Income Security Act of1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), andany similar or analogous state statute, excepting only: (A) rights of the Executive arising under, or preserved by, thisAgreement or Section 3 or Section 7 of the Employment Agreement; (B) the right of the Executive to receive COBRA continuationcoverage in accordance with applicable law; (C) claims for benefits under any health, disability, retirement,life insurance or other, similar employee benefit plan (within themeaning of Section 3(3) of ERISA) of the Company Affiliated Group; and (D) rights to indemnification the Executive has or may have under theby-laws, limited liability company agreement or certificate ofincorporation of any member of the Company Affiliated Group oras an insured under any director’s and officer’s liability insurancepolicy now or previously in force.
 
 

 
2. The Employee acknowledges and agrees that the release of claims set forth in thisAgreement is not to be construed in any way as an admission of any liability whatsoever by anyCompany Released Party, any such liability being expressly denied.3. The release of claims set forth in this Agreement applies to any relief no matterhow called, including, without limitation, wages, back pay, front pay, compensatory damages,liquidated damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees andexpenses.4. The Executive specifically acknowledges that his acceptance of the terms of therelease of claims set forth in this Agreement is, among other things, a specific waiver of hisrights, claims and causes of action under Title VII, ADEA, ADA and any state or local law orregulation in respect of discrimination of any kind; provided, however, thatnothing herein shall be deemed, nor does anything contained herein purport, to be a waiver of anyright or claim or cause of action which by law the Executive is not permitted to waive.5. As to rights, claims and causes of action arising under the ADEA, the Executiveacknowledges that he has been given but not utilized a period of twenty-one (21) days to considerwhether to execute this Agreement. If the Executive accepts the terms hereof and executes thisAgreement, he may thereafter, for a period of seven (7) days following (and not including) the dateof execution, revoke this Agreement as it relates to the release of claims arising under the ADEA.If no such revocation occurs, this Agreement shall become irrevocable in its entirety, and bindingand enforceable against the Executive, on the day next following the day on which the foregoingseven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeitany right to payment of the Severance Payment and/or Pro-Rata Annual Bonus Payment (as such termsare defined in the Employment Agreement), but the remainder of the Employment Agreement shallcontinue in full force.6. Other than as to rights, claims and causes of action arising under the ADEA, therelease of claims set forth in this Agreement shall be immediately effective upon execution by theExecutive.7. The Executive acknowledges and agrees that he has not, with respect to anytransaction or state of facts existing prior to the date hereof, filed any complaints, charges orlawsuits against any Company Released Party with any governmental agency, court or tribunal.8. The Executive acknowledges that he has been advised to seek, and has had theopportunity to seek, the advice and assistance of an attorney with regard to the release of claimsset forth in this Agreement, and has been given a sufficient period within which to consider therelease of claims set forth in this Agreement.9. The Executive acknowledges that the release of claims set forth in this Agreementrelates only to claims which exist as of the date of this Agreement.
 
 

 
10. The Executive acknowledges that the Severance Payment and/or Pro-Rata Annual BonusPayment he is receiving in connection with the release of claims set forth in this Agreement andhis obligations under this Agreement are in addition to anything of value to which the Executive isentitled from the Company.11. Each provision hereof is severable from this Agreement, and if one or moreprovisions hereof are declared invalid, the remaining provisions shall nevertheless remain in fullforce and effect. If any provision of this Agreement is so broad, in scope, or duration orotherwise, as to be unenforceable, such provision shall be interpreted to be only so broad as isenforceable.12. This Agreement constitutes the complete agreement of the Parties in respect of thesubject matter hereof and shall supersede all prior agreements between the Parties in respect ofthe subject matter hereof except to the extent set forth herein.13. The failure to enforce at any time any of the provisions of this Agreement or torequire at any time performance by another party of any of the provisions hereof shall in no way beconstrued to be a waiver of such provisions or to affect the validity of this Agreement, or anypart hereof, or the right of any party thereafter to enforce each and every such provision inaccordance with the terms of this Agreement.14. This Agreement may be executed in several counterparts, each of which shall bedeemed to be an original, but all of which together shall constitute one and the same instrument.Signatures delivered by facsimile shall be deemed effective for all purposes.15. This Agreement shall be binding upon any and all successors and assigns of theExecutive and the Company.16. Except for issues or matters as to which federal law is applicable, this Agreementshall be governed by and construed and enforced in accordance with the laws of the State of NewYork without giving effect to the conflicts of law principles thereof.[signature page follows]
 
 

 
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf ofeach of the Parties, all as of [_____].             EDUCATION MANAGEMENT LLC               By:           Name:   JOHN KLINE, Individually     Title:  
 
 

 
Exhibit BMATERIAL WRITTEN POLICIES1. Education Management Corporation Code of Business Ethics and Conduct2. Education Management Corporation Policy Statement on Inside Information and InsiderTrading