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                                                                   EXHIBIT 10.12

                             STOCK OPTION AGREEMENT

                                   PURSUANT TO

                           THE ADVISORY BOARD COMPANY

                  1997 STOCK-BASED INCENTIVE COMPENSATION PLAN

         THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made effective
as of ____________, 19__ (the "Effective Date"), between The Advisory Board
Company, a Maryland corporation (the "Company"), and ____________________ (the
"Optionee"), granting to the Optionee Options to purchase ________ Option Shares
at a purchase price of _________ per Option Share, as further described in
Section 2 hereinbelow.

                                 R E C I T A L S

         A.       The Company has adopted the 1997 Stock-Based Incentive
Compensation Plan (the "Plan"), a copy which is attached hereto as Exhibit "A".

         B.       In accordance with the Plan, the Committee is granting to the
Optionee, as of the Effective Date, Options to purchase shares of Stock (as
hereinafter defined), subject to the terms and conditions of the Plan and this
Option Agreement.

         C.       The Optionee acknowledges that he or she is an employee of the
Company with substantial knowledge concerning the performance, operations and
future opportunities relating to the Company. The Optionee further acknowledges
that he or she has been briefed on the past and potential future performance of
the Company by Jeffrey D. Zients, Michael D'Amato and/or other senior executives
of the Company, and that the Optionee had the opportunity to ask Jeffrey D.
Zients, Michael D'Amato and/or other senior executives of the Company whatever
questions the Optionee desired concerning the financial and operational
performance and expectations of the Company. Finally, the Optionee acknowledges
that all future operating results are impossible to predict and that no
representation is being made by the Company with respect to the accuracy or
completeness of any forecast regarding the future.

         D.     The Optionee acknowledges and agrees that (i) as of the
Effective Date, the Company is an S Corporation as defined in Section 1361 of
the Internal Revenue Code of 1986, as amended, and (ii) that the capitalization
of the Company will be as described below immediately following the Reverse
Stock Split:

                (1)     1,000 authorized shares of Class A Voting Common Stock,
                        par value $0.01 per share, of which 1,000 shares will be
                        issued to David G. Bradley;

                (2)     1,399,000 authorized shares of Class B Nonvoting Common
                        Stock (the "Stock"), par value $0.01 per share, of which
                        829,000 shares will be issued to David G. Bradley;

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                (3)     The maximum number of shares of Stock that may be
                        subject to Options granted pursuant to the Plan is
                        400,000.

Changes in the above capitalization (including increases or decreases in the
number of authorized shares of capital stock) and available options with respect
to the Company's capital stock may be made in the future. To the extent
applicable, Sections 8 and 9 of this Option Agreement may apply to further
adjustments to the above capitalization.

                                   AGREEMENTS

         1.     DEFINITIONS.  Capitalized terms used herein shall have the
following meanings:

         "Act" is defined in Section 6(a).

         "Approved Sale" means a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company. However, an
Approved Sale shall not include (i) an issuance by the Company of its own Stock,
or (ii) a gift of the stock of the Company.

         "Cash Shortage" is the condition that exists when, in the judgment of
the Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, stockholders' agreement,
agreement not to compete, substitution agreement or liquid markets agreement
entered into by the Company and any other obligation of the Company to its
employees; (ii) maintain sufficient cash reserves to pay unforeseeable costs
that may arise; and at the same time (iii) make payments to Optionee pursuant to
this Option Agreement.

         "Cause" for termination is the commission of an act of fraud, theft or
dishonesty against the Company; arrest or conviction for any felony; arrest or
conviction for any misdemeanor involving moral turpitude which might, in the
Company's opinion, cause embarrassment to the Company; misconduct; substance
abuse; insubordination; violation of Company policy; willful or repeated
non-performance or substandard performance of duties; violation of any District
of Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance Inconsistent with Past Levels of
Contribution, as defined below.

         "Chairman of the Board" means the Chairman of the Board of Directors of
the Company.

         "Committee" is defined in the Plan.

         "Company" is defined in the preamble.

         "Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work. The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm

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the existence of such incapacity or disability. The Chairman of the Board
reserves the right to define Disability in a more liberal manner.

         "Distribution" means distributions to Stockholders with respect to the
capital stock of the Company in the form of dividends, redemption payments,
liquidation payments, or other similar payment types.

         "Effective Date" is defined in the preamble.

         "Exercisability Date" is defined in Section 3.

         "Exercise Date" is defined in Section 5(a).

         "Exercise Price" is defined in Section 2.

         "Expiration Date" is defined in Section 4(a).

         "Expiration Event" is defined in Section 4.

         "Fair Market Value" means the fair market value determined by an
investment bank selected by the Company, in its sole and absolute discretion.
The investment bank shall use customary criteria generally employed within the
investment banking community for valuing the assets or capital stock of an
entity similar to the Company. With respect to the Options and the Option
Shares, Fair Market Value will be determined by applying such minority,
liquidity, or other discounts as may be applicable to minority shares of capital
stock of this type.

         "Fiscal Year" means the Company's fiscal year ending March 31 of each
year or such other date as shall be designated by the Company in its sole and
absolute discretion.

         "Full Recourse" means the right of the Company to recover against all
of the assets of the Optionee in the event of a default by the Optionee with
respect to the Note.

         "Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of the Company and the
completion of a sale of such stock thereunder, if as a result of such sale (i)
the issuer becomes a reporting company under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on
the New York Stock Exchange or the American Stock Exchange, or is quoted on the
NASDAQ National Market System.

         "Majority Shareholder" means a holder of more than fifty percent (50%)
of the outstanding stock of the Company, or if no person holds more than fifty
percent (50%) of the outstanding stock of the Company, the holder of a plurality
of the outstanding stock of the Company.

         "Market Rate" is a floating rate equal to the Prime Rate as quoted in
The Wall Street Journal and as adjusted from time to time but not to exceed 10%
per annum.

         "Net Proceeds" is defined in Section 3(b)(ii).

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         "Non-Competition Agreement" means that certain Agreement Concerning
Exclusive Services, Confidential Information, Business Opportunities,
Non-Competition, Non-Solicitation, and Work Product between the Optionee and the
Company.

         "Note" is defined in Section 5(a)(iii).

         "Option" or "Options" is defined in Section 2.

         "Option Agreement" is defined in the preamble.

         "Option Number" is defined in Section 2.

         "Optionee" is defined in the preamble.

         "Option Shares" means Stock subject to the Option.

         "Performance Inconsistent with Past Levels of Contribution" is any
neglect of, or refusal or inability to, perform the Optionee's duties or
responsibilities with respect to the Company with the same level of contribution
as in past periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Optionee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.

         "Plan" is defined in Recital A.

         "Redemption Date" is defined in Section 10(a).

         "Redemption Payment" is defined in Section 10(a).

         "Redemption Payment Period" is defined in Section 10(a).

         "Reverse Stock Split" means only the transaction or series of related
transactions following the grant of the Options in which the number of shares of
Stock issued to David G. Bradley will be reduced from 999,000 shares to 829,000
shares. Notwithstanding the foregoing, a Reverse Stock Split shall not mean any
stock issuances, reorganizations, recapitalizations, mergers, acquisitions,
stock splits, reverse stock splits, stock dividends or similar events in which
the number of shares of Stock issued to David G. Bradley shall be increased
above 829,000 shares or below 829,000 shares.

         "Spin-off Transaction" is defined in Recital B.

         "Stock" is defined in Recital D.

         "Stockholder" means a record holder of one or more shares of capital
stock of the Company.

         "Stockholders' Agreement" means the Stockholders' Agreement of the
Company setting forth, inter alia, certain rights, preferences and privileges of
and restrictions on the Option Shares. The Optionee must execute a copy of the
Stockholders' Agreement prior to receiving his

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or her Option Shares pursuant to the exercise of the Option. Unless the Optionee
duly executes a Stockholders' Agreement at the time of grant or prior to
exercise of the Options or the Company provides otherwise, if the Optionee has
previously executed a stockholders' agreement with respect to the prior grant or
exercise of stock options underwritten by the Company, such stockholders'
agreement (i) shall apply to any Option Shares issued by the Company pursuant to
this Option Agreement and (ii) shall be deemed the Stockholders' Agreement for
purposes this Option Agreement.

         "Termination Date" means the date on which the Optionee ceases to be
employed by the Company for any reason other than (i) for Cause, (ii) for death
or a Disability, or (iii) upon a Voluntary Resignation Date.

         "Undistributed Earnings" means, on any given date, the greater of (but
not less than zero): (i) the retained earnings (or similar entry) shown on the
audited financial statements of the Company for the prior Fiscal Year plus an
estimate by the Company of additions to or subtractions from such retained
earnings through such date of computation, and (ii) the "accumulated adjustments
account" (or similar computation) of the Company for the prior taxable year of
the Company pursuant to Section 1368(e) of the Internal Revenue Code of 1986, as
amended, plus an estimate by the Company of additions to or subtractions from
this account through such date of computation.

         "Voluntary Notice Date" means the date the Optionee gives notice of his
or her Voluntary Resignation Date.

         "Voluntary Resignation Date" means the date on which the Optionee
ceases employment with the Company for voluntary reasons. Voluntary Resignation
Date shall not include the date on which the Optionee ceases to be employed by
the Company due to death or a Disability.

         "Withholding Taxes" is defined in Section 11.

         2.     GRANT OF OPTION. The Company grants to the Optionee the right
and option (the "Option" or "Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate number of Option Shares
as described in the preamble (the outstanding amount of such unexercised and
unexpired Options herein referred to as the "Option Number"), at the purchase
price per Option Share as described in the preamble (as such amount may be
adjusted as herein provided, the "Exercise Price"), on the terms and conditions
set forth herein. These Options shall be treated as non-qualified stock options.

         3.     EXERCISABILITY.

         (a)    EXERCISABILITY DATE. Prior to an Initial Public Offering, the
Options shall be exercisable during the month of April beginning on ___________
(the "Exercisability Date") and during every month of July, October, January and
April thereafter, or at such other times after the Exercisability Date and prior
to an Initial Public Offering as determined by the Company in its sole and
absolute discretion. Prior to an Initial Public Offering and notwithstanding the
foregoing, if an investment bank is performing, or has performed, substantial
services for the Company to examine, investigate, and analyze the possibility,
feasibility, or viability of an Initial Public Offering within six (6) months of
a month during which the Options would otherwise

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become exercisable pursuant to this Section 3(a), the Chairman of the Board may,
in his sole and absolute discretion, make a determination that such Options
shall not be exercisable for such month and may designate some other month
(including the following month of January, April, July, or October, as
appropriate) for the exercise of the Options; provided, however, the Chairman of
the Board may not designate some other month for the exercise of the Options
pursuant to this Section 3(a) any later than the month of April beginning on
________________.

         (b)      OTHER EXERCISABLE EVENTS.  Notwithstanding anything to the
contrary in Section 3(a) above, the Options shall be exercisable upon the
occurrence of any of the following events prior to, on, or after, the
Exercisability Date:

                  (i) Approved Sale of Stock. Prior to an Initial Public
         Offering, in the event of an Approved Sale by the Majority Shareholder
         of one hundred percent (100%) of the Company's outstanding Stock held
         by such Majority Shareholder, the Options shall be exercisable on the
         date of such Approved Sale. However, if the Majority Shareholder sells
         less than one hundred percent (100%) of the Company's outstanding Stock
         held by such Majority Shareholder pursuant to an Approved Sale, the
         Optionee shall only be entitled to exercise the Options with respect to
         a number of Option Shares equal to the Option Number immediately prior
         to such Approved Sale multiplied by the fraction equal to the number of
         shares of the Company's outstanding Stock sold pursuant to the Approved
         Sale by such Majority Shareholder divided by the total number of shares
         of the Company's outstanding Stock held by such Majority Shareholder
         immediately prior to such Approved Sale.

                  (ii) Approved Sale of Assets. Prior to an Initial Public
         Offering, in the event of a Distribution by the Company that is funded
         with one hundred percent (100%) of the proceeds, after payment of
         related expenses (the "Net Proceeds") from an Approved Sale of one
         hundred percent (100%) of the Company's assets, the Options shall be
         exercisable on the date of such Distribution. For purposes of this
         Section 3(b)(ii), a Distribution made by the Company shall not be
         treated as a Distribution funded with the Net Proceeds from an Approved
         Sale of the Company's assets to the extent of the Company's
         Undistributed Earnings as of the Distribution date. However, if less
         than one hundred percent (100%) of the Net Proceeds from an Approved
         Sale of one hundred percent (100%) of the Company's assets is so
         distributed, the Optionee shall only be entitled on the date of the
         Distribution to exercise Options with respect to a number of Option
         Shares equal to the Option Number immediately prior to such
         Distribution multiplied by the percentage of the Net Proceeds from such
         Approved Sale that is so distributed by the Company. If less than one
         hundred percent (100%) of the Company's assets is sold pursuant to an
         Approved Sale and all or some portion of the Net Proceeds from such
         Approved Sale is so distributed, the Optionee shall be entitled on the
         date of Distribution to exercise Options with respect to a number of
         Option Shares equal to the Option Number immediately prior to such
         Distribution multiplied by the product of (A) the percentage, based on
         Fair Market Value, of the Company's assets sold pursuant to such
         Approved Sale, and (B) the percentage of the Net Proceeds from such
         Approved Sale that is so distributed by the Company.

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                  (iii)  Initial Public Offering.  In the event of an Initial
         Public Offering of the Company's Stock, the Options shall be
         exercisable as follows:

                           (A) as of the date ___________ years after the
                  Initial Public Offering or such earlier date(s) as the
                  Chairman of the Board shall designate in his sole and absolute
                  discretion, ___________ of the Option Number as of the date of
                  the Initial Public Offering; and

                           (B) as of the date ___________ years after the
                  Initial Public Offering or such earlier date(s) as the
                  Chairman of the Board shall designate in his sole and absolute
                  discretion, ___________ of the Option Number as of the date of
                  the Initial Public Offering.

         (c)    DETERMINATION OF EXERCISABLE OPTIONS. The good faith
determination by the Company of the number of Options that may be exercisable by
the Optionee pursuant to Sections 3(b)(i), (ii) and (iii) above shall be binding
upon the Optionee.

         4.     EXPIRATION. The number of Option Shares that the Optionee is
entitled to purchase pursuant to the Options shall be decreased by the number of
Option Shares purchased by the Optionee on any given date. In addition, as
described below, some or all of the Options shall expire and shall no longer be
exercisable, at the end of the day upon which ANY of the following events occurs
(each an "Expiration Event"):

         (a)    EXPIRATION DATE. Upon _____________ (the "Expiration Date"), the
Options shall expire. Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to Expiration Date, the Options shall expire the later of
three (3) years and thirty (30) days after the Initial Public Offering or the
Expiration Date.

         (b)    TERMINATION BY THE COMPANY. Prior to an Initial Public Offering,
(i) the Options shall all expire as of the date the Optionee ceases to be
employed by the Company for Cause; or (ii) the Options shall all expire as of
the Termination Date provided such date occurs prior to the Exercisability Date.

         (c)    VOLUNTARY RESIGNATION BY THE OPTIONEE. Prior to an Initial
Public Offering, the Options shall all expire on the Voluntary Notice Date if
(i) the Voluntary Notice Date occurs less than ten (10) months prior to the
Voluntary Resignation Date; or (ii) the Voluntary Resignation Date occurs prior
to ____________.

         (d)    APPROVED SALE OF STOCK. Prior to an Initial Public Offering, the
Options shall all expire upon an Approved Sale by the Majority Shareholder of
one hundred percent (100%) of the Company's outstanding stock held by such
Majority Shareholder. However, if the Majority Shareholder sells less than one
hundred percent (100%) of the Company's outstanding stock held by such Majority
Shareholder pursuant to an Approved Sale, the number of Options that shall
expire shall be equal to the amount by which the Option Number immediately prior
to such Approved Sale multiplied by the fraction equal to the number of shares
of the Company's outstanding Stock sold pursuant to the Approved Sale by such
Majority Shareholder divided by the total number of shares of the Company's
outstanding Stock held by such Majority

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Shareholder immediately prior to such Approved Sale exceeds the number of Option
Shares purchased by the Optionee on the date of such Approved Sale.

         (e)    APPROVED SALE OF ASSETS. Prior to an Initial Public Offering,
the Options shall all expire upon a Distribution by the Company that is funded
with one hundred percent (100%) of the Net Proceeds from an Approved Sale of one
hundred percent (100%) of the Company's assets. For purposes of this Section
4(e), a Distribution made by the Company shall not be treated as a Distribution
funded with the Net Proceeds from an Approved Sale of the Company's assets to
the extent of the Company's Undistributed Earnings as of the date of the
Distribution. However, if less than one hundred percent (100%) of the Net
Proceeds from an Approved Sale of one hundred percent (100%) of the Company's
assets is so distributed, the number of Options that shall expire shall be equal
to the amount by which the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale that is
so distributed by the Company exceeds the number of Option Shares purchased by
the Optionee on the date of such Distribution. If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all or
some portion of the Net Proceeds from such Approved Sale is so distributed, the
number of Options that shall expire shall be equal to the amount by which the
Option Number immediately prior to such Distribution multiplied by the product
of (i) the percentage, based on Fair Market Value, of the Company's assets sold
pursuant to such Approved Sale, and (ii) the percentage of the Net Proceeds from
such Approved Sale that is so distributed by the Company, exceeds the number of
Option Shares purchased by the Optionee on the date of such Distribution.

         (f)    INITIAL PUBLIC OFFERING. In the event of an Initial Public
Offering, the Options shall expire as of the Voluntary Resignation Date or the
date on which the Optionee ceases to be employed by the Company for Cause. Any
portion of the Option that is unexercisable as of the expiration date shall
remain unexercisable and shall also terminate as of such date. If, within three
(3) years after an Initial Public Offering, the Optionee is terminated by the
Company other than for Cause or ceases employment as a result of death or a
Disability, the Options shall expire as of the date three (3) years and thirty
(30) days after the date of the Initial Public Offering. Notwithstanding
anything in this subsection (f) to the contrary and except as otherwise provided
in Section 4(a) above, if three (3) years has elapsed since the Initial Public
Offering, the Option shall expire as of the date thirty (30) days after the date
on which the Optionee ceases to be employed by the Company for any reason other
than death or a Disability.

         5.     EXERCISE OF THE OPTION.

         (a)    Prior to the expiration thereof, the Optionee may exercise the
Options from time to time in whole or in part as permitted hereunder (the
"Exercise Date"). On the Exercise Date, the Optionee shall deliver to the
Chairman of the Board the following:

                (i)  A copy of the Stockholders' Agreement duly executed by the
         Optionee;

                (ii) A written and signed notice of such election setting
         forth the number of Option Shares the Optionee has elected to purchase;

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                (iii) Payment in full of the aggregate Exercise Price of such
         Option Shares in one or a combination of the following: (A) cash or a
         cashier's or certified bank check payable to the order of the Company,
         or (B) prior to an Initial Public Offering, a Full Recourse promissory
         note, in a form determined by the Company in its sole and absolute
         discretion (the "Note"), secured by the number of Option Shares the
         Optionee has elected to purchase, bearing a Market Rate of interest,
         and due and payable the earlier of the date the Optionee disposes of
         all or a portion of his or her Stock securing the Note, or the date six
         (6) months after the Exercise Date or such later date as the Company
         determines in its sole and absolute discretion; and

                (iv)  The amount, if any, required pursuant to Section 11
         hereof.

         (b)    Notwithstanding anything in Section 5(a) to the contrary, the
Committee may, in its sole and absolute discretion, permit payment of the
Exercise Price in such form or in such manner as may be otherwise permissible
under the Plan and under any applicable law.

         (c)    If the Optionee provides payment as provided in Section
5(a)(iii)(B) above, the Optionee agrees to execute and deliver such other
documents as may be reasonably required by the Company to effectuate and secure
the Note. If a Voluntary Notice Date occurs less than ten (10) months prior to a
Voluntary Resignation Date, the Note, together with any accrued interest
thereon, shall be immediately payable upon the earlier of the due date of the
Note or the Voluntary Resignation Date.

         (d)    At least ten (10) days prior to an Approved Sale, the Company is
obligated to notify each Optionee who is entitled to exercise his or her Options
upon such Approved Sale. In the event the Company fails to provide such notice
and an Optionee's Options have positive value, the Optionee shall be deemed to
have exercised his or her Options on the date of the Approved Sale pursuant to
this Section 5.

         6.     COMPLIANCE WITH LEGAL REQUIREMENTS.

         (a)    No Option Shares shall be issued or transferred pursuant to this
Option Agreement unless and until all legal requirements applicable to such
issuance or transfer have, in the opinion of counsel to the Company, been
satisfied. Such requirements may include, but are not limited to, registering or
qualifying such Option Shares under any state or federal law, satisfying any
applicable law relating to the transfer of unregistered securities or
demonstrating the availability of an exemption from applicable laws, placing a
legend on the Option Shares to the effect that they were issued in reliance upon
an exemption from registration under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred other than in reliance upon Rule 144 or Rule
701 promulgated under the Act, if available, or upon another exemption from the
Act, or obtaining the consent or approval of any governmental regulatory body.

         (b)    The Optionee understands that the Company intends for the
offering and sale of Option Shares to be effected in reliance upon Rule 701 or
another available exemption from registration under the Act and intends to file
a Form 701 as appropriate, and that the Company is under no obligation to
register for resale the Option Shares issued upon exercise of the Option,
subject to the Stockholders' Agreement. In connection with any such issuance or
transfer, the

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person acquiring the Option Shares shall, if requested by the Company, provide
information and assurances satisfactory to counsel to the Company with respect
to such matters as the Company reasonably may deem desirable to assure
compliance with all applicable legal requirements.

         (c)    The Option Shares issued pursuant to this Option Agreement may
bear such legends with respect to their transferability that the Committee may
deem appropriate.

         7.     NONTRANSFERABILITY. Subject to Sections 8 and 10 hereof, the
Option shall not be transferable by the Optionee except, after the Optionee's
death, to his or her spouse, child, estate, personal representative, heir or
successor. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred (except as aforesaid),
pledged or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment or similar process. Any
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any attachment or similar
process upon the Option that would otherwise effect a change in the ownership of
the Option, shall terminate the Option; provided, however, that in the case of
the involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Option Agreement shall
be binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section.

         8.     EFFECT OF MERGER; ADJUSTMENTS.

         (a)    In the event of an Approved Sale that is a merger or other form
of corporate reorganization (other than the Reverse Stock Split) and
notwithstanding any other provisions of this Option Agreement, the unexercised
portion of the Option shall be subject to the terms of the agreement or plan of
merger or reorganization effecting such merger or reorganization and shall be
converted, redeemed, exchanged, canceled or otherwise treated as provided in
such agreement or plan of merger or reorganization.

         (b)    Subject to Section 8(a) above, if the shares of the Stock are
changed into or exchanged for a different number or kind of shares or
securities, as the result of any one or more reorganizations, recapitalizations,
mergers, acquisitions, stock splits, reverse stock splits, stock dividends or
similar events (other than the Reverse Stock Split), an appropriate adjustment
shall be made in the number and kind of shares or other securities subject to
the Option, and the price for each share or other unit of any securities subject
to this Option Agreement, in accordance with Section 10 of the Plan. No
fractional interests shall be issued on account of any such adjustment unless
the Committee specifically determines to the contrary; provided, however, that
in lieu of fractional interests, the Optionee, upon the exercise of the Option
in whole or part, shall receive cash in an amount equal to the amount by which
the Fair Market Value of such fractional interests exceeds the Exercise Price
attributable to such fractional interests.

         9.       ADJUSTMENTS AND DILUTION.

         (a)    If the capitalization of the Company changes as the result of
one or more stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications, mergers, consolidations or similar events
(other than the Reverse Stock Split), an appropriate

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adjustment shall be made in the number and kind of shares or other securities
subject to the Option, and the price for each share or other unit of any
securities subject to this Option Agreement, in accordance with Section 10 of
the Plan. No fractional interests shall be issued on account of any such
adjustment unless the Committee specifically determines to the contrary;
provided, however, that in lieu of fractional interests, the Optionee, upon the
exercise of the Option in whole or part, shall receive cash in an amount equal
to the amount by which the Fair Market Value of such fractional interests
exceeds the Exercise Price attributable to such fractional interests.

         (b)    Except as may be specifically provided in this Option Agreement,
nothing herein shall prohibit or restrict the Company from taking any corporate
action or engaging in any corporate transaction of any kind, including, without
limitation, the issuance and sale of additional shares of capital stock of the
Company, any merger, consolidation, liquidation or sale of assets, or create in
Optionee or his or her permitted transferee any rights to acquire or receive
additional shares of capital stock of the Company or otherwise be protected
against dilution.

         10.    RIGHT OF REDEMPTION OF OPTIONS.

         (a)    Prior to an Initial Public Offering of the Stock of the Company
and notwithstanding anything in Section 7 above to the contrary, the Company
shall have the right, on or after the Exercisability Date and in its sole and
absolute discretion, to redeem, in whole, the Option granted by this Option
Agreement, and the Optionee shall be obligated to sell, in whole, the Option as
required by the Company's exercise of this right. The redemption of the Option
shall be effective as of the date of such redemption (the "Redemption Date").
Payment for the redeemed Option (the "Redemption Payment") shall be made by
means of the payment to the Optionee by the Company of the Fair Market Value
(determined as of the Redemption Date) of such Option in cash or by check as of
the date one (1) year after the Redemption Date or such earlier date(s) as the
Company may designate in its sole and absolute discretion (the "Redemption
Payment Period"). No interest shall accrue on any portion of the Redemption
Payment due and outstanding during the Redemption Payment Period.

         (b)    Notwithstanding anything to the contrary in Section 10(a) above,
as of the end of the Redemption Payment Period, payment of any due and
outstanding portion of the Redemption Payment shall be delayed if the Company
determines it is suffering from a Cash Shortage. Any outstanding portion of a
Redemption Payment that would otherwise be due and payable during a period of
Cash Shortage shall be delayed for a period of six (6) months, after which time
the Company shall either make any payment that has been delayed, or determine
that the Company continues to suffer from a Cash Shortage. Interest shall accrue
at Market Rate during any period of delay due to this Section 10(b).

         (c)    Notwithstanding anything in this Section 10 to the contrary, if
a Voluntary Notice Date occurs less than ten months (10) prior to a Voluntary
Resignation Date, any portion of the Redemption Payment outstanding as of the
Voluntary Resignation Date, together with any accrued and unpaid interest
thereon, shall be forfeited by the Optionee, and the Company shall have no
further liability with respect to such outstanding portion and such accrued
interest, if any.

                                       11
<PAGE>   12

         11.    TAXES. The Committee may, in its discretion, make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law to be
withheld with respect to the exercise of the Option or the redemption of the
Option (the "Withholding Taxes") including, but not limited to, deducting the
amount of any such withholding taxes from any other amount then or thereafter
payable to the Optionee, requiring the Optionee to pay to the Company the amount
required to be withheld or to execute such documents as the Committee deems
necessary or desirable to enable it to satisfy its obligations with respect to
the Withholding Taxes. With the consent of the Company, the Optionee may
authorize the Company to withhold a sufficient number of the shares of Stock
otherwise issuable to the Optionee on the Exercise Date as payment of his or her
obligation with respect to the Withholding Taxes (such shares to be valued on
the basis of the Fair Market Value of the Stock of the Company on the Exercise
Date).

         12.    NO INTEREST IN SHARES SUBJECT TO OPTION. Neither the Optionee
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of Stock allocated or reserved for the purpose of
the Plan or subject to this Option Agreement except as to such Option Shares, if
any, as shall have been issued to such person upon exercise of the Option or
portion thereof.

         13.    SUBJECT TO STOCKHOLDERS' AGREEMENT.  The Optionee acknowledges
that the Option Shares are subject to the terms of the Stockholders' Agreement.

         14.    THE PLAN CONTROLS. The Option hereby granted is subject to, and
the Company and the Optionee agree to be bound by, all of the terms and
conditions of the Plan as the same may be amended from time to time in
accordance with the terms thereof, but no such amendment shall be effective as
to the Option without the Optionee's consent insofar as it may adversely affect
the Optionee's rights under this Option Agreement.

         15.    NOT AN EMPLOYMENT CONTRACT. Nothing in the Plan, in this Option
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to continue in the employ of the Company nor shall affect
the right of the Company to terminate the employment of the Optionee with or
without Cause.

         16.    SUBJECT TO AGREEMENT NOT TO COMPETE.  The Optionee acknowledges
that the execution of the Agreement Not to Compete attached hereto is a
condition precedent to the receipt of any rights or benefits conferred on the
Optionee by this Option Agreement.

         17.    NOTICES. All notices, requests, demands and other communications
pursuant to this Option Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if the Company at its principal
executive offices addressed to the attention of the Chairman of the Board, and
if to Optionee at his or her address as it appears on the books of the Company
(or at such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).

                                       12
<PAGE>   13

         18.    BINDING EFFECT.  This Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors and assigns.

         19.    ENTIRE OPTION AGREEMENT. This Option Agreement, together with
the Plan, the Stockholders' Agreement and the Non-Competition Agreement, sets
forth the entire agreement and understanding between the parties as to the
subject matter hereof (including, but not limited to, any rights of the Optionee
to any value or appreciation in value of the Company or its capital stock) and
supersedes all prior oral and written and all contemporaneous oral discussions,
agreements and understandings of any kind or nature.

         20.    AMENDMENTS AND WAIVERS.  This Option Agreement may be amended,
and any provision hereof may be waived, only by a writing signed by the party to
be charged.

         21.    FURTHER ASSURANCES.  Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Option Agreement.

         22.    ACTIONS BY THE COMPANY. Any reference within this Option
Agreement to an action, judgment, conclusion, or determination by the Company
shall mean an action, judgment, conclusion, or determination of the Board of
Directors of the Company or its authorized representative(s).

         23.    HEADINGS.  The headings preceding the text of the sections
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Option Agreement, nor shall they affect its meaning,
construction or effect.

         24.    GOVERNING LAW.  All terms of and rights under this Option
Agreement shall be governed by and construed in accordance with the internal law
of the State of Maryland, without giving effect to principles of conflicts of
law.

         25.    ARBITRATION. The parties shall endeavor to settle all disputes
by amicable negotiations. Any claim, dispute, disagreement or controversy that
arises among the parties relating to this Option Agreement (excluding
enforcement by the Company of its rights under the Non-Competition Agreement)
that is not amicably settled shall be resolved by arbitration, as follows:

         (a)    Any such arbitration shall be heard in the District of Columbia,
before a panel consisting of one (1) to three (3) arbitrators, each of whom
shall be impartial. Except as the parties may otherwise agree, all arbitrators
shall be appointed in the first instance by the appropriate official in the
District of Columbia office of the American Arbitration Association or, in the
event of his or her unavailability by reason of disqualification or otherwise,
by the appropriate official in the New York City office of the American
Arbitration Association. In determining the number and appropriate background of
the arbitrators, the appointing authority shall give due consideration to the
issues to be resolved, but his or her decision as to the number of arbitrators
and their identity shall be final. Except as otherwise provided in this Section
25, all of the arbitration proceedings shall be conducted in accordance with the
rules of the arbitrators.

                                       13
<PAGE>   14

         (b)    An arbitration may be commenced by any party to this Option
Agreement by the service of a written request for arbitration upon the other
affected parties. Such request for arbitration shall summarize the controversy
or claim to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter. If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth below.

         (c)    All attorneys' fees and costs of the arbitration shall in the
first instance be borne by the respective party incurring such costs and fees,
but the arbitrators shall have the discretion to award costs and/or attorneys'
fees as they deem appropriate under the circumstances. The parties hereby
expressly waive punitive damages, and under no circumstances shall an award
contain any amount that in any way reflects punitive damages.

         (d)    Judgment on the award rendered by the arbitrators may be entered
 in any court having jurisdiction thereof.

         (e)    It is intended that controversies or claims submitted to
arbitration under this Section 25 shall remain confidential, and to that end it
is agreed by the parties that neither the facts disclosed in the arbitration,
the issues arbitrated, nor the views or opinions of any persons concerning them,
shall be disclosed to third persons at any time, except to the extent necessary
to enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.

         IN WITNESS WHEREOF, the parties have executed this Option Agreement as
of the dates set forth below.

                                            THE ADVISORY BOARD COMPANY

                                            By:
                                                   -----------------------------

                                            Name:  -----------------------------

                                            Title: -----------------------------

                                            Date:  -----------------------------

                                            OPTIONEE

                                            Signature:
                                                      --------------------------

                                            Date:
                                                  ------------------------------

                                       14<PAGE>   1
                                                                   EXHIBIT 10.13

                           THE ADVISORY BOARD COMPANY
                  2001 STOCK-BASED INCENTIVE COMPENSATION PLAN

1.      PURPOSE

        The purpose of The Advisory Board Company 2001 Stock-Based Incentive
        Compensation Plan (the "Plan") is to provide Participants with an
        increased economic and proprietary interest in the Company in order to
        encourage those Participants to contribute to the success and progress
        of the Company. The Plan provides for the grant of Options which shall
        qualify as incentive stock options, as defined in Section 422 of the
        Internal Revenue Code of 1986, as amended (the "Code"), and for the
        grant of Options which shall not qualify as incentive stock options
        pursuant to Section 422 of the Code.

2.      DEFINITIONS

        (a)     "Administrator" means the Administrator of the Plan in
        accordance with Section 11.

        (b)     "Board of Directors" means the Board of Directors of the
        Company.

        (c)     "Common Stock" means the Company's Class B Non-Voting Common
        Stock, par value $.01, subject to adjustment as provided in Section 8.

        (d)     "Company" means The Advisory Board Company, a Maryland
        corporation.

        (e)     "ISOs" shall mean Options which qualify as incentive stock
        options within the meaning of Section 422 of the Code.

        (f)     "Options" shall mean stock options granted pursuant to the
        Plan.

        (g)     "Participants" shall mean those individuals described in Section
        3 to whom Options have been granted from time to time by the
        Administrator and any authorized transferee of such individuals.

        (h)     "Plan" means The Advisory Board Company 2001 Stock-Based
        Incentive Compensation Plan.

        (i)     "Retirement" shall have the meaning specified by the
        Administrator in the terms of an option grant or, in the absence of any
        such term, shall mean retirement from active employment with the Company
        or its Subsidiaries (i) at or after age 55 and with the approval of the
        Administrator or (ii) at or after age 65. The determination of the
        Administrator as to an individual's Retirement shall be conclusive on
        all parties.

        (j)     "Subsidiary" means any corporation (other than the Company) in
        an unbroken chain of corporations beginning with the Company where each
        of the corporations in the unbroken chain other than the last
        corporation owns stock possessing at

                                       1
<PAGE>   2

        least 50 percent or more of the total combined  voting power of all
        classes of stock in one of the other corporations in the chain.

        (k)     "Total and Permanent Disablement" shall have the meaning
        specified by the Administrator in the terms of an option grant or, in
        the absence of any such term or in the case of an Option intending to
        qualify as an ISO, the inability to engage in any substantial gainful
        activity by reason of any medically determinable physical or mental
        impairment which can be expected to result in death or which has lasted
        or can be expected to last for a continuous period of not less than 12
        months. The determination of the Administrator as to an individual's
        Total and Permanent Disablement shall be conclusive on all parties.

3.      PARTICIPANTS

        Options may only be granted to officers, independent contractors,
        employees and prospective employees of the Company and its Subsidiaries
        as selected by the Administrator, except that Options intending to
        qualify as ISOs may only be granted to employees of the Company and its
        Subsidiaries as selected by the Administrator. For purposes of this
        Plan, the Chairman of the Board's status as an employee shall be
        determined by the Board of Directors. Options may not be granted to
        directors of the Company or its Subsidiaries unless such directors
        otherwise qualify for participation in the Plan.

4.      EFFECTIVE DATE AND TERMINATION OF PLAN

        This Plan was adopted by the Board of Directors and approved by the
        stockholders of the Company on June 1, 2001 (the "Effective Date"). The
        Plan shall remain available for the grant of Options until the tenth
        anniversary of the Effective Date. Notwithstanding the foregoing, the
        Plan may be terminated at such earlier time as the Board of Directors
        may determine. Termination of the Plan will not affect the rights and
        obligations of the Participants and the Company arising under Options
        theretofore granted and then in effect.

5.      SHARES SUBJECT TO THE PLAN AND TO OPTIONS

        The aggregate number of shares of Common Stock issuable pursuant to all
        Options granted under the Plan will not exceed 3,500,000 shares of the
        Company's Common Stock, or the number and kind of shares of stock or
        other securities which shall be substituted or adjusted for such shares
        as provided in Section 8. Notwithstanding the foregoing, in the event
        that shares of Common Stock subject to the Company's 1997 Stock-Based
        Incentive Compensation Plan, as amended and restated on October 31, 1997
        (the "Incentive Plan"), are canceled, expire or terminate or that
        otherwise are available for issuance but for any other reason are not
        issued under the Incentive Plan, then the number of shares of Common
        Stock authorized for issuance under the Plan shall be increased
        accordingly. Such shares may be authorized and unissued shares of the
        Company's Common Stock. The aggregate number of shares of Common Stock
        issued pursuant to the Plan at any time shall equal only the number of
        shares of Common Stock issued upon

                                       2
<PAGE>   3

        the exercise of Options and not returned to the Company upon the
        cancellation, expiration or forfeiture of an award or delivered (either
        actually or by attestation) in payment or satisfaction of the purchase
        price or tax obligation with respect to an Option. All shares of Common
        Stock available for issuance under the Plan may be subject to Options
        which intend to qualify as ISOs.

6.      GRANT, TERMS AND CONDITIONS OF OPTIONS

        Options may be granted at any time and from time to time prior to the
        termination of the Plan, to Participants selected by the Administrator.
        The aggregate number of shares of Common Stock subject to Options
        granted pursuant to the Plan during any calendar year to any one
        Participant shall not exceed 200,000 shares. No Participant shall have
        any rights as a stockholder with respect to any shares of stock subject
        to Option hereunder until said shares have been issued. Each Option
        shall be evidenced by a written stock option agreement and/or such other
        written arrangements as may be approved from time to time by the
        Administrator. Options granted pursuant to the Plan need not be
        identical but each Option must contain and be subject to the following
        terms and conditions:

        (a)     Price:  The purchase price under each Option shall be
                established by the Administrator.  In no event will the
                purchase price be less than the fair market value of the Common
                Stock on the date of grant unless such Options are granted in
                substitution of options granted by a new employee's previous
                employer or the Participant pays or foregoes compensation in the
                amount of any discount. Notwithstanding the foregoing, in the
                case of the grant of an Option intending to qualify as an ISO,
                if the Participant owns stock possessing more than 10 percent of
                the combined voting power of all classes of stock of the Company
                or its Subsidiaries (after applying the ownership attribution
                rules set forth under Section 422(d) of the Code and any
                successor provision), the purchase price of such Option must be
                no less than 110 percent of the fair market value of the Common
                Stock on the date of grant.

                The purchase price of any Option may be paid in cash or any
                alternative means acceptable to the Administrator, including an
                irrevocable commitment by a broker to pay over such amount from
                a sale of the shares issuable under an Option and the acceptance
                of a promissory note secured by the number of shares of Common
                Stock then issuable upon exercise of the Options.

        (b)     Duration and Exercise or Termination of Option:  The date on
                which Options become exercisable shall be determined at the sole
                discretion of the Administrator. Unless the Administrator
                provides otherwise, or if the Option is intending to qualify as
                an ISO, each Option granted must expire within a period of not
                more than ten (10) years from the date of grant. Notwithstanding
                the foregoing, in the case of the grant of an Option intending
                to qualify as an ISO, if the Participant owns stock possessing
                more than 10 percent of the combined voting power of all classes
                of stock of the Company or its Subsidiaries (after applying the
                ownership attribution rules set forth under Section 422(d) of
                the

                                       3
<PAGE>   4

                Code and any successor provision), the Option must expire
                within a period of not more than five (5) years from the date of
                grant.

        (c)     Suspension or Termination of Option:  Except as otherwise
                provided by the Administrator, if at any time (including after a
                notice of exercise has been delivered) the Chief Executive
                Officer or any other person designated by the Administrator
                (each such person, an "Authorized Officer") reasonably believes
                that a Participant has committed an act of misconduct as
                described in this Section, the Authorized Officer may suspend
                the Participant's rights to exercise any Option pending a
                determination of whether an act of misconduct has been
                committed.

                Except as otherwise provided by the Administrator, if the
                Administrator or an Authorized Officer determines a Participant
                has committed an act of embezzlement, fraud, dishonesty,
                nonpayment of any obligation owed to the Company or its
                Subsidiaries, breach of fiduciary duty or deliberate disregard
                of the Company or Subsidiary rules resulting in loss, damage or
                injury to the Company or its Subsidiaries, or if a Participant
                makes an unauthorized disclosure of any Company or Subsidiary
                trade secret or confidential information, engages in any conduct
                constituting unfair competition, induces any Company or
                Subsidiary customer to breach a contract with the Company or its
                Subsidiaries, or induces any principal for whom the Company or
                its Subsidiaries acts as agent to terminate such agency
                relationship, neither the Participant nor his or her estate nor
                transferee shall be entitled to exercise any Option whatsoever.
                In making such determination, the Administrator or an Authorized
                Officer shall act fairly and shall give the Participant an
                opportunity to appear and present evidence on his or her behalf
                at a hearing before the Administrator or the Board of Directors.
                For any Participant who is an "executive officer" for purposes
                of Section 16 of the Securities Exchange Act of 1934, the
                determination of the Authorized Officer shall be subject to the
                approval of the Administrator.

        (d)     Termination of Employment: Subject to Section 6(b), unless the
                Administrator specifies otherwise, upon the termination of the
                Participant's employment, his or her rights to exercise an
                Option then held shall be only as follows:

                (1)     Death.  Upon the death of a Participant while in the
                        employ of the Company or its Subsidiaries, all of the
                        Participant's Options then held shall be exercisable by
                        his or her estate, heir or beneficiary at any time
                        during the twelve (12) months next succeeding the date
                        of death. Any and all Options that are unexercised
                        during the twelve (12) months next succeeding the date
                        of death shall terminate as of the end of such twelve
                        (12) month period.

                        If a Participant should die within thirty (30) days of
                        his or her termination of employment with the Company or
                        its Subsidiaries, an Option shall be exercisable by his
                        or her estate, heir or beneficiary at any time during
                        the twelve (12) months succeeding the date of
                        termination, but only to the extent of the number of
                        shares as to which such Option was exercisable as

                                       4
<PAGE>   5

                        of the date of such termination. Any and all Options
                        that are unexercised during the twelve (12) months
                        succeeding the date of termination shall terminate as of
                        the end of such twelve (12) month period. A
                        Participant's estate shall mean his or her legal
                        representative or other person who so acquires the right
                        to exercise the Option by bequest or inheritance or by
                        reason of the death of the Participant.

                (2)     Total and Permanent Disablement. Upon termination as a
                        result of the Total and Permanent Disablement of any
                        Participant, all of the Participant's Options then held
                        shall be exercisable for a period of twelve (12) months
                        after termination. Any and all Options that are
                        unexercised during the twelve (12) months succeeding the
                        date of termination shall terminate as of the end of
                        such twelve (12) month period.

                (3)     Retirement.  Upon Retirement of a Participant, the
                        Participant's Options then held shall be exercisable for
                        a period of twelve (12) months after Retirement, except
                        in the case of Options intending to qualify as ISOs,
                        such Options shall be exercisable for a period of three
                        (3) months after Retirement. The number of shares with
                        respect to which the Options shall be exercisable shall
                        equal the total number of shares which were exercisable
                        under the Participant's Option on the date of his or her
                        Retirement. Any and all Options that are unexercised
                        during the twelve (12) months or three (3) months (as
                        appropriate) succeeding the date of termination shall
                        terminate as of the end of such twelve (12) or three (3)
                        month period.

                (4)     Other Reasons.  Upon the date of a termination of a
                        Participant's employment for any reason other than those
                        stated above in Sections 6(d)(1), (d)(2) and (d)(3) or
                        as described in Section 6(c) above, (A) any Option that
                        is unexercisable as of such termination date shall
                        remain unexercisable and shall terminate as of such
                        date, and (B) any Option that is exercisable as of such
                        termination date shall expire the earlier of (i) ninety
                        (90) days following such date or (ii) the expiration
                        date of such Option.

        (e)     Transferability of Option: Unless the Administrator specifies
                otherwise, each Option shall be nontransferable by the
                Participant other than by will or the laws of descent and
                distribution and shall only be exercisable by the Participant
                during his or her lifetime.

        (f)     Cancellation: The Administrator may, at any time prior to
                exercise and subject to consent of the Participant, cancel any
                Options previously granted and may or may not substitute in
                their place Options at a different price and different type
                under different terms or in different amounts.

        (g)     Conditions and Restrictions Upon Securities Subject to Options:
                The Administrator may provide that the shares of Common Stock
                issued upon exercise

                                       5
<PAGE>   6

                of an Option shall be subject to such further conditions or
                agreements as the Administrator in its sole discretion may
                specify prior to the exercise of such Option, including without
                limitation, conditions on manner of sale, vesting or
                transferability, forfeiture or repurchase provisions and method
                of payment for the shares issued upon exercise (including the
                actual or constructive surrender of Common Stock already owned
                by the Participant).

        (h)     Other Terms and Conditions:  Options may also contain such
                other provisions, which shall not be inconsistent with any of
                the foregoing terms, as the Administrator shall deem
                appropriate. No Option, however, nor anything contained in the
                Plan shall confer upon any Participant any right to continue in
                the Company's or its Subsidiaries' employ or service nor limit
                in any way the Company's or its Subsidiaries' right to terminate
                his or her employment at any time. In the case of Options
                intending to qualify as ISOs, Section 422 of the Code provides
                that Options shall not be treated as ISOs if and to the extent
                that the aggregate fair market value of shares of Common Stock
                (determined as of the time of grant) with respect to which such
                Options are exercisable for the first time by the Participant
                during any calendar year (under all plans of the Company and its
                subsidiaries) exceeds $100,000, taking Options into account in
                the order in which they were granted.

7.      LOANS

        The Company may make loans, at the request of the Participant and in the
        sole discretion of the Administrator, for the purpose of enabling the
        Participant to exercise Options granted under the Plan and to pay the
        tax liability resulting from an Option exercised under the Plan. The
        Administrator shall have full authority to determine the terms and
        conditions of such loans. Such loans may be secured by the shares
        received upon exercise of such Option.

8.      ADJUSTMENT OF AND CHANGES IN THE STOCK

        In the event that the number of shares of Common Stock of the Company
        shall be increased or decreased through reorganization,
        reclassification, combination of shares, stock splits, reverse stock
        splits, spin-offs, or the payment of a stock dividend, (other than
        regular, quarterly cash dividends) or otherwise, then each share of
        Common Stock of the Company which has been authorized for issuance under
        the Plan, whether such share is then currently subject to or may become
        subject to an Option under the Plan, may be proportionately adjusted to
        reflect such increase or decrease, unless the terms of the transaction
        provide otherwise. Outstanding Options may also be amended as to price
        and other terms if necessary to reflect the foregoing events.

        In the event there shall be any other change in the number or kind of
        the outstanding shares of Common Stock of the Company, or any stock or
        other securities into which such Common Stock shall have been changed,
        or for which it shall have been exchanged, whether by reason of merger,
        consolidation or otherwise, then the Administrator shall, in its sole
        discretion, determine the appropriate adjustment, if any, to be
        effected. In

                                       6
<PAGE>   7

        addition, in the event of such change described in this paragraph, the
        Administrator may accelerate the time or times at which any Option may
        be exercised and may provide for cancellation of such accelerated
        Options which are not exercised within a time prescribed by the
        Administrator in its sole discretion. Notwithstanding anything to the
        contrary herein, any adjustment to Options granted pursuant to this
        Plan, particularly Options intending to qualify as ISOs, shall comply
        with the requirements, provisions and restrictions of the Code.

        No right to purchase fractional shares shall result from any adjustment
        in Options pursuant to this Section 8. In case of any such adjustment,
        the shares subject to the Option shall be rounded down to the nearest
        whole share. Notice of any adjustment shall be given by the Company to
        each Participant which shall have been so adjusted and such adjustment
        (whether or not notice is given) shall be effective and binding for all
        purposes of the Plan.

9.      LISTING OR QUALIFICATION OF STOCK

        In the event that the Board of Directors or the Administrator determines
        in its sole discretion that the listing or qualification of the Plan
        shares on any securities exchange or quotation or trading system or
        under any applicable law or governmental regulation is necessary as a
        condition to the issuance of such shares under the Option, the Option
        may not be exercised in whole or in part unless such listing,
        qualification, consent or approval has been unconditionally obtained.

10.     WITHHOLDING

        To the extent required by applicable federal, state, local or foreign
        law, a Participant shall make arrangements satisfactory to the Company
        for the satisfaction of any withholding tax obligations that arise by
        reason of an Option exercise. The Company shall not be required to issue
        shares or to recognize the disposition of such shares until such
        obligations are satisfied. The Administrator may permit these
        obligations to be satisfied by having the Company withhold a portion of
        the shares of stock that otherwise would be issued to him or her upon
        exercise of the Option, or to the extent permitted, by tendering shares
        previously acquired, provided that such will not result in an accounting
        charge to the Company or its Subsidiaries.

11.     ADMINISTRATION AND AMENDMENT OF THE PLAN

        The Plan shall be administered by the Administrator who shall be the
        Compensation Committee of the Board of Directors or, in the absence of a
        Compensation Committee, the Board of Directors itself. Subject to the
        express provisions of this Plan, the Administrator shall be authorized
        and empowered to do all things necessary or desirable in connection with
        the administration of this Plan, including, without limitation: (a) to
        prescribe, amend and rescind rules and regulations relating to this Plan
        and to define terms not otherwise defined herein; (b) to determine which
        persons are Participants (as defined in Section 3 hereof) and to which
        of such Participants, if any, an Option shall be granted hereunder and
        the timing of any such Option grants; (c) to determine the number

                                       7
<PAGE>   8

        of shares of Common Stock subject to an Option and the exercise or
        purchase price of such shares; (d) to establish and verify the extent of
        satisfaction of any conditions to exercisability applicable to an
        Option; (e) to waive conditions to and/or accelerate exercisability of
        an Option, either automatically upon the occurrence of specified events
        (including in connection with a change of control of the Company) or
        otherwise in its sole discretion; (f) to prescribe and amend the terms
        of Option grants made under this Plan (which need not be identical); (g)
        to determine whether, and the extent to which, adjustments are required
        pursuant to Section 8 hereof; and (h) to interpret and construe this
        Plan, any rules and regulations under the Plan and the terms and
        conditions of any Option granted hereunder, and to make exceptions to
        any such provisions in good faith and for the benefit of the Company or
        its Subsidiaries.

        All decisions, determinations and interpretations by the Administrator
        regarding the Plan, any rules and regulations under the Plan and the
        terms and conditions of any Option granted hereunder, shall be final and
        binding on all Participants and optionholders. The Administrator shall
        consider such factors as it deems relevant, in its sole and absolute
        discretion, to making such decisions, determinations and interpretations
        including, without limitation, the recommendations or advice of any
        officer or other employee of the Company and such attorneys, consultants
        and accountants as it may select.

        The Administrator may, from time to time, delegate some of its
        responsibilities with respect to the administration of the Plan to such
        persons as it may designate in its sole discretion but may not delegate
        authority to grant options to a person who is not a member of the Board
        of Directors.

12.     AMENDMENT OF THE PLAN OR OPTIONS

        The Board of Directors may amend, alter or discontinue the Plan or any
        agreement or other document evidencing Options granted hereunder but,
        except as provided pursuant to the provisions of Section 8, no such
        amendment shall, without the approval of the stockholders of the
        Company:

        (a)     materially increase the maximum number of shares of Common
                Stock for which Options may be granted under this Plan;

        (b)     reduce the price at which Options may be granted below the
                price provided for in Section 6(a);

        (c)     reduce the exercise price of outstanding Options; or

        (d)     extend the term of this Plan.

        The Board of Directors may amend, alter or discontinue the Plan and the
        Administrator may amend or alter any Option granted under the Plan, but
        no amendment or alteration shall be made which would impair the rights
        of the holder of any Option, without such holder's consent, provided
        that no such consent shall be required if the Administrator determines
        in its sole discretion and prior to the date of any change in control
        (as defined, if applicable, in the agreement evidencing such Option)
        that such amendment or

                                       8
<PAGE>   9

        alteration either is required or advisable in order for the Company, the
        Plan or the Option to satisfy any law or regulation or to meet the
        requirements of or avoid adverse financial accounting consequences under
        any accounting standard.

13.     TIME OF GRANTING OPTIONS

        The effective date of such Option shall be the date on which the grant
        was made by the Administrator. Within a reasonable time thereafter, the
        Company will deliver the Option to the Participant.

14.     NO LIABILITY OF COMPANY

        The Company and any affiliate which is in existence or hereafter comes
        into existence shall not be liable to a Participant or any other person
        as to: (a) the non-issuance or sale of shares of Common Stock as to
        which the Company has been unable to obtain from any regulatory body
        having jurisdiction the authority deemed by the Company's counsel to be
        necessary to the lawful issuance and sale of any shares hereunder; and
        (b) any tax consequence expected, but not realized, by any Participant
        or other person due to the receipt, exercise or settlement of any Option
        granted hereunder.

15.     NON-EXCLUSIVITY OF PLAN

        Neither the adoption of the Plan by the Board of Directors nor the
        submission of the Plan to the stockholders of the Company for approval
        shall be construed as creating any limitations on the power of the Board
        of Directors or the Administrator to adopt such other incentive
        arrangements as either may deem desirable, including without limitation,
        the granting of restricted stock or stock options otherwise than under
        the Plan, and such arrangements may be either generally applicable or
        applicable only in specific cases.

16.     GOVERNING LAW

        The Plan and any agreements or other documents hereunder shall be
        interpreted and construed in accordance with the laws of the District of
        Columbia and applicable federal law. Any reference in this Plan or in
        the agreement or other document evidencing any Options to a provision of
        law or to a rule or regulation shall be deemed to include any successor
        law, rule or regulation of similar effect or applicability.

17.     ARBITRATION OF DISPUTES

        In the event a Participant or other holder of an Option believes that a
        decision by the Administrator with respect to such person was arbitrary
        or capricious, the Participant or optionholder may request arbitration
        with respect to such decision. The review by the arbitrator shall be
        limited to determining whether the Administrator's decision was
        arbitrary or capricious. This arbitration shall be the sole and
        exclusive review permitted of the Administrator's decision. Participants
        and optionholders explicitly waive any right to judicial review.

                                       9
<PAGE>   10

        Notice of demand for arbitration shall be made in writing to the
        Administrator within thirty (30) days after the applicable decision by
        the Administrator. Any such arbitration shall be heard in the District
        of Columbia, before a panel consisting of one arbitrator. Except as the
        parties to the arbitration may otherwise agree, the arbitrator shall be
        appointed in the first instance by the appropriate official in the
        District of Columbia office of the American Arbitration Association or,
        in the event of his or her unavailability by reason of disqualification
        or otherwise, by the appropriate official in the New York City office of
        the American Arbitration Association. The arbitrator and shall be an
        individual who is an attorney licensed to practice law in the District
        of Columbia. Such arbitrator shall be neutral within the meaning of the
        Commercial Rules of Dispute Resolution of the American Arbitration
        Association; provided, however, that the arbitration shall not be
        administered by the American Arbitration Association. Any challenge to
        the neutrality of the arbitrator shall be resolved by the arbitrator
        whose decision shall be final and conclusive. The arbitration shall be
        administered and conducted by the arbitrator pursuant to the Commercial
        Rules of Dispute Resolution of the American Arbitration Association. The
        decision of the arbitrator on the issue(s) presented for arbitration
        shall be final and conclusive and may be enforced in any court of
        competent jurisdiction.

                                       10

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