10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended: September 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period From          to

Commission File Number: 001-34466

EDUCATION MANAGEMENT CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania (State or other jurisdiction of incorporation or organization)	25-1119571 (I.R.S. Employer Identification No.)
210 Sixth Avenue, Pittsburgh, PA, 33rd Floor (Address of principal executive offices)	15222 (Zip Code)

Registrant’s telephone number, including area code: (412) 562-0900

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o     No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o Accelerated filer  o Non-accelerated filer  þ Smaller reporting company  o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):  Yes o     No þ

As of November 10, 2009, 142,786,364 shares of the registrant’s common stock were outstanding.

Table of Contents

INDEX

			PAGE
PART I — FINANCIAL INFORMATION
ITEM 1	—	FINANCIAL STATEMENTS		2
ITEM 2	—	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		22
ITEM 3	—	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
ITEM 4	—	CONTROLS AND PROCEDURES		29
PART II — OTHER INFORMATION
ITEM 1		LEGAL PROCEEDINGS		30
ITEM 1A		RISK FACTORS		30
ITEM 2		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		30
ITEM 3		DEFAULTS UPON SENIOR SECURITIES		30
ITEM 4		SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS		30
ITEM 5		OTHER INFORMATION		30
ITEM 6	—	EXHIBITS INDEX		30
SIGNATURES				31
EX-3.1
EX-3.2
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			June 30,			September 30,
	2009			2009			2008
	(Unaudited)						(Unaudited)
	(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	422,867		$	363,318		$	390,545
Restricted cash		39,187			10,372			27,637
Total cash, cash equivalents and restricted cash		462,054			373,690			418,182
Receivables, net of allowances of $95,461, $83,691 and $61,045		109,854			122,272			95,407
Notes, advances and other		24,006			13,678			31,875
Inventories		14,090			9,355			11,135
Deferred income taxes		45,164			45,164			25,739
Prepaid income taxes		—			—			4,016
Other current assets		36,399			30,163			34,843
Total current assets		691,567			594,322			621,197
Property and equipment, net		593,894			580,965			521,242
Other long-term assets		64,361			58,945			59,653
Intangible assets, net		470,783			471,882			480,373
Goodwill		2,579,131			2,579,131			2,585,581
Total assets	$	4,399,736		$	4,285,245		$	4,268,046
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	12,490		$	12,622		$	12,854
Revolving credit facility		—			100,000			180,000
Accounts payable		43,695			53,516			54,100
Accrued liabilities		167,883			163,485			130,052
Accrued income taxes		9,767			5,015			—
Unearned tuition		143,735			118,741			106,818
Advance payments		237,310			67,020			155,361
Total current liabilities		614,880			520,399			639,185
Long-term debt, less current portion		1,872,951			1,876,021			1,885,357
Deferred income taxes		185,005			187,583			185,085
Deferred rent		128,357			123,656			97,298
Other long-term liabilities		95,600			91,933			73,043
Shareholders’ equity:
Common stock, par value $0.01 per share; 600,000,000 shares authorized; 119,770,277 issued and outstanding at September 30, 2009 and June 30, 2009 and 119,769,082 issued and outstanding at September 30, 2008		1,198			1,198			1,198
Additional paid-in capital		1,338,316			1,338,316			1,338,302
Retained earnings		197,529			181,767			74,060
Accumulated other comprehensive loss		(34,100	)		(35,628	)		(25,482	)
Total shareholders’ equity		1,502,943			1,485,653			1,388,078
Total liabilities and shareholders’ equity	$	4,399,736		$	4,285,245		$	4,268,046

The accompanying notes are an integral part of these consolidated financial statements.

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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months
	Ended September 30,
	2009		2008
	(Unaudited)
	(Dollars in thousands except per share amounts)
Net revenues	$	534,399	$	434,228
Costs and expenses:
Educational services		295,713		253,512
General and administrative		148,107		121,359
Depreciation and amortization		28,827		26,604
Total costs and expenses		472,647		401,475
Income before interest and income taxes		61,752		32,753
Interest expense, net		36,329		38,159
Income (loss) before income taxes		25,423		(5,406	)
Provision for (benefit from) income taxes		9,661		(2,103	)
Net income (loss)	$	15,762	$	(3,303	)
Earnings (loss) per share:
Basic	$	0.13	$	(0.03	)
Diluted	$	0.13	$	(0.03	)
Weighted average number of shares outstanding:
Basic		119,770		119,769
Diluted		119,770		119,769

The accompanying notes are an integral part of these consolidated financial statements.

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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months
	Ended September 30,
	2009			2008
	(Unaudited)
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	15,762		$	(3,303	)
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization on property and equipment		26,420			22,128
Amortization of intangible assets		2,407			4,476
Amortization of debt issuance costs		2,033			1,923
Reimbursements for tenant improvements		3,232			1,797
Non-cash adjustments in deferred rent		914			(605	)
Changes in assets and liabilities:
Restricted cash		(28,815	)		(13,815	)
Receivables		12,418			(8,985	)
Inventories		(4,714	)		(2,667	)
Other assets		(18,969	)		(18,627	)
Accounts payable		(1,760	)		5,765
Accrued liabilities		(3,373	)		(12,081	)
Unearned tuition		24,994			37,975
Advance payments		170,034			94,708
Total adjustments		184,821			111,992
Net cash flows provided by operating activities		200,583			108,689
Cash flows from investing activities:
Expenditures for long-lived assets		(33,238	)		(50,789	)
Reimbursements for tenant improvements		(3,232	)		(1,797	)
Net cash flows used in investing activities		(36,470	)		(52,586	)
Cash flows from financing activities:
Borrowings on revolving credit facility		—			180,000
Payments on revolving credit facility		(100,000	)		(120,000	)
Payments of debt		(3,202	)		(3,234	)
Debt issuance costs		(1,320	)		—
Net cash flows provided by (used in) financing activities		(104,522	)		56,766
Effect of exchange rate changes on cash and cash equivalents		(42	)		268
Net change in cash and cash equivalents		59,549			113,137
Cash and cash equivalents, beginning of period		363,318			277,408
Cash and cash equivalents, end of period	$	422,867		$	390,545
Cash paid during the period for:
Interest (including swap settlement)	$	15,592		$	19,116
Income taxes		7,161			14,634

The accompanying notes are an integral part of these consolidated financial statements.

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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

							Accumulated
	Common		Additional				Other
	Stock at Par		Paid-in		Retained		Comprehensive
	Value		Capital		Earnings		Loss			Total
	(Dollars in thousands)
Balance, June 30, 2008	$	1,198	$	1,338,302	$	77,362	$	(24,685	)	$	1,392,177
Comprehensive income:
Net income		—		—		104,405		—			104,405
Foreign currency translation		—		—		—		(1,147	)		(1,147	)
Unrealized loss on interest rate swaps, net of tax benefit of $5,709		—		—		—		(9,796	)		(9,796	)
Comprehensive income											93,462	(a)
Other		—		14		—		—			14
Balance, June 30, 2009 (Unaudited)		1,198		1,338,316		181,767		(35,628	)(b)		1,485,653
Comprehensive income:
Net income		—		—		15,762		—			15,762
Foreign currency translation		—		—		—		597			597
Unrealized gain on interest rate swaps, net of tax expense of $481		—		—		—		931			931
Comprehensive income											17,290
Balance, September 30, 2009	$	1,198	$	1,338,316	$	197,529	$	(34,100	)(b)	$	1,502,943

(a)	During the three months ended September 30, 2008, other comprehensive loss consisted of a $0.8 million unrealized loss on interest rate swaps, net of tax expense, and less than a $0.1 million foreign currency translation gain.
(b)	The balance in accumulated other comprehensive loss at September 30, 2009, June 30, 2009 and September 30, 2008 is comprised of $33.3 million, $34.2 million and $25.2 million of unrealized net losses on interest rate swaps, net of tax expense, respectively and $0.8 million, $1.4 million and $0.3 million of cumulative foreign currency translation losses, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

Basis of presentation

The accompanying unaudited consolidated financial statements of Education Management Corporation and its subsidiaries (the “Company”) have been prepared by the Company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for annual financial statements. The unaudited consolidated financial statements included herein contain all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly the financial position as of September 30, 2009 and 2008, and the statements of operations and cash flows for the three months ended September 30, 2009 and 2008. The statements of operations for the three months ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for future periods. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s prospectus dated October 1, 2009 for the fiscal year ended June 30, 2009 as filed with the Securities and Exchange Commission (“SEC”). The accompanying consolidated balance sheet at June 30, 2009 has been derived from the consolidated audited balance sheet included in the prospectus dated October 1, 2009 as filed with the SEC.

On September 30, 2009, the Company’s Board of Directors declared a 4.4737 for one split of the Company’s common stock, which was paid in the form of a stock dividend on September 30, 2009. In connection with this stock split, the Company amended and restated its articles of incorporation to, among other things, increase the Company’s number of authorized shares of common stock. The stock split resulted in the issuance of approximately 93.0 million additional shares of common stock, affected the number of stock options outstanding and exercisable in all periods presented, changed earnings per share information and resulted in a reclassification of $0.9 million from additional paid-in capital to common stock on the accompanying consolidated balance sheets. All information presented in the accompanying consolidated financial statements and related notes has been adjusted to reflect the Company’s amended and restated articles of incorporation and stock split.

The Company performed an evaluation of subsequent events through November 10, 2009, the date the financial statements were issued.

In November 2009, the Company guaranteed the indebtedness of Education Management LLC (“EM LLC”) and Education Management Finance Corp. under the 8.75% senior notes due 2014 (“the Senior Notes”) and 10.25% senior subordinated notes due 2016 (the “Senior Subordinated Notes” and, together with the Senior Notes, the “Notes”).

Nature of operations

The Company is among the largest providers of post-secondary education in North America, with approximately 136,000 active students as of October 2009. The Company offers education through four different education systems (The Art Institutes, Argosy University, Brown Mackie Colleges and South University) and through online platforms at three of the four education systems. The schools provide students a wide variety of programmatic and degree choices in a flexible learning environment. The curriculum is designed with a distinct emphasis on applied career-oriented content and is primarily taught by faculty members that possess practical and relevant professional experience in their respective fields.

Ownership

On June 1, 2006, the Company was acquired by a consortium of private equity investment funds led by Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity Partners (collectively, the “Sponsors”). The acquisition was accomplished through the merger of EM Acquisition Corporation into the Company, with the Company surviving the merger (the “Transaction”). Pursuant to the terms of the merger agreement, all

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

outstanding shares of the Company’s common stock were cancelled in exchange for $43.00 per share in cash. The Sponsors, together with certain other investors, became the owners of the Company.

The acquisition of the Company was financed by equity invested in EM Acquisition Corporation by the Sponsors and other investors, cash on hand, borrowings under a new senior secured credit facility by EM LLC and the issuance by EM LLC and Education Management Finance Corp. (a wholly-owned subsidiary of EM LLC) of the Notes.

Seasonality

The Company’s quarterly net revenues and net income fluctuate primarily as a result of the pattern of student enrollments at its schools. The seasonality of the Company’s business has decreased over the last several years due to an increase in the percentage of students enrolling in online programs, which generally experience less seasonal fluctuations than campus-based programs. The Company’s first fiscal quarter is typically its lowest revenue recognition quarter due to student vacations.

Reclassifications

Certain reclassifications of September 30, 2008 data have been made to conform to the September 30, 2009 presentation.

2.   RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification^tm and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”), a replacement of FASB Statement No. 162”. All existing accounting standard documents are superseded by the Codification, which does not change or alter existing GAAP. Since the Company adopted SFAS No. 168 in the first quarter of fiscal 2010, any references to GAAP included in the Company’s historical public filings with the SEC are no longer included in the Company’s filings. The adoption of SFAS No. 168 had no impact on the Company’s consolidated financial statements.

3.   EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed using the weighted average number of shares outstanding during the period, while diluted EPS is calculated to reflect the potential dilution related to time-based and performance-based stock options. The Company uses the treasury stock method to compute diluted EPS.

Basic and diluted EPS were calculated as follows (in thousands, except per share amounts):

	For the Three Months
	Ended September 30,
	2009		2008
Net income (loss)	$	15,762	$	(3,303	)
Weighted average number of shares outstanding
Basic		119,770		119,769
Effect of stock options		—		—
Diluted		119,770		119,769
Earnings (loss) per share:
Basic	$	0.13	$	(0.03	)
Diluted	$	0.13	$	(0.03	)

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All stock options for all periods presented were contingently issuable. None of the thresholds that would cause share dilution were met, and therefore none of the Company’s outstanding stock options during the periods presented were dilutive.

4.   SHARE-BASED PAYMENT

In October 2009, the Company completed an initial public offering of its common stock. See Note 15 for details surrounding that event’s effect on the financial statements in the quarter ended December 31, 2009.

2006 Stock Option Plan

In August 2006, the Company’s board of directors approved the 2006 Stock Option Plan (the “Option Plan”), which authorized equity awards to be granted for up to approximately 6.1 million shares of the Company’s common stock. The Option Plan was amended during fiscal 2007 to increase the number of available shares to approximately 8.3 million. Under the Option Plan, certain employees of the Company have been granted a combination of time-based and performance-based options to purchase the Company’s common stock. Both types of grants are subject to certain conditions defined in the Option Plan and in the Company’s Amended and Restated Shareholders’ Agreement that must be met in order for the participants to receive fair market value for their options.

The Amended and Restated Shareholders’ Agreement contains a call right that gives the Company the option, not obligation, to repurchase shares issued pursuant to the exercise of stock options to employees who terminate employment with the Company. The purchase price of the Company’s call option depends on the circumstances under which an employee terminates employment with the Company. If a participant in the Option Plan were to terminate employment, the Company’s exercise of a repurchase right under the Amended and Restated Shareholders’ Agreement on shares received by the former employee through the exercise of stock options may require equity awards to be expensed in the Company’s statement of operations in the period in which the termination occurs.

Time-based options vest ratably over the applicable service period, which is generally five years, on each anniversary of the date of grant. Performance-based options vest upon the attainment of specified returns on capital invested in the Company by Providence Equity Partners and Goldman Sachs Capital Partners (together, the “Principal Shareholders”). Time-based and performance-based options also generally vest upon a change in control or realization event, as defined in the Amended and Restated Shareholders Agreement, subject to certain conditions, and generally expire ten years from the date of grant. At September 30, 2009, the Company considered the conditions entitling the option holders to fair value for their shares to be less than probable, and as such compensation expense on the grants is not recognized until one of the conditions entitling option holders to fair value for their shares becomes probable. Accordingly, the Company has not recognized compensation expense related to any options granted since the Transaction, including during the three month periods ended September 30, 2009 or 2008. The total amount of unrecognized compensation cost over the vesting periods of all options, net of expected forfeitures, is $35.7 million at September 30, 2009. See Note 15 for additional details surrounding the completion of the initial public offering in October 2009.

Long Term Incentive Compensation Plan

In fiscal 2007, the Company adopted the Long-Term Incentive Compensation Plan (the “LTIC Plan”). The LTIC Plan consists of a bonus pool that is valued based on returns to the Principal Shareholders in connection with a change in control of the Company. Out of a total of 1,000,000 units authorized, approximately 832,000 units were outstanding under the LTIC Plan at September 30, 2009. Each unit represents the right to receive a payment based on the value of the bonus pool. As the contingent future events that would result in value to the unit-holders are less than probable, no compensation expense has been recognized by the Company during any of the periods following the Transaction.

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2009, the LTIC Plan is accounted for as a liability-based plan, due to the fact that the units must be settled in cash if a realization event were to occur prior to an initial public offering by the Company. See Note 15 for additional details surrounding the completion of the initial public offering in October 2009.

Omnibus Long-Term Incentive Plan

In April 2009, the Company’s Board of Directors adopted the Omnibus Long-Term Incentive Plan, which became effective upon the effectiveness of the initial public offering further described in Note 15. Approximately 6.4 million shares of additional common stock have been reserved for issuance under the Plan, which may be used to issue stock options, stock-option appreciation rights, restricted stock and restricted stock units.

5.   PROPERTY AND EQUIPMENT

Property and equipment consisted of the following amounts (in thousands):

Asset Class	September 30, 2009		June 30, 2009		September 30, 2008
Land	$	17,808	$	17,805	$	17,805
Buildings and improvements		74,392		74,171		73,520
Leasehold improvements and capitalized lease costs		355,414		329,449		276,021
Furniture and equipment		99,607		97,783		88,457
Technology and other equipment		178,051		170,818		144,272
Software		46,595		45,651		35,157
Library books		30,977		29,778		25,598
Construction in progress		53,095		43,470		37,525
Total		855,939		808,925		698,355
Less accumulated depreciation		262,045		227,960		177,113
Property and equipment, net	$	593,894	$	580,965	$	521,242

Depreciation and amortization expense on property and equipment was $26.4 million and $22.1 million, respectively, for the three months ended September 30, 2009 and 2008.

6.   GOODWILL AND INTANGIBLE ASSETS

Goodwill

As a result of the Transaction, the Company recorded approximately $2.6 billion of goodwill. Goodwill is recognized as an asset in the financial statements and is initially measured as the excess of the purchase price of the acquired company over the amounts assigned to net assets acquired. In connection with the Transaction, property, equipment, intangible assets other than goodwill and other assets and liabilities were recorded at fair value. The remaining value was assigned to goodwill and represents the intrinsic value of the Company beyond its tangible and identifiable intangible assets. This is evidenced by the excess of the amount paid to acquire the Company over the values of these respective assets.

The Company formally evaluates the carrying amount of goodwill for impairment on April 1 of each fiscal year. During interim periods, the Company reviews forecasts, business plans, regulatory and legal matters and other activities necessary to identify events that may trigger more frequent impairment tests. During the quarter ended September 30, 2009, the Company identified no such triggering events, and as a result, no impairments were recorded.

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible Assets

Intangible assets consisted of the following amounts (in thousands):

	September 30, 2009					June 30, 2009					September 30, 2008
	Gross					Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization			Amount		Amortization
Tradename-Art Institute	$	330,000	$	—		$	330,000	$	—		$	330,000	$	—
Tradename-Argosy University		3,000		(1,111	)		3,000		(1,028	)		3,000		(778	)
Licensing, accreditation and Title IV program participation		112,179		—			112,179		—			112,179		—
Curriculum and programs		29,258		(14,802	)		27,974		(13,520	)		24,209		(10,175	)
Student contracts, applications and relationships		39,511		(32,881	)		39,511		(32,479	)		39,511		(25,860	)
Favorable leases and other		16,400		(10,771	)		16,351		(10,106	)		16,390		(8,103	)
Total intangible assets	$	530,348	$	(59,565	)	$	529,015	$	(57,133	)	$	525,289	$	(44,916	)

State licenses and accreditations of the Company’s schools as well as their eligibility for Title IV program participation are periodically renewed in cycles ranging from every year to up to every ten years depending upon government and accreditation regulations. The Company considers these renewal processes to be a routine aspect of the overall business and assigned these assets indefinite lives.

Tradenames are often considered to have useful lives similar to that of the overall business, which generally means such assets are assigned an indefinite life for accounting purposes. However, the Argosy tradename was assigned a finite life at the date of the Transaction due to the potential for that tradename to be eliminated. As such, the same life was assigned to that asset, nine years, as was assigned to its existing student relationship’s economic life.

Amortization of intangible assets for the three months ended September 30, 2009 and 2008 was $2.4 million and $4.5 million, respectively.

Total estimated amortization on the Company’s existing intangible assets at September 30, 2009 for each of the years ending June 30, 2010 through 2014 and thereafter is as follows (in thousands):

	Amortization
Fiscal Years	Expense
2010 (remainder)	$	6,195
2011		7,618
2012		6,553
2013		4,205
2014		2,437
Thereafter		1,596

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.   ACCRUED LIABILITIES

Accrued liabilities consisted of the following amounts (in thousands):

	September 30, 2009		June 30, 2009		September 30, 2008
Payroll and related taxes	$	39,411	$	77,894	$	28,545
Capital expenditures		18,945		8,032		14,361
Advertising		28,893		25,192		19,988
Interest		33,192		13,878		29,302
Benefits		9,821		8,597		9,070
Other		37,621		29,892		28,786
Total accrued liabilities	$	167,883	$	163,485	$	130,052

8.   SHORT-TERM AND LONG-TERM DEBT

In August 2009, EM LLC signed an agreement to increase capacity on its revolving credit facility from $322.5 million to $388.5 million and to add two letter of credit issuing banks. The addition of issuing banks increased amounts available for letters of credit from $175.0 million to $375.0 million. The agreement also outlined terms under which the revolving credit facility could be increased by up to another $54.0 million once the Company completed a qualifying initial public offering under the terms of the senior credit facility. See Note 15 for additional detail with respect to the increase in the size of the revolving credit facility.

Short-Term Debt:

No borrowings were outstanding at September 30, 2009 under the $388.5 million credit facility. At June 30, 2009 and September 30, 2008, $100.0 million and $180.0 million, respectively, were outstanding. The interest rates on outstanding borrowings on the revolving credit facility at June 30, 2009 and September 30, 2008 were 3.75% and 4.50%, respectively, which equals prime plus a margin of 0.50% at June 30, 2009 and LIBOR plus a margin of 1.75% at September 30, 2008. The applicable margin for borrowings under the revolving credit facility changes based on certain leverage ratios. EM LLC is obligated to pay a 0.375% rate per annum commitment fee on undrawn amounts under the revolving credit facility, which also varies based on certain leverage ratios. The revolving credit facility is secured by certain of the Company’s assets and is subject to the Company’s satisfaction of certain covenants and financial ratios described in — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Covenant Compliance”.

EM LLC had outstanding letters of credit of $137.3 million at September 30, 2009. The U.S. Department of Education requires the Company to maintain a $120.5 million letter of credit due to the Company’s failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. The outstanding letters of credit reduced availability of borrowings under the revolving credit facility, leaving $251.2 million of available borrowings at September 30, 2009.

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Long-Term Debt:

The Company’s long-term debt consisted of the following amounts (in thousands):

	September 30, 2009		June 30, 2009		September 30, 2008
Senior secured term loan facility, due 2013	$	1,123,865	$	1,126,827	$	1,135,715
Senior notes due 2014 at 8.75%		375,000		375,000		375,000
Senior subordinated notes due 2016 at 10.25%		385,000		385,000		385,000
Capital leases		437		622		1,143
Mortgage debt of consolidated entity		1,139		1,194		1,353
Total debt		1,885,441		1,888,643		1,898,211
Less current portion		12,490		12,622		12,854
Total long term debt, less current portion	$	1,872,951	$	1,876,021	$	1,885,357

The interest rate on the senior secured term loan facility, which equals LIBOR plus a margin spread of 1.75%, was 2.1% at September 30, 2009, 2.4% at June 30, 2009 and 5.6% at September 30, 2008. See Note 15 for additional detail with respect to the purchase and cancellation of the senior subordinated notes due 2016 in October 2009.

9.   DERIVATIVE INSTRUMENTS

EM LLC utilizes interest rate swap agreements, which are contractual agreements to exchange payments based on underlying interest rates, to manage the floating rate portion of its term debt. Currently, EM LLC has two five-year interest rate swaps outstanding through July 1, 2011, each for a notional amount of $375.0 million. The interest rate swaps effectively convert a portion of the variable interest rate on the senior secured term loan to a fixed rate. EM LLC receives payments based on the three-month LIBOR and makes payments based on a fixed rate of 5.4%.

The fair value of the interest rate swaps was $53.0 million, $54.4 million and $40.2 million at September 30, 2009, June 30, 2009 and September 30, 2008, respectively, which was recorded in other long-term liabilities on the consolidated balance sheet. The Company recorded an unrealized after-tax gain/(loss) of $0.9 million and $(0.8) million for the three months ended September 30, 2009 and 2008, respectively, in other comprehensive loss related to the change in market value of the swap agreements. Additionally, at September 30, 2009, there was a cumulative unrealized loss of $33.3 million, net of tax, related to these interest rate swaps included in accumulated other comprehensive loss on the Company’s consolidated balance sheet. This loss would be immediately recognized in the consolidated statement of operations if these instruments fail to meet certain cash flow hedge requirements. During the three months ended September 30, 2009, the Company reclassified $5.7 million from accumulated other comprehensive loss to the consolidated statement of operations, all of which was paid due to normal quarterly settlements of the interest rate swaps. Over the next twelve months, the Company estimates approximately $22.6 million will be reclassified to the consolidated statement of operations based on current interest rates and underlying debt obligations at September 30, 2009.

The Company used “level two” inputs to value its interest rate swaps. These inputs are defined as other than quoted prices in active markets that are either directly or indirectly observable, including obtaining quotes from counterparties, which are based on LIBOR forward curves, and assessing non-performance risk based upon published market data.

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of financial instruments (in thousands):

	September 30, 2009				June 30, 2009				September 30, 2008
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value
Interest rate swap liabilities	$	53,009	$	53,009	$	54,421	$	54,421	$	40,169	$	40,169
Variable rate debt		1,123,865		1,073,291		1,126,827		1,031,047		1,135,715		988,072
Fixed rate debt		761,576		825,345		761,816		738,916		762,496		515,246

The fair values of cash and cash equivalents, accounts receivable, the revolving credit facility, accounts payable and accrued expenses approximate carrying values. This is due to the short-term nature of these instruments. The derivative financial instruments are carried at fair value, which is based on the framework discussed in Note 9. The fair values of the Company’s debt instruments are generally determined based on each instrument’s trading value at the dates presented. However, as described in Note 15, a portion of the Senior Subordinated Notes was purchased and cancelled by EM LLC in October 2009 at a higher premium than its trading value at September 30, 2009. As such, the Company has disclosed this higher fair value on the portion of the Senior Subordinated Notes that was purchased and cancelled at September 30, 2009.

11.   INCOME TAXES

The Company accounts for income taxes by the asset and liability method. Under this method, deferred tax assets and liabilities result from (i) temporary differences in the recognition of income and expense for financial and federal income tax reporting requirements, and (ii) differences between the recorded value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. The Company regularly evaluates deferred income tax assets for recoverability and records a valuation allowance if it is more-likely-than-not that some portion of the deferred income tax asset will not be realized.

The Company’s effective tax rate was 38.0% for the quarter ended September 30, 2009 and 38.9% for the quarter ended September 30, 2008. The effective rates differed from the combined federal and state statutory rates primarily due to valuation allowances, expenses that are non-deductible for tax purposes, and accounting for uncertain tax positions.

There have been no material adjustments to liabilities relating to uncertain tax positions since the last annual disclosure for the fiscal year ended June 30, 2009.

12.   CONTINGENCIES

In August 2009, a complaint was filed in the District Court for Dallas County, Texas against Argosy University, Education Management Corporation and Marilyn Powell-Kissinger, former President of the Dallas campus of Argosy University. The plaintiffs in the litigation are 15 former students who were enrolled in the Clinical Psychology doctoral program at the Argosy University Dallas campus. The complaint alleges that, prior to the plaintiffs’ enrollment and/or while the plaintiffs were enrolled in the program, the defendants violated the Texas Deceptive Trade Practices and Consumer Protection Act and made material misrepresentations regarding the importance of accreditation of the program by the Commission on Accreditation, American Psychological Association, the status of the application of the Dallas campus for such accreditation, the availability of loan repayment options for the plaintiffs, and the quantity and quality of the plaintiffs’ career options. Plaintiffs seek unspecified monetary compensatory and punitive damages. In September 2009, the defendants removed the case to the United States District Court for the Northern District of Texas, Dallas division, alleging that defendant Powell-Kissinger was improperly joined to the action. In October 2009, the plaintiffs filed a motion to remand the case to

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

state court and, in November 2009, filed a motion for leave to file an amended complaint. The amended complaint added an additional plaintiff, among other things.

In August 2008, the Company introduced the Education Finance Loan program with a private lender, which enables students who have exhausted all available government-sponsored or other aid and have been denied a private loan to borrow funds to finance a portion of their tuition and other educational expenses. Under the Education Finance Loan program, the Company purchases loans that are originated by a private lender. As of September 30, 2009, the Company is committed to purchase $66.2 million of loans during fiscal 2010 and 2011.

In June 2007, The New England Institute of Art (NEIA) received a civil investigative demand letter from the Massachusetts State Attorney General requesting information in connection with the Attorney General’s review of alleged submissions of false claims by NEIA to the Commonwealth of Massachusetts and alleged unfair and deceptive student lending and marketing practices engaged in by the school. In February 2008, the Attorney General informed NEIA that it does not plan to further pursue its investigation of the false claims and deceptive marketing practices. NEIA intends to fully cooperate with the Attorney General in connection with its investigation of NEIA’s student lending practices.

The Art Institute of Portland and the Company’s schools located in Illinois have received requests for information from the Attorney General of their respective states addressing the relationships between the schools and providers of loans to students attending the schools. The Company has responded to the requests for information and intends to fully cooperate with the Attorneys General in their investigations.

In addition to the matters described above, the Company is a defendant in certain legal proceedings arising out of the conduct of its business. In the opinion of management, based upon an investigation of these claims and discussion with legal counsel, the ultimate outcome of such legal proceedings, individually and in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

13.   RELATED PARTY TRANSACTIONS

In September 2009, South University, LLC a wholly-owned subsidiary of the Company, renewed a long term leasing arrangement of two buildings from two separate entities owned by John T. South, who is one of the Company’s executive officers. Annual rent payments under this lease, which begins June 1, 2010, will approximate $2.2 million.

In connection with the Transaction and under the terms of an agreement between the Company and the Sponsors, the Company agreed to pay the Sponsors advisory fees of $5.0 million annually. Other current assets includes $1.3 million at September 30, 2009 and 2008 and $2.5 million at June 30, 2009 relating to these prepaid advisory fees and general and administrative expense includes $1.3 million in each of the three-month periods ended September 30, 2009 and 2008. This agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates. See Note 15 for additional details.

In June 2006, the Company entered into a five-year interest rate swap agreement in the amount of $375.0 million with an affiliate of one of the Sponsors. The terms of this swap are discussed in Note 9.

14.   GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION

On June 1, 2006, in connection with the Transaction, EM LLC and Education Management Finance Corp. issued the Notes, which are fully and unconditionally guaranteed by all of EM LLC’s existing direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purposes and subsidiaries that have no material assets (collectively, the “Guarantors”). All other subsidiaries of EM LLC, either direct or indirect, do not guarantee the (“Non-Guarantors”).

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In November 2009, the Company guaranteed the Notes. The following tables present the condensed consolidated financial position of EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, Parent (EDMC) and Eliminations as of September 30, 2009, June 30, 2009 and September 30, 2008. The results of operations for the three month periods ended September 30, 2009 and 2008 and the condensed statements of cash flows for the three-month periods ended September 30, 2009 and 2008 are presented for the EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, Parent (EDMC) and Eliminations.

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2009

				Guarantor			Non-Guarantor						EM LLC								EDMC
	EM LLC			Subsidiaries			Subsidiaries			Eliminations			Consolidated		EDMC			Eliminations			Consolidated
	(In thousands)
ASSETS
Current:
Cash and cash equivalents	$	364,623		$	1,119		$	15,353		$	—		$	381,095	$	41,772		$	—		$	422,867
Restricted cash		740			—			38,447			—			39,187		—			—			39,187
Notes, advances and trade receivables, net		76			70			133,711			—			133,857		3			—			133,860
Inventories		—			—			14,090			—			14,090		—			—			14,090
Other current assets		24,593			881			56,089			—			81,563		—			—			81,563
Total current assets		390,032			2,070			257,690			—			649,792		41,775			—			691,567
Property and equipment, net		49,754			6,526			537,614			—			593,894		—			—			593,894
Intangible assets, net		3,044			70			467,669			—			470,783		—			—			470,783
Goodwill		7,328			—			2,571,803			—			2,579,131		—			—			2,579,131
Intercompany balances		1,418,969			(26,225	)		(1,392,744	)		—			—		—			—
Other long-term assets		49,149			9,814			5,880			—			64,843		(482	)		—			64,361
Investment in subsidiaries		1,625,183			—			—			(1,625,183	)		—		1,461,834			(1,461,834	)		—
Total assets	$	3,543,459		$	(7,745	)	$	2,447,912		$	(1,625,183	)	$	4,358,443	$	1,503,127		$	(1,461,834	)	$	4,399,736
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current:
Current portion of long-term debt	$	11,912		$	—		$	578		$	—		$	12,490	$	—		$	—		$	12,490
Accounts payable, accrued and other current liabilities		121,399			2,489			478,318			—			602,206		184			—			602,390
Total current liabilities		133,311			2,489			478,896			—			614,696		184			—			614,880
Long-term debt, less current portion		1,871,958			—			993			—			1,872,951		—			—			1,872,951
Other long-term liabilities		91,974			8,259			123,724			—			223,957		—			—			223,957
Deferred income taxes		(15,618	)		(5,986	)		206,609			—			185,005		—			—			185,005
Total liabilities		2,081,625			4,762			810,222			—			2,896,609		184			—			2,896,793
Total shareholders’ equity (deficit)		1,461,834			(12,507	)		1,637,690			(1,625,183	)		1,461,834		1,502,943			(1,461,834	)		1,502,943
Total liabilities and shareholders’ equity (deficit)	$	3,543,459		$	(7,745	)	$	2,447,912		$	(1,625,183	)	$	4,358,443	$	1,503,127		$	(1,461,834	)	$	4,399,736

16

EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED BALANCE SHEET

June 30, 2009

				Guarantor			Non-Guarantor						EM LLC								EDMC
	EM LLC			Subsidiaries			Subsidiaries			Eliminations			Consolidated		EDMC			Eliminations			Consolidated
	(In thousands)
ASSETS
Current:
Cash and cash equivalents	$	15,789		$	481		$	305,287		$	—		$	321,557	$	41,761		$	—		$	363,318
Restricted cash		789			—			9,583			—			10,372		—			—			10,372
Notes, advances and trade receivables, net		172			35			135,738			—			135,945		5			—			135,950
Inventories		—			—			9,355			—			9,355		—			—			9,355
Other current assets		19,378			1,213			54,736			—			75,327		—			—			75,327
Total current assets		36,128			1,729			514,699			—			552,556		41,766			—			594,322
Property and equipment, net		52,537			6,137			522,291			—			580,965		—			—			580,965
Intangible assets, net		3,119			61			468,702			—			471,882		—			—			471,882
Goodwill		7,328			—			2,571,803			—			2,579,131		—			—			2,579,131
Intercompany balances		1,883,346			(20,819	)		(1,862,527	)		—			—		—			—			—
Other long-term assets		48,447			9,764			1,178			—			59,389		(444	)					58,945
Investment in subsidiaries		1,590,364			—			—			(1,590,364	)		—		1,444,515			(1,444,515	)		—
Total assets	$	3,621,269		$	(3,128	)	$	2,216,146		$	(1,590,364	)	$	4,243,923	$	1,485,837		$	(1,444,515	)	$	4,285,245
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current:
Current portion of long-term debt	$	111,911		$	—		$	711		$	—		$	112,622	$	—		$	—		$	112,622
Accounts payable, accrued and other current liabilities		114,771			4,739			288,082			—			407,592		185			—			407,777
Total current liabilities		226,682			4,739			288,793			—			520,214		185			—			520,399
Long-term debt, less current portion		1,874,921			—			1,100			—			1,876,021		—			—			1,876,021
Other long-term liabilities		91,138			4,649			119,803			—			215,590		(1	)		—			215,589
Deferred income taxes		(15,987	)		72			203,498			—			187,583		—			—			187,583
Total liabilities		2,176,754			9,460			613,194			—			2,799,408		184			—			2,799,592
Total shareholders’ equity (deficit)		1,444,515			(12,588	)		1,602,952			(1,590,364	)		1,444,515		1,485,653			(1,444,515	)		1,485,653
Total liabilities and shareholders’ equity (deficit)	$	3,621,269		$	(3,128	)	$	2,216,146		$	(1,590,364	)	$	4,243,923	$	1,485,837		$	(1,444,515	)	$	4,285,245

17

EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2008

			Guarantor			Non-Guarantor						EM LLC								EDMC
	EM LLC		Subsidiaries			Subsidiaries			Eliminations			Consolidated		EDMC			Eliminations			Consolidated
	(In thousands)
ASSETS
Current:
Cash and cash equivalents	$	344,878	$	104		$	4,008		$	—		$	348,990	$	41,555		$	—		$	390,545
Restricted cash		899		—			26,738			—			27,637		—			—			27,637
Notes, advances and trade receivables, net		491		61			126,692			—			127,244		38			—			127,282
Inventories		—		—			11,135			—			11,135		—			—			11,135
Other current assets		12,545		568			51,670			—			64,783		(185	)		—			64,598
Total current assets		358,813		733			220,243			—			579,789		41,408			—			621,197
Property and equipment, net		47,735		5,884			467,623			—			521,242		—			—			521,242
Intangible assets, net		3,409		65			476,899			—			480,373		—			—			480,373
Goodwill		8,075		—			2,577,506			—			2,585,581		—			—			2,585,581
Intercompany balances		1,719,187		(15,747	)		(1,703,440	)		—			—		—			—			—
Other long-term assets		54,436		—			5,559			—			59,995		(342	)		—			59,653
Investment in subsidiaries		1,411,226		—			—			(1,411,226	)		—		1,347,012			(1,347,012	)		—
Total assets	$	3,602,881	$	(9,065	)	$	2,044,390		$	(1,411,226	)	$	4,226,980	$	1,388,078		$	(1,347,012	)	$	4,268,046
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current:
Current portion of long-term debt	$	191,913	$	—		$	941		$	—		$	192,854	$	—		$	—		$	192,854
Accounts payable, accrued and other current liabilities		102,085		2,140			342,106			—			446,331		—			—			446,331
Total current liabilities		293,998		2,140			343,047			—			639,185		—			—			639,185
Long-term debt, less current portion		1,883,827		—			1,530			—			1,885,357		—			—			1,885,357
Other long-term liabilities		77,561		45			92,735			—			170,341		—			—			170,341
Deferred income taxes		483		72			184,530			—			185,085		—			—			185,085
Total liabilities		2,255,869		2,257			621,842			—			2,879,968		—			—			2,879,968
Total shareholders’ equity (deficit)		1,347,012		(11,322	)		1,422,548			(1,411,226	)		1,347,012		1,388,078			(1,347,012	)		1,388,078
Total liabilities and shareholders’ equity (deficit)	$	3,602,881	$	(9,065	)	$	2,044,390		$	(1,411,226	)	$	4,226,980	$	1,388,078		$	(1,347,012	)	$	4,268,046

18

EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2009

				Guarantor			Non-Guarantor					EM LLC								EDMC
	EM LLC			Subsidiaries			Subsidiaries		Eliminations			Consolidated		EDMC			Eliminations			Consolidated
	(In thousands)
Net revenues	$	—		$	(205	)	$	534,604	$	—		$	534,399	$	—		$	—		$	534,399
Costs and expenses:
Educational services		9,498			(526	)		286,741		—			295,713		—			—			295,713
General and administrative		(19,191	)		420			166,822		—			148,051		56			—			148,107
Depreciation and amortization		4,472			63			24,292		—			28,827		—			—			28,827
Total costs and expenses		(5,221	)		(43	)		477,855		—			472,591		56			—			472,647
Income (loss) before interest and income taxes		5,221			(162	)		56,749		—			61,808		(56	)		—			61,752
Interest expense, net		35,911			(293	)		720		—			36,338		(9	)		—			36,329
Equity in earnings of subsidiaries		(34,819	)		—			—		34,819			—		(15,791	)		15,791			—
Income (loss) before income taxes		4,129			131			56,029		(34,819	)		25,470		15,744			(15,791	)		25,423
Provision for (benefit from) income taxes		(11,662	)		50			21,291		—			9,679		(18	)		—			9,661
Net income (loss)	$	15,791		$	81		$	34,738	$	(34,819	)	$	15,791	$	15,762		$	(15,791	)	$	15,762

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2008

				Guarantor		Non-Guarantor					EM LLC									EDMC
	EM LLC			Subsidiaries		Subsidiaries		Eliminations			Consolidated			EDMC			Eliminations			Consolidated
	(In thousands)
Net revenues	$	—		$	3,328	$	430,900	$	—		$	434,228		$	—		$	—		$	434,228
Costs and expenses:
Educational services		11,146			2,360		240,006		—			253,512			—			—			253,512
General and administrative		(14,645	)		772		135,175		—			121,302			57			—			121,359
Depreciation and amortization		3,720			—		22,884		—			26,604			—			—			26,604
Total costs and expenses		221			3,132		398,065		—			401,418			57			—			401,475
							—
Income (loss) before interest and income taxes		(221	)		196		32,835		—			32,810			(57	)		—			32,753
Interest expense, net		37,587			—		733		—			38,320			(161	)		—			38,159
Equity in earnings of subsidiaries		(19,971	)		—		—		19,971			—			3,407			(3,407	)		—
Income (loss) before income taxes		(17,837	)		196		32,102		(19,971	)		(5,510	)		(3,303	)		3,407			(5,406	)
Provision for (benefit from) income taxes		(14,430	)		75		12,252		—			(2,103	)		—			—			(2,103	)
Net income (loss)	$	(3,407	)	$	121	$	19,850	$	(19,971	)	$	(3,407	)	$	(3,303	)	$	3,407		$	(3,303	)

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EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Months Ended September 30, 2009

				Guarantor			Non-Guarantor			EM LLC					EDMC
	EM LLC			Subsidiaries			Subsidiaries			Consolidated			EDMC		Consolidated
	(In thousands)
Net cash flows provided by (used in) operations	$	(12,864	)	$	1,688		$	211,748		$	200,572		$	11	$	200,583
Cash flows from investing activities
Expenditures for long-lived assets		(2,785	)		(365	)		(30,088	)		(33,238	)		—		(33,238	)
Other investing activities		—			—			(3,232	)		(3,232	)		—		(3,232	)
Net cash flows used in investing activities		(2,785	)		(365	)		(33,320	)		(36,470	)		—		(36,470	)
Cash flows from financing activities
Net repayments of debt and other		(104,282	)		—			(240	)		(104,522	)		—		(104,522	)
Intercompany transactions		468,765			(685	)		(468,080	)		—			—		—
Net cash flows provided by (used in) financing activities		364,483			(685	)		(468,320	)		(104,522	)		—		(104,522	)
Effect of exchange rate changes on cash and cash equivalents		—			—			(42	)		(42	)		—		(42	)
Increase (decrease) in cash and cash equivalents		348,834			638			(289,934	)		59,538			11		59,549
Beginning cash and cash equivalents		15,789			481			305,287			321,557			41,761		363,318
Ending cash and cash equivalents	$	364,623		$	1,119		$	15,353		$	381,095		$	41,772	$	422,867

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2008

				Guarantor			Non-Guarantor			EM LLC					EDMC
	EM LLC			Subsidiaries			Subsidiaries			Consolidated			EDMC		Consolidated
	(In thousands)
Net cash flows provided by (used in) operations	$	2,855		$	(1,661	)	$	107,321		$	108,515		$	174	$	108,689
Cash flows from investing activities
Expenditures for long-lived assets		(4,651	)		(574	)		(45,564	)		(50,789	)		—		(50,789	)
Other investing activities		—			—			(1,797	)		(1,797	)		—		(1,797	)
Net cash flows used in investing activities		(4,651	)		(574	)		(47,361	)		(52,586	)		—		(52,586	)
Cash flows from financing activities
Net repayments of debt and other		57,034			(1	)		(267	)		56,766			—		56,766
Intercompany transactions		287,326			2,205			(289,531	)		—			—		—
Net cash flows provided by (used in) financing activities		344,360			2,204			(289,798	)		56,766			—		56,766
Effect of exchange rate changes on cash and cash equivalents		—			—			268			268			—		268
Increase (decrease) in cash and cash equivalents		342,564			(31	)		(229,570	)		112,963			174		113,137
Beginning cash and cash equivalents		2,314			135			233,578			236,027			41,381		277,408
Ending cash and cash equivalents	$	344,878		$	104		$	4,008		$	348,990		$	41,555	$	390,545

20

EDUCATION MANAGEMENT LLC AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15.   SUBSEQUENT EVENTS

In October 2009, the Company consummated an initial public offering of 23.0 million shares of its common stock. Net proceeds of approximately $385.0 million were primarily used to purchase approximately $316.0 million of the Senior Subordinated Notes in a tender offer and pay $29.6 million to terminate a management agreement entered into with the Sponsors in connection with the Transaction. Immediately upon the completion of the initial public offering, there were approximately 142.8 million shares of the Company’s common stock outstanding. In the quarter ending December 31, 2009, the Company will recognize in the statement of operations several one-time expenses as a direct result of the initial public offering, including $44.8 million for the cancellation of indebtedness, $15.5 million of previously unrecognized stock-based compensation costs due to the termination of the Company’s Amended and Restated Shareholder’s Agreement, and $29.6 million in advisory fees for early termination of the Sponsor management agreement. These expenses are not reflected in the accompanying consolidated financial statements. In addition, the availability for borrowing under EM LLC’s revolving credit facility increased from $388.5 million to $442.5 million effective upon the closing of the initial public offering.

As described in Note 4, the Company’s LTIC Plan is a liability-based plan at September 30, 2009. In connection with the initial public offering, it became an equity-based plan, as it is the Company’s intent to settle these awards in common stock. The total amount of unrecognized compensation cost over the vesting periods of all units, net of expected forfeitures, is approximately $4.0 million at September 30, 2009; however, the Company does not expect to recognize any compensation expense related to the LTIC Plan in the quarter ended December 31, 2009 due to the uncertainty of certain performance conditions being met.

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Amounts expressed as a percentage of net revenues

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months
	Ended September 30,
	2009			2008
	(Unaudited)
Net revenues		100.0	%		100.0	%
Costs and expenses:
Educational services		55.4	%		58.4	%
General and administrative		27.7	%		27.9	%
Depreciation and amortization		5.4	%		6.1	%
Total costs and expenses		88.5	%		92.4	%
Income before interest and income taxes		11.5	%		7.6	%
Interest expense, net		6.8	%		8.7	%
Income (loss) before income taxes		4.7	%		(1.1	)%
Provision for (benefit from) income taxes		1.8	%		(0.5	)%
Net income (loss)		2.9	%		(0.6	)%

Three months ended September 30, 2009 (current period) compared to the three months ended September 30, 2008 (prior period)

All basis point changes are presented as a percentage of net revenues in each period of comparison.

Net revenues

Net revenues for the three months ended September 30, 2009 increased 23.1% to $534.4 million, compared to $434.2 million in the same period a year ago. Average student enrollment increased 23.1% in the current period compared to the prior period primarily due to the opening of new school locations, the growth in our fully online programs and the introduction of new academic programs. In addition, tuition rates increased approximately 6% in the current period compared to the prior period. These factors were partially offset by a lower average credit load taken by students. The decrease in credit load was primarily the result of growth in the number of students enrolled in fully online programs, in which students typically take a lesser credit load than onground students. None of the increase in student enrollment was due to acquisitions of schools since September 30, 2008. Tuition revenue generally varies based on the average tuition charge per credit hour, average credits per student and the average student population.

Our quarterly net revenues and net income fluctuate primarily as a result of the pattern of student enrollments at our schools. The seasonality of our business has decreased over the last several years due to an increased percentage of students enrolling in online programs, which generally experience less seasonal fluctuations than campus-based programs. Our first fiscal quarter is typically our lowest revenue recognition quarter due to student vacations.

Educational services expense

Educational services expense consists primarily of costs related to the development, delivery and administration of our education programs. The major cost components include faculty compensation, salaries of

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administrative and student services staff, costs of educational materials, facility occupancy costs, information systems costs, loan fees and bad debt expense.

Educational services expense increased by $42.2 million, or 16.6%, to $295.7 million in the current period due primarily to the incremental costs incurred to support higher student enrollment. As a percentage of net revenues, educational services expense decreased by 305 basis points from the quarter ended September 30, 2008 to the current quarter. Salaries and benefits decreased by 166 basis points from the prior period primarily due to operating leverage at existing onground campuses, partially offset by an increase in these costs for our fully online programs. Rent expense associated with schools was $40.4 million in the current period and $35.3 million in the prior period, representing a decrease of 56 basis points. Additionally, costs related to utilities, employee relations and travel and training decreased 57 basis points in the current period compared to the prior period. We also experienced a decrease of seven basis points from the prior period in fees paid to private lenders to originate loans obtained by our students. Bad debt expense was $23.2 million, or 4.3% of net revenues, in the current period compared to $18.0 million, or 4.1% of net revenues, in the prior period, which represented an increase of 19 basis points. The increase in bad debt expense as a percentage of net revenues was primarily due to larger receivable balances as a result of our assistance with students’ cost of education, higher delinquency rates and an increase in the proportion of our receivables from out-of-school students, which are reserved for at a higher rate than in-school students. In addition, allowances recorded in connection with our Education Finance Loan program and worsening economic conditions negatively impacted bad debt expense. The remaining net decrease of 38 basis points in the current period was driven by other costs, none of which were individually significant.

General and administrative expense

General and administrative expense consists of marketing and student admissions expenses and certain central staff departmental costs such as executive management, finance and accounting, legal, corporate development and other departments that do not provide direct services to our students.

General and administrative expenses were $148.1 million for the current period, an increase of 22.0% from $121.3 million in the prior period. As a percentage of net revenues, general and administrative expenses decreased 23 basis points compared with the quarter ended September 30, 2008, due primarily to a 20 basis point decrease in marketing and admissions costs. Marketing and admissions costs were 24.0% of net revenues in the current quarter compared to 24.2% of net revenues in the prior year quarter. The remaining net decrease of three basis points in the current quarter was driven by other costs, none of which were individually significant.

Depreciation and amortization expense

Depreciation and amortization expense on long-lived assets was $28.8 million in the current period, an increase of 8.4% from the prior period. As a percentage of net revenues, depreciation and amortization expense decreased by 73 basis points compared to the prior period, due in part to a reduction in the amortization of intangible assets recorded in connection with the Transaction.

Interest expense, net

Net interest expense was $36.3 million in the current period, a decrease of $1.9 million from the prior period. The decrease in net interest expense is primarily related to a reduction in the average interest rate of the term loan during the current period, coupled with the effect of required principal repayments of $12.8 million on outstanding indebtedness since September 30, 2008.

Provision for income taxes

The provision for income taxes for the three months ended September 30, 2009 was $9.7 million as compared to an income tax benefit of $2.1 million for the same period in the prior year. The Company’s effective tax rate was 38.0% for the three months ended September 30, 2009 as compared to 38.9% for the same period in the prior year. The effective rates differed from the combined federal and state statutory rates primarily due to valuation allowances, expenses that are non-deductible for tax purposes, and accounting for uncertain tax positions.

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Liquidity and Funds of Capital Resources

We finance our operating activities primarily from cash generated from operations, and our primary source of cash is tuition collected from our students. We believe that cash flow from operations, supplemented from time to time with borrowings under our $442.5 million revolving credit facility, will provide adequate funds for ongoing operations, planned expansion to new locations, planned capital expenditures and debt service as well as acquisitions during the next twelve months.

Net working capital is calculated as total current assets less total current liabilities. Advance payments and amounts outstanding under our revolving credit facility do not contribute to any changes in net working capital as these liabilities are directly offset in current assets. We had working capital of $76.7 million at September 30, 2009, which compares favorably to an $18.0 million working capital deficit at September 30, 2008. The change in working capital is primarily the result of a $31.2 million increase in earnings before interest, taxes and depreciation (“EBITDA”) compared to the prior year quarter, a decrease of $17.6 million in the amount spent on long-lived assets during the quarter and a $19.4 increase in current deferred tax assets.

Operating cash flows

Cash flow from operations for the three month period ended September 30, 2009 was $200.6 million, compared to $108.7 million in the prior year period. The increase in operating cash flows as compared to the prior year period was primarily related to a $75.3 million increase in advanced payments, which benefited from the timing of our October academic term start occurring earlier than in the first quarter of fiscal 2009, and increased net income.

Days sales outstanding (“DSO”) in receivables decreased slightly from 26.6 days in the period ended September 30, 2008 to 22.9 days at September 30, 2009. We calculate DSO by dividing net student and other receivables at period end by average daily net revenues for the most recently completed quarter. Net accounts receivable can be affected significantly by the changes in the start dates of academic terms from reporting period to reporting period. There were no significant changes to the start dates of academic terms in session as compared to the prior year.

The level of accounts receivable reaches a peak immediately after the billing of tuition and fees at the beginning of each academic period. Collection of these receivables is heaviest at the start of each academic period. Additionally, federal financial aid proceeds for continuing students can be received up to ten days prior to the start of an academic quarter, which can result in fluctuations in quarterly cash receipts due to the timing of the start of academic periods.

In an effort to provide our students with financing for the cost of tuition, we have established relationships with alternative or private loan providers. Private loans help bridge the funding gap created by tuition rates that have risen more quickly than federally-guaranteed student loans. In addition, we introduced the Education Finance Loan program in August 2008, which enables students who have exhausted all available government-sponsored or other aid and have been denied a private loan to borrow a portion of their tuition and other educational expenses at our schools if they or a co-borrower meet certain eligibility and underwriting criteria. We purchased loans totaling $7.9 million during the three-month period ended September 30, 2009 related to the Education Finance Loan program.

We have accrued a total of $22.7 million as of September 30, 2009 for uncertain tax positions, excluding interest and the indirect benefits associated with state income taxes. There have been no material adjustments to liabilities relating to uncertain tax positions since the last annual disclosure for the fiscal year ended June 30, 2009. We may have future cash payments up to the amount accrued if we are ultimately unsuccessful in defending these uncertain tax positions. However, we cannot reasonably predict at this time the future period in which these payments may occur, if at all.

Investing cash flows

Capital expenditures were $33.2 million, or 6.2% of net revenues, for the quarter ended September 30, 2009, compared to $50.8 million, or 11.7% of net revenues, for the prior year quarter. The decrease in capital expenditures

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as a percentage of net revenues during the first quarter of fiscal 2010 as compared to the first quarter of fiscal 2009 was primarily due to the timing of capital expenditures during the prior year period. We expect capital expenditures in fiscal 2010 to be between 6.5% and 7.5% of net revenues compared to 7.5% of net revenues in fiscal 2009. During fiscal 2010, we will continue to invest both in new facilities and in the expansion of existing facilities. Reimbursements for tenant improvements represent cash received from lessors based on the terms of lease agreements to be used for leasehold improvements. We lease most of our facilities under operating lease agreements. We anticipate that future commitments on existing leases will be satisfied from cash provided from operating activities. We also expect to extend the terms of leases that will expire in the near future or enter into similar long-term commitments for comparable space.

Financing cash flows

Our revolving credit facility is available to draw upon in order to satisfy certain year-end regulatory financial ratios, fund working capital needs that may result from the seasonal pattern of cash receipts that occur throughout the year and finance acquisitions. On July 1, 2009, we repaid the revolving credit facility’s balance outstanding of $100.0 million, which existed in order to satisfy year-end regulatory financial ratios, from cash on hand at June 30, 2009. In connection with the increase to EM LLC’s revolving credit facility in August 2009 from $322.5 million to $388.5 million, two letter of credit issuing banks were added to increase the amount available for letters of credit under the revolving credit facility from $175.0 million to $375.0 million.

At September 30, 2009, we had an outstanding letter of credit issued to the U.S. Department of Education of approximately $120.5 million primarily due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce our availability to borrow funds under the revolving credit facility. Including those issued to the U.S. Department of Education, an aggregate of $137.3 million of letters of credit were outstanding at September 30, 2009.

As a result of the Transaction, we are highly leveraged and our debt service requirements are significant. At September 30, 2009, we had $1,885.4 million in aggregate indebtedness outstanding. After giving effect to outstanding letters of credit and amounts drawn, we had $251.2 million of additional borrowing capacity on the revolving credit facility at September 30, 2009. We expect our cash flows from operations, combined with availability under our revolving credit facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending over the next twelve months.

In October 2009, we consummated an initial public offering of 23.0 million shares of our common stock for net proceeds of approximately $385.0 million, which was primarily used to purchase approximately $316.0 million of our senior subordinated notes due June 2016 in a tender offer and pay $29.6 million to terminate a management agreement entered into with the Sponsors in connection with the Transaction. In connection with the completion of the initial public offering, EM LLC also increased capacity for borrowing on its revolving credit facility from $388.5 million to $442.5 million.

In November 2009, the Company guaranteed the 8.75% senior notes due 2014 and the 10.25% senior subordinated notes due 2016 issued by EM LLC and Education Management Finance Corp. We do not expect the guarantee will adversely affect our liquidity within the next twelve months or restrict our ability to declare dividends or incur additional indebtedness in the future.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Federal Family Education Loan Program and Private Student Loans

Approximately 81.5% and 13.1% of our net revenues were indirectly derived from Title IV programs under the Higher Education Act of 1965 and private loan programs, respectively, in fiscal 2009 compared to 70.2% and 22.3% from Title IV programs and private loan programs, respectively, in fiscal 2008. There have been significant recent developments that have impacted these programs.

25

The U.S. government has recently made additional financial aid available to students in order to meet rising post-secondary education and decreased availability of private loans. Effective July 1, 2008, the annual Stafford loans available for undergraduate students under the FFEL program increased by $2,000. Effective as of July 1, 2008, the maximum amount of availability of a Pell grant increased to $4,731 per year from a maximum of $4,310 per year in fiscal 2008. The maximum Pell grant available to eligible students further increased effective July 1, 2009 to $5,350 per award year.

The credit and equity markets of both mature and developing economies have experienced extraordinary volatility, asset erosion and uncertainty in recent periods. In particular, adverse market conditions for consumer student loans have resulted in providers of private loans reducing the attractiveness and/or decreasing the availability of private loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based private loans. In order to provide student loans to certain of our students who do not satisfy the new standard underwriting, we pay credit enhancement fees to certain lenders (including Sallie Mae) based on the principal balance of each loan disbursed by the lender. An agreement we entered into with Sallie Mae to provide loans to certain students who received a private loan from Sallie Mae prior to April 17, 2008 and are continuing their education but who do not satisfy Sallie Mae’s current standard underwriting criteria expires in June 2010.

The reliance by students attending our schools on private loans decreased substantially during fiscal 2009 due to the increased availability of federal aid and certain operating initiatives we implemented over the past 18 months. Excluding activity under our Education Finance Loan program, private loans accounted for approximately 13% of our net revenues in fiscal 2009 as compared to approximately 22% in fiscal 2008. This trend continued during the first quarter of fiscal 2010, as private loans accounted for approximately 7% of our net revenues as compared to approximately 19% in the first quarter of fiscal 2009.

In response to the tightened credit markets facing our students, in August 2008 we introduced the Education Finance Loan program through a private lender. The program enables students who have exhausted all available government-sponsored or other aid and have been denied a private loan to borrow a portion of their tuition and other educational expenses at our schools if they or a co-borrower meet certain eligibility and underwriting criteria. Under the program, we purchase loans made by a private lender to students who attend our schools. Aid awarded under the Education Finance Loan Program represented approximately 1.0% and 2.9% as a percentage of net revenues during fiscal 2009 and the first quarter of 2010, respectively. We estimate that disbursements under this program during fiscal 2010 will be approximately $75 million.

The Education Finance Loan program adversely impacts our liquidity and exposes us to new and greater credit risk because we own loans to our students. This financing provides for payments to us by our students over an extended term, which could have a material adverse effect on our cash flows from operations. In addition, we have the risk of collection with respect to these loans, which resulted in an increase in our bad debt expense as a percentage of net revenues in fiscal 2009 compared to prior fiscal years. While we are taking steps to address the private loan needs of our students, the consumer lending market could worsen. The inability of our students to finance their education could cause our student population to decrease, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Contingencies

Refer to Item 1 — “Financial Statements — Note 12, Contingencies”.

New Accounting Standards Not Yet Adopted

Refer to Item 1 — “Financial Statements — Note 2, Recent Accounting Pronouncements”.

Non-GAAP Financial Measures

We use EBITDA, defined as net income plus interest expense (income), net, income taxes, depreciation and amortization, to measure operating performance. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating

26

activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for our discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. We believe EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, these presentations of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA is calculated as follows (in millions):

	For the Three Months
	Ended September 30,
	2009		2008
Net income (loss)	$	15.8	$	(3.3	)
Interest expense, net		36.3		38.2
Provision for (benefit from) income taxes		9.7		(2.1	)
Depreciation and amortization		28.8		26.6
EBITDA	$	90.6	$	59.4

Covenant Compliance

Under its senior secured credit facilities, our subsidiary, EM LLC, is required to satisfy a maximum total leverage ratio, a minimum interest coverage ratio and other financial conditions tests. At September 30, 2009, EM LLC was in compliance with the financial and non-financial covenants. Its continued ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that it will meet those ratios and tests in the future.

Adjusted EBITDA is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the senior notes and senior subordinated notes and in our senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the indentures governing the senior notes and senior subordinated notes and our senior secured credit facilities. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants.

The breach of covenants in our senior secured credit facilities that are tied to ratios based on Adjusted EBITDA could result in a default under that agreement, in which case the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under our indentures governing the senior notes and senior subordinated notes. Additionally, under our senior secured credit facilities and the indentures governing the senior notes and senior subordinated notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In addition, unlike GAAP measures such as net income and earnings per share, Adjusted EBITDA does not reflect the impact of our obligations to make interest payments on our debt service obligations, which have increased substantially as a result of our indebtedness incurred in June 2006 to finance the Transaction and related expenses. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations. In particular, the definition of Adjusted EBITDA in the senior credit facilities and the indentures allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income. However,

27

these are expenses that may recur, vary greatly and are difficult to predict. Further, our debt instruments require that Adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

The following is a reconciliation of net income, which is a GAAP measure of operating results, to Adjusted EBITDA for EM LLC as defined in its debt agreements. The terms and related calculations are defined in the senior secured credit agreement (in millions).

	For the Twelve
	Months Ended
	September 30,
	2009
Net income	$	123.4
Interest expense, net		151.6
Provision for income taxes		73.0
Depreciation and amortization		114.5
EBITDA		462.5
Reversal of impact of unfavorable leases(1)		(1.2	)
Transaction and advisory expense(2)		5.0
Severance and relocation		5.5
Capital taxes		4.2
Other		1.4
Adjusted EBITDA — Covenant Compliance	$	477.4

(1)	Represents non-cash reduction to rent expense due to the amortization on $7.3 million of unfavorable lease liabilities resulting from fair value adjustments required under SFAS No. 141 as part of the Transaction.
(2)	Represents fees incurred under a management advisory agreement with the Sponsors.

Our covenant requirements and actual ratios for the twelve months ended September 30, 2009 are as follows:

	Covenant			Actual
Senior Secured Credit Facility	Requirements			Ratios
Adjusted EBITDA to Consolidated Interest Expense ratio		Minimum of 1.80	x		3.14	x
Consolidated Total Debt to Adjusted EBITDA ratio		Maximum of 6.25	x		3.15	x

Certain Risks and Uncertainties

Certain of the matters we discuss in this report may constitute forward-looking statements. Forward-looking statements contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern our strategy, plans or intentions. All statements we make relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, from time to time we make forward-looking public statements concerning our expected future operations and performance and other developments. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Some of the factors that we believe could affect our results include: our high degree of leverage; our ability to generate sufficient cash to service all of our debt obligations; general economic and market conditions; the condition of the post-secondary education industry; the integration of acquired businesses, the performance of acquired businesses, and the prospects for future acquisitions; the effect of war, terrorism, natural disasters or other

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catastrophic events; the effect of disruptions to our systems and infrastructure; the timing and magnitude of student enrollment; the timing and scope of technological advances; the trend in information availability toward solutions utilizing more dedicated resources; the market and credit risks associated with the post-secondary education industry; the ability to retain and attract students and key personnel; and risks relating to the foreign countries where we transact business. The factors described in this paragraph and other factors that may affect our business or future financial results are discussed in our filings with the Securities and Exchange Commission, including this report.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of business that include foreign currency exchange rates and typically do not utilize forward or option contracts on foreign currencies or commodities. We are also subject to fluctuations in the value of the Canadian dollar relative to the U.S. dollar, but we do not believe we are subject to material risks from reasonably possible near-term changes in exchange rates due to the size of our Canadian operations relative to our total business.

The fair values of cash and cash equivalents, accounts receivable, borrowings under our revolving credit facility, accounts payable and accrued expenses approximate carrying values because of the short-term nature of these instruments.

At September 30, 2009, we had total debt obligations of $1,885.4 million, including $1,123.9 million in variable rate debt under the senior secured credit facility at a weighted average interest rate of 7.1%. A hypothetical change of 1.25% in interest rates from September 30, 2009 levels would have increased or decreased interest expense by approximately $1.2 million for the variable-rate debt in the three-month period ended September 30, 2009.

Two five-year interest rate swap agreements fix the interest rate on $750.0 million of our variable rate debt through July 1, 2011. At September 30, 2009, we had variable rate debt of $373.9 million that was subject to market rate risk, as our interest payments fluctuated as a result of market changes. Under the terms of the interest rate swaps, we receive variable payments based on the three month LIBOR and make payments based on a fixed rate of 5.4%. The net receipt or payment from the interest rate swap agreements is recorded in interest expense. The interest rate swaps are designated and qualify as cash flow hedges. The derivative financial instruments are carried at fair value, which is based on the framework discussed in Note 9 to the accompanying consolidated financial statements. We do not use derivative instruments for trading or speculative purposes. For the three-month period ended September 30, 2009, we recorded an unrealized after-tax gain of $0.9 million in other comprehensive loss related to the change in market value on the swap agreements. The cumulative unrealized net loss of $33.3 million, net of tax, at September 30, 2009 related to the swaps may be recognized in the consolidated statement of operations if certain terms of the senior secured credit facilities change, if the senior secured credit facilities are extinguished or if the swap agreements are terminated prior to maturity.

ITEM 4.   CONTROLS AND PROCEDURES

The Company, under the supervision and participation of its management, which include the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of its “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”). This evaluation was conducted as of the end of the period covered by this Form 10-Q. Based on that evaluation, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective. Effective controls ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed and summarized within the time periods specified in Securities and Exchange Commission’s rules and forms. These controls and procedures are designed to ensure that information required to be disclosed by the Company in such reports are accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Information relating to legal proceedings is included in Note 12, Contingencies, to the Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A.   RISK FACTORS

There have been no material changes to our Risk Factors as previously disclosed in our Prospectus filed on October 2, 2009 with the Securities and Exchange Commission (file no. 333-148259)

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.   OTHER INFORMATION

None.

ITEM 6.   EXHIBITS INDEX

Number			Document
	3	.1	Amended and Restated Articles of Incorporation.
	3	.2	Amended and Restated Bylaws.
	10	.1	Shareholders Agreement dated as of October 7, 2009 by and among Education Management Corporation and the shareholders party thereto.
	10	.2	Education Management Corporation Omnibus Long-Term Incentive Plan.
	10	.3	Form of Stock Option Agreement.
	10	.4	Form of Restricted Stock Award Agreement.
	31	.1	Certification of Todd S. Nelson required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Edward H. West required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Todd S. Nelson required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2	Certification of Edward H. West required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

/S/ EDWARD H. WEST

Edward H. West

President and Chief Financial Officer

Date: November 10, 2009

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF EDUCATION MANAGEMENT CORPORATION

Pursuant to Section 1915 of the Pennsylvania Business Corporation Law of 1988, as amended (the “PBCL”), relating to business corporations and in compliance with the applicable provisions relating to articles of amendment, the undersigned, desiring to amend and restate its articles, hereby states that:

1. The name of the Corporation is: Education Management Corporation.

2. The Corporation was originally incorporated under the Pennsylvania Business Corporation Law of 1933. The date of incorporation of the Corporation is May 16, 1962.

3. The amendments shall be effective upon the filing of these Amended and Restated Articles of Incorporation with the Department of State.

4. The amendments were adopted by the shareholders pursuant to Section 1914(a) of the PBCL.

5. These Amended and Restated Articles of Incorporation shall supersede the original articles of incorporation, as amended and restated, and all amendments thereto.

6. The Amended and Restated Articles of Incorporation adopted by the Corporation, set forth in full, read as follows:

ONE: The name of the Corporation is: Education Management Corporation (the “Corporation”).

TWO: The location and post office address of the registered office of the Corporation in the Commonwealth of Pennsylvania is 210 Sixth Avenue, Pittsburgh, PA 15222.

THREE: The Corporation is incorporated under the provisions of the PBCL.

FOUR: The term for which the Corporation is to exist is perpetual.

FIVE:

     A. Authorized Shares. The aggregate number of shares which the Corporation shall have authority to issue is six hundred twenty million (620,000,000) shares, as follows:

          (i) Six hundred million (600,000,000) shares of Common Stock, with a par value of one cent ($.01) per share. Except for and subject to those rights as may be expressly granted to the holders of Preferred Stock pursuant to the authority vested by these Amended and Restated Articles of Incorporation in the Board of Directors of the Corporation, or except as may

be provided by the laws of the Commonwealth of Pennsylvania, the holders of Common Stock shall have exclusively all rights of shareholders.

          (ii) Twenty million (20,000,000) shares of Preferred Stock, with a par value of one cent ($.01) per share.

     B. Preferred Stock. Authority is hereby expressly vested in the Board of Directors of the Corporation at any time and from time to time by resolution to divide into and issue the Preferred Stock in one or more classes or series, or both, and to determine for any such class or series its designation and the number of shares of the class or series and the voting rights, powers, preferences, limitations and/or other special rights, in each case, if any, of the shares of any class or series, and to increase or decrease the number of shares of any such class or series to the full extent now or hereafter permitted by the PBCL.

     C. Uncertificated Shares. Any or all classes and series of shares of the Corporation, or any part thereof, may be uncertificated shares to the extent determined by the Board of Directors, except that this paragraph C shall not apply to shares represented by a certificate that is issued and outstanding until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class and series shall be identical.

SIX:

     A. Board of Directors. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors shall be as determined by the Board of Directors from time to time in accordance with the Bylaws of the Corporation, as amended (the “Bylaws”). Subject to any applicable provisions set forth in the Bylaws, the Shareholders Agreement among the Corporation and certain of its shareholders, dated on or about the closing of the Corporation’s initial public offering of Common Stock (as amended from time to time, the “Shareholders Agreement”), if in effect, and the rights of holders of any series of Preferred Stock then outstanding, in the case of any increase in the number of directors of the Corporation, the additional director or directors shall be filled by the affirmative vote of a majority of the remaining members of the Board of Directors. No decrease in the number of directors of the Corporation shall shorten the term of any incumbent director.

     B. Certain Board Matters. The entire Board of Directors or any individual director may be removed from office by vote of the shareholders entitled to vote thereon only for cause; provided, that, so long as the shareholders have the right to act by partial written consent pursuant to Article Eleven, the entire Board of Directors or any individual director may be removed from office by partial written consent without assigning any cause. In case the Board of Directors or any one or more directors are so removed, new directors may be elected at the same meeting (or by the same partial written consent), subject to any applicable provisions set forth in the Bylaws, or the Shareholders Agreement, if in effect. Except as stated above, the

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repeal of a provision of these Amended and Restated Articles of Incorporation or the Bylaws, prohibiting, or the addition of a provision to these Amended and Restated Articles of Incorporation or the Bylaws permitting, the removal by the shareholders of the Board of Directors or a director without assigning any cause shall not apply to any incumbent director during the balance of the term for which he was elected.

SEVEN: The shareholders of the Corporation shall not have the right to cumulate their votes for the election of directors of the Corporation.

EIGHT: Subchapters E, F, G, H, I, and J of Chapter 25 and Section 2538 of the PBCL shall not be applicable to the Corporation.

NINE: The Board of Directors is authorized to adopt, amend or repeal any term or provision of the Bylaws of the Corporation by a vote of a majority of its members, subject always to the provisions of the Shareholders Agreement, if in effect, and the power of the shareholders to adopt, amend or repeal the Bylaws of the Corporation by the affirmative vote of the holders of at least two-thirds (or, if the Sponsors collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, a majority) of the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of directors of the Board of Directors of the Corporation (the “Voting Power”), voting together as a single class.

TEN: In addition to the requirements of law, and the other provisions of these Amended and Restated Articles of Incorporation, as amended, the affirmative vote of two-thirds (or, if the Sponsors collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, a majority) of the Voting Power, voting together as a single class, shall be required to delete, amend or supplement any term or provision of this Article Ten, Articles Four, Six, Seven, Eight, Nine, Eleven, Twelve, Thirteen, and Fourteen or paragraph B of Article Five hereof.

ELEVEN: As long as GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V Institutional, L.P., GS Capital Partners V GmbH & Co. KG, GS EDMC Investors, LP, GSCP V EDMC Holdings, L.P., GS Private Equity Partners 2000, L.P., GS Private Equity Partners 2000 Offshore Holdings, L.P., GS Private Equity Partners 2000 — Direct Investment Fund, L.P., GS Private Equity Partners 2002, L.P., GS Private Equity Partners 2002 Offshore Holdings, L.P., GS Private Equity Partners 2002 — Direct Investment Fund, L.P., GS Private Equity Partners 2002 Employee Fund, L.P., GS Private Equity Partners 2004, L.P., GS Private Equity Partners 2004 Offshore Holdings, L.P., GS Private Equity Partners 2004 — Direct Investment Fund, L.P., GS Private Equity Partners 2004 Employee Fund, L.P., Multi-Strategy Holdings, L.P., Providence Equity Partners V, LP, Providence Equity Partners V-A, LP, Providence Equity Partners IV LP, Providence Equity Operating Partners IV LP, PEP EDMC L.L.C., Fisher Lynch Co-Investment Partnership, L.P., Ontario Teachers’ Pension Plan Board, General Electric Pension Trust, Citigroup Capital Partners II Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P., Citigroup Capital Partners II Cayman Holdings, L.P., Citigroup Capital Partners II 2006 Citigroup Investment, L.P., AlpInvest Partners CS Investments 2006 C.V., AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V.,

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Leeds Equity Partners IV, L.P., Leeds Equity Partners IV Co Investment Fund A, L.P., Leeds Equity Partners IV Co Investment Fund B, L.P., and their respective affiliates (collectively, the “Sponsors”) collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, then any action required or permitted to be taken at any annual or special meeting of the shareholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If the Sponsors collectively beneficially own, directly or indirectly, less than 50.0% of the outstanding shares of Common Stock of the Corporation, then no action may be authorized by the shareholders without a meeting by consent except for action taken with the unanimous consent of all holders of Common Stock of the Corporation.

TWELVE: Special meetings of the shareholders may only be called by those persons so authorized in the Bylaws, and the shareholders shall not be entitled to call special meetings of the shareholders; provided, that, if the Sponsors collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, then special meetings of the shareholders also may be called by holders of no less than 25.0% of the outstanding shares of Common Stock of the Corporation.

THIRTEEN:

     A. Mandatory Indemnification of Directors and Officers.

          (i) The Corporation shall promptly indemnify, to the fullest extent now or hereafter permitted by law or Section A(ii) of this Article Thirteen, each director or officer (including each former director or officer) of the Corporation (hereafter, an “indemnitee”) who was or is made a party to or a witness in or is threatened to be made a party to or a witness in, any threatened, pending or completed action, suit, investigation or proceeding, whether civil, criminal, administrative or investigative and whether external or internal to the Corporation (hereafter, a “proceeding”), by reason of the fact that the indemnitee is or was an authorized representative of the Corporation, against all expenses (including attorneys’ fees, disbursements and other charges), judgments, losses, fines (including excise taxes and penalties) and amounts paid in settlement (collectively, “Losses”) actually and reasonably incurred or suffered by the indemnitee in connection with such proceeding.

          (ii) Indemnification pursuant to this Section A of Article Thirteen shall include, but shall not be limited to, cases in which indemnification is permitted pursuant to the provisions of Chapter 17, Subchapter D, of the PBCL. Indemnification pursuant to this Section A of Article Thirteen shall be made in every case described in Section A(i) hereof except:

               (a) in connection with a proceeding (or any claim, issue or matter therein or any part thereof) initiated by the indemnitee, except (i) if the Board of Directors of the Corporation has approved the initiation or bringing of such claim or (ii) any compulsory

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counterclaim, compulsory cross-claim, or required joinder made by indemnitee in a proceeding not initiated by indemnitee; or

               (b) with respect to any act that is established, by a final, unappealable adjudication adverse to the indemnitee, as having been material to the cause of action so adjudicated and as having constituted either willful misconduct or recklessness; or

               (c) with respect to any benefit or advantage gained by the indemnitee to which the indemnitee was not legally entitled; or

               (d) for liability imposed in a proceeding by or for the benefit of the Corporation to recover any profit pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and regulations thereunder or similar provisions of any applicable state law; provided, however, that the exclusion in Section A(ii)(d) of this Article Thirteen shall not apply to expenses (including attorney’s fees, disbursements and other charges) incurred by indemnitee in such a proceeding.

          (iii) Notwithstanding the foregoing provisions of this Section A of this Article Thirteen, to the extent that an indemnitee is successful on the merits or otherwise in defense of any proceeding or any part thereof or in defense of any claim, issue or matter therein, including but not limited to obtaining a dismissal without prejudice or a settlement without admission of liability, the indemnitee shall be promptly indemnified by the Corporation against all Losses actually and reasonably incurred or suffered by the indemnitee in connection therewith.

          (iv) The right of indemnification pursuant to this Section A of this Article Thirteen is conferred in order to attract and retain the services of highly qualified directors and officers and to encourage them to make corporate decisions without fear of strike suits and legal harassment. Indemnification pursuant to this Section A of this Article Thirteen is therefore declared to be consistent with the fiduciary duty of the Corporation’s Board of Directors. Except as specifically provided in this Section A of this Article Thirteen, such indemnification shall be made by the Corporation without any requirement that any determination be made or any action be taken by the Board of Directors, shareholders, or legal counsel. A failure of the Board of Directors, shareholders, or legal counsel to make a determination or take action favorable to the claim of an indemnitee for indemnification pursuant to this Section A of this Article Thirteen, or the making of a determination or taking of action adverse to such a claim, shall not preclude indemnification under this Article Thirteen or create any presumption that the indemnitee is not entitled to such indemnification.

          (v) The Corporation agrees that if any party with a right to nominate a representative to a position on the Board of Directors of the Corporation pursuant to the Shareholders Agreement pays or causes to be paid, or its affiliate or insurer pays, for any reason, any amounts otherwise indemnifiable pursuant to this Article Thirteen, then (a) such party (or such affiliate or insurer, as the case may be) shall be fully subrogated to all rights of indemnitee with respect to such payment and (b) the Corporation shall reimburse such party (or such affiliate or insurer) for the payments actually made.

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     B. Mandatory Advancement of Expenses to Directors and Officers. The Corporation shall promptly pay all expenses (including attorneys’ fees, disbursements and other charges) actually incurred by an indemnitee in defending or appearing in any proceeding described in Section A of this Article Thirteen in advance of the final disposition of such proceeding upon receipt of (i) an undertaking by or on behalf of the indemnitee to repay all amounts advanced if it is ultimately specifically determined by a final, unappealable adjudication that the indemnitee is not entitled to be indemnified by the Corporation and (ii) an irrevocable assignment to the Corporation of all payments to which the indemnitee may be or become entitled, under any policy of insurance or otherwise (except with respect to payments made under Section A(v) of this Article Thirteen by or on behalf of a party with a right to nominate a representative to a position on the Board of Directors of the Corporation pursuant to the Shareholders Agreement), in reimbursement of any such expenses paid by the Corporation pursuant to this Section B of this Article Thirteen. Notwithstanding the foregoing, no advance payment shall be made by the Corporation pursuant to this Section B of this Article Thirteen if the Board of Directors reasonably and promptly determines by a majority vote of the directors who are not parties to the proceeding that, based upon the facts known to the Board of Directors at the time the determination is made, the matter is of the kind described in Section A(ii)(a) of this Article Thirteen or the indemnitee’s actions were of the kind described in Section A(ii)(c) of this Article Thirteen.

     C. Permissive Indemnification and Advancement of Expenses. The Corporation may, as determined by the Board of Directors from time to time:

          (i) indemnify, to the fullest extent permitted by Section A of this Article Thirteen, any other person who was or is made a party to or required to appear in, or is threatened to be made a party to or required to appear in, or was or is otherwise involved in, any threatened, pending or completed proceeding by reason of the fact that such person is or was an authorized representative of the Corporation, both as to action in such person’s official capacity and as to action in another capacity while holding such office or position, against all Losses actually and reasonably incurred or suffered by such person in connection with such action or proceeding, with the same effect as though such person were an “indemnitee” as defined in Section A of this Article Thirteen; and

          (ii) pay expenses incurred by any such other person by reason of his or her participation in any such proceeding in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation and to repay all amounts advanced for which he or she is reimbursed under any policy of insurance or otherwise, with the same effect as though such person were an “indemnitee” as defined in Section A of this Article Thirteen.

     D. Enforcement. If the Corporation refuses or fails to make any payment to an indemnitee required by this Article Thirteen, the indemnitee shall be promptly indemnified by the Corporation against expenses (including attorneys’ fees, disbursements and other charges) actually incurred by the indemnitee in connection with the successful establishment of his or her

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right to indemnification or advancement of expenses, in whole or in part, in an action in a court of competent jurisdiction.

     E. General. Each director or officer of the Corporation shall be deemed to act in such capacity in reliance upon such rights of indemnification and advancement of expenses as are provided in this Article Thirteen. The rights of indemnification and advancement of expenses provided by this Article Thirteen shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any bylaws, agreement, vote of shareholders or disinterested directors, statute or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be an authorized representative of the Corporation and shall inure to the benefit of the heirs and personal representatives of such person. Indemnification and advancement of expenses under this Article Thirteen shall be provided whether or not the indemnified liability arises or arose from any threatened, pending or completed action by or in the right of the Corporation. Any repeal or modification of this Article Thirteen shall not adversely affect any right or protection existing at the time of such repeal or modification to which any person may be entitled under this Article Thirteen.

     F. Definition of Corporation. For the purposes of this Article Thirteen, references to “the Corporation” shall include all constituent corporations absorbed in a consolidation, merger or division, as well as the surviving or new corporations surviving or resulting therefrom, so that (i) any person who is or was an authorized representative of a constituent, surviving or new corporation shall stand in the same position under the provisions of this Article Thirteen with respect to the surviving or new corporation as such person would if he or she had served the surviving or new corporation in the same capacity and (ii) any person who is or was an authorized representative of the Corporation shall stand in the same position under the provisions of this Article Thirteen with respect to the surviving or new corporation as such person would with respect to the Corporation if its separate existence had continued.

     G. Definition of Authorized Representative. For the purposes of this Article Thirteen, the term “authorized representative” shall mean, and the indemnification provisions of this Article Thirteen shall be deemed to apply to, a director, officer, employee or agent of the Corporation or of any subsidiary of the Corporation, or a trustee, custodian, administrator, committeeman or fiduciary of any employee benefit plan established and maintained by the Corporation or by any direct or indirect subsidiary of the Corporation, or a person serving another corporation, partnership, joint venture, trust or other enterprise in any of the foregoing capacities at the request of the Corporation.

     H. Savings Clause. If a court of competent jurisdiction determines that any provision of this Article Thirteen requires the Corporation to take an action that would violate applicable law, such provision shall be limited or modified in its application to such action to the minimum extent necessary to avoid such violation of law, and, as so limited or modified, such provision and the balance of this Article Thirteen shall be enforceable in accordance with their terms to the fullest extent permitted by applicable law, including but not limited to, the PBCL.

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     I. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was an authorized representative of the Corporation, against any liability asserted against or incurred by such person in any such capacity, or arising out of the status of such person as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article Thirteen.

     J. Funding to Meet Indemnification Obligations. The Board of Directors, without approval of the shareholders, shall have the power to borrow money on behalf of the Corporation, including the power to pledge the assets of the Corporation, from time to time to discharge the Corporation’s obligations with respect to indemnification, the advancement and reimbursement of expenses, and the purchase and maintenance of insurance referred to in this Article Thirteen. The Corporation may, in lieu of or in addition to the purchase and maintenance of insurance referred to in Section I of this Article Thirteen, establish and maintain a fund of any nature or otherwise secure or insure in any manner its indemnification obligations, whether arising under or pursuant to this Article Thirteen or otherwise.

FOURTEEN:

     A. Limitation of Liability of Directors. A director of the Corporation shall not be personally liable to the Corporation or its stockholders or otherwise for monetary damages for any action taken, or any failure to take any action, in his or her capacity as a director; provided, however, that this provision shall not eliminate or limit the liability of a director to the extent that such elimination or limitation of liability is expressly prohibited by the PBCL or any successor statute as in effect at the time of the alleged action or failure to take action by such director.

     B. Preservation of Rights. Any repeal or modification of this Article Fourteen shall not adversely affect any right or protection existing at the time of such repeal or modification to which any director or former director may be entitled under this Article Fourteen. The rights conferred by this Article Fourteen shall continue as to any person who has ceased to be a director of the Corporation and shall inure to the benefit of the heirs, executors and administrators of any director or former director.

FIFTEEN: To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to any of the Sponsors or any of their respective officers, directors, agents, shareholders, members, partners, affiliates and subsidiaries (other than the Corporation and its subsidiaries) (each, a “Specified Party”), even if the opportunity is one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so and such person shall have no duty to communicate or offer such business opportunity to the Corporation and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries unless, in the case of any such person

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who is a director or officer of the Corporation, such business opportunity (x) is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of the Corporation, and (y) is not separately offered to a Specified Party by a party other than such director or officer. Any person purchasing or otherwise acquiring any interest in any securities of the Corporation shall be deemed to have notice of and consented to the provisions of this Article Fifteen. Neither the alteration, amendment or repeal of this Article Fifteen nor the adoption of any provision of these Amended and Restated Articles of Incorporation inconsistent with this Article Fifteen shall eliminate or reduce the effect of this Article Fifteen in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article Fifteen, would accrue or arise, prior to such alteration, amendment, repeal or adoption.

[The remainder of this page has been intentionally left blank.]

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     IN TESTIMONY WHEREOF, the undersigned corporation has caused these Amended and Restated Articles of Incorporation to be signed by a duly authorized officer thereof this 30^th day of September, 2009.

EDUCATION MANAGEMENT CORPORATION
By:	/s/ Dorinda Pannozzo
	Name:	Dorinda Pannozzo
	Title:	Vice President and Treasurer

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

EDUCATION MANAGEMENT CORPORATION

Adopted:

September 9, 2009

TABLE OF CONTENTS

		PAGE
ARTICLE I MEETING OF SHAREHOLDERS			1
Section 1.1	Annual Meeting		1
Section 1.2	Special Meetings		1
Section 1.3	Place of Meetings		2
Section 1.4	Notice of Meetings		2
Section 1.5	Quorum; Adjournments		2
Section 1.6	Advance Notice of Shareholder Proposals		3
Section 1.7	Advance Notice of Shareholder Nominations		4
Section 1.8	Voting		5
Section 1.9	Informal Action		6
Section 1.10	Participation in Meetings by Electronic Means		6
ARTICLE II DIRECTORS			6
Section 2.1	Number, Qualifications, Election and Term of Office		6
Section 2.2	Vacancies		7
Section 2.3	Removal of Directors		7
Section 2.4	Chairman of the Board of Directors		7
Section 2.5	Annual Meeting; Other Regular Meetings		7
Section 2.6	Special Meetings		8
Section 2.7	Quorum		8
Section 2.8	Powers of Directors		8
Section 2.9	Informal Action		8
Section 2.10	Electronic Participation in Meetings		8
Section 2.11	Compensation of Directors		9
Section 2.12	Director Emeritus		9
Section 2.13	Resignation		9
ARTICLE III COMMITTEES OF DIRECTORS			9
Section 3.1	Appointment and Powers		9
Section 3.2	Appointment by Committees of Substitute Members		10
Section 3.3	Procedure		10
Section 3.4	Electronic Participation in Meetings		10
Section 3.5	Informal Action		10
ARTICLE IV OFFICERS			11
Section 4.1	Enumeration		11
Section 4.2	Chief Executive Officer		11
Section 4.3	President		11
Section 4.4	Vice President		11
Section 4.5	Secretary		11
Section 4.6	Treasurer		12
Section 4.7	Other Officers		12
Section 4.8	Compensation		12
Section 4.9	Additional Duties of Officers		12

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		PAGE
Section 4.10	Resignation		12
Section 4.11	Removal		13
ARTICLE V STOCK			13
Section 5.1	Issuance of Stock		13
Section 5.2	Certificate of Stock		13
Section 5.3	Transfer of Stock		13
Section 5.4	Lost, Stolen, Destroyed or Mutilated Certificates		13
Section 5.5	Regulations		14
Section 5.6	Holders of Record		14
Section 5.7	Record Date		14
Section 5.8	Uncertificated Shares.		14
Section 5.9	Dividends		15
ARTICLE VI LIMITATION OF LIABILITY OF DIRECTORS			15
Section 6.1	Directors’ Personal Liability		15
Section 6.2	Preservation of Rights		15
ARTICLE VII INDEMNIFICATION OF DIRECTORS AND OFFICERS			15
Section 7.1	Mandatory Indemnification of Directors and Officers		15
Section 7.2	Mandatory Advancement of Expenses to Directors and Officers		17
Section 7.3	Permissive Indemnification and Advancement of Expenses		17
Section 7.4	Enforcement		18
Section 7.5	General		18
Section 7.6	Definition of Corporation		18
Section 7.7	Definition of Authorized Representative		19
Section 7.8	Savings Clause		19
Section 7.9	Insurance		19
Section 7.10	Funding to Meet Indemnification Obligations		19
ARTICLE VIII GENERAL PROVISIONS			20
Section 8.1	Corporate Seal		20
Section 8.2	Fiscal Year		20
Section 8.3	Authorization		20
Section 8.4	Inapplicability of Subchapter 25E		20
Section 8.5	Inapplicability of Subchapter 25F		20
Section 8.6	Inapplicability of Subchapter 25G		20
Section 8.7	Inapplicability of Subchapter 25H		20
Section 8.8	Inapplicability of Subchapter 25I		20
Section 8.9	Inapplicability of Subchapter 25J		21
Section 8.10	Inapplicability of Section 2538		21
ARTICLE IX AMENDMENTS			21

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AMENDED AND RESTATED BYLAWS
OF
EDUCATION MANAGEMENT CORPORATION

ARTICLE I

MEETING OF SHAREHOLDERS

Section 1.1 Annual Meeting.

An annual meeting of the shareholders for the election of directors and the transaction of such other business as may properly come before the same shall be held on the second Thursday of November of each year, at 10:00 a.m., prevailing time, or at such other date and time as shall be designated by the Board of Directors. If the day fixed for the meeting falls on a Saturday or Sunday, or is a legal holiday, the meeting shall be held at the same hour on the next succeeding full business day or as soon thereafter as practicable.

Section 1.2 Special Meetings.

Special meetings of the shareholders may be called at any time only by the Chief Executive Officer (or, in the absence of a Chief Executive Officer, the President), or by a resolution adopted by a majority of the directors then in office; provided, that, if GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V Institutional, L.P., GS Capital Partners V GmbH & Co. KG, GS EDMC Investors, LP, GSCP V EDMC Holdings, L.P., GS Private Equity Partners 2000, L.P., GS Private Equity Partners 2000 Offshore Holdings, L.P., GS Private Equity Partners 2000 — Direct Investment Fund, L.P., GS Private Equity Partners 2002, L.P., GS Private Equity Partners 2002 Offshore Holdings, L.P., GS Private Equity Partners 2002 — Direct Investment Fund, L.P., GS Private Equity Partners 2002 Employee Fund, L.P., GS Private Equity Partners 2004, L.P., GS Private Equity Partners 2004 Offshore Holdings, L.P., GS Private Equity Partners 2004 — Direct Investment Fund, L.P., GS Private Equity Partners 2004 Employee Fund, L.P., Multi-Strategy Holdings, L.P., Providence Equity Partners V, LP, Providence Equity Partners V-A, LP, Providence Equity Partners IV LP, Providence Equity Operating Partners IV LP, PEP EDMC L.L.C., Fisher Lynch Co-Investment Partnership, L.P., Ontario Teachers’ Pension Plan Board, General Electric Pension Trust, Citigroup Capital Partners II Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P., Citigroup Capital Partners II Cayman Holdings, L.P., Citigroup Capital Partners II 2006 Citigroup Investment, L.P., AlpInvest Partners CS Investments 2006 C.V., AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V., Leeds Equity Partners IV, L.P., Leeds Equity Partners IV Co Investment Fund A, L.P., Leeds Equity Partners IV Co Investment Fund B, L.P., and their respective affiliates (collectively, the “Sponsors”) collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, then special meetings of the shareholders also may be called by holders of no less than 25.0% of the outstanding shares of Common Stock of the Corporation. The only business to be transacted at a special meeting of shareholders shall be the business stated in the notice provided pursuant to Section 1.4 of these Bylaws.

Section 1.3 Place of Meetings.

Meetings of the shareholders may be held at such geographic locations, within or without the Commonwealth of Pennsylvania, as may be fixed from time to time by the Board of Directors or the person or persons calling the meeting. If no such geographic location is so fixed and the Board of Directors or the person or persons calling the meeting do not determine to hold a meeting by means of electronic technology (as provided in the next sentence) rather than at a geographic location, meetings of the shareholders shall be held at the registered office of the Corporation. If a meeting of the shareholders is held by means of the Internet or other electronic communications technology in a fashion pursuant to which the shareholders have the opportunity to read or hear the proceedings substantially concurrently with their occurrence, vote on matters submitted to the shareholders and pose questions to the directors, the meeting need not be held at a particular geographic location.

Section 1.4 Notice of Meetings.

A written notice stating the place (if any), day and hour of any meeting, if applicable the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person to vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given by, or at the direction of, the Secretary, to each shareholder of record entitled to vote at such meeting, at such address (or to the facsimile number or address for email or other electronic communication) as appears upon the records of the Corporation. If written notice is given by first class or express mail, postage prepaid, or by courier service, charges prepaid, or by facsimile, email or other electronic communication, notice shall be provided (i) at least ten (10) days before the day named for a meeting that will consider a fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law, as amended, and (ii) at least five (5) days before the day named for the meeting in any other case (unless a greater period of time is required by law). If written notice is given by bulk mail, notice shall be provided at least twenty (20) days before the day named for the meeting.

Section 1.5 Quorum; Adjournments.

The presence, in person or by proxy, of a majority of the outstanding shares entitled to vote shall constitute a quorum. Where a separate vote by a class or classes is required, a majority of the voting power of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. The shareholders present at a duly authorized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as otherwise provided by statute, adjourn the meeting to such time and place as they may determine, but in the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing the directors. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting other than the announcement at the meeting at which such adjournment is taken. If after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

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Section 1.6 Advance Notice of Shareholder Proposals.

At any annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who complies with the notice procedure set forth in this Section 1.6. For business to be properly brought before any annual meeting of the shareholders by a shareholder, the shareholder must be entitled by Pennsylvania law to present such business and such shareholder must have given timely notice of such shareholder’s intent to make such presentation. To be timely, a shareholder’s notice must have been received by the Secretary of the Corporation not less than 90 nor more than 120 days in advance of the first anniversary of the previous year’s annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder to be timely must have been received no later than the close of business on the 5th day following the day on which public announcement of the date of such meeting is first made. Each such notice shall set forth: (i) a brief description of each item of business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation’s books, of (1) the shareholder of record proposing such business and (2) the beneficial owner, if any, on whose behalf the business is proposed (for purposes of this Section 1.6, each, a “party”); (iii) a representation by the shareholder of record proposing such business that such shareholder will be a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting; (iv) the class and number of shares of the Corporation that are beneficially owned by each such party, as of the date of the shareholder’s notice (which information shall be supplemented by each such party not later than 10 days after the record date for the meeting to disclose such ownership as of the record date); (v) as to each item of business each such party proposes to bring before the meeting, any material interest of each such party in such business; (vi) a description of all agreements, arrangements, or understandings between each such party or any of its affiliates or associates, on the one hand, and any other person or persons, on the other hand (naming such person or persons), in connection with the proposal of such business by each such party (which information shall be supplemented by each such party not later than 10 days after the record date for the meeting to disclose such agreements, arrangements, or understandings in effect as of the record date); (vii) a description of all agreements, arrangements, or understandings (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, each such party or any of its affiliates or associates, the effect or intent of which is to mitigate losses to, manage risk or benefit of share price changes for, or increase or decrease the voting power of each such party or any of its affiliates or associates with respect to shares of stock of the Corporation (which information shall be supplemented by each such party not later than 10 days after the record date for the meeting to disclose such agreements, arrangements, or understandings in effect as of the record date); and (viii) a statement whether or not each such party will deliver a proxy statement and/or form of proxy to holders of at least the percentage of voting power of all the shares of capital stock of the Corporation required under applicable law to carry the proposal. In addition, each such party making such proposal shall promptly provide any other information reasonably requested by the Corporation.

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Only such business shall be conducted at any annual meeting of shareholders as shall have been brought before such meeting in accordance with the requirements set forth in these Amended and Restated Bylaws. Notwithstanding the foregoing provisions of this Section 1.6, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in these Amended and Restated Bylaws. Nothing in these Amended and Restated Bylaws shall be deemed to affect any rights of any shareholder to request inclusion of a proposal in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), so long as the shareholder proposal is received not less than 90 nor more than 120 days in advance of the first anniversary of the previous year’s annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder to be timely must have been received no later than the close of business on the fifth day following the date on which public announcement of the date of such meeting is first made. Except as otherwise required by law, the chairman of any annual meeting of shareholders shall have the power and duty (x) to determine whether any business proposed to be brought before the meeting was brought in accordance with the requirements set forth in these Amended and Restated Bylaws and (y) if any proposed business was not brought in compliance with these Amended and Restated Bylaws to declare that such defective proposal shall be disregarded. For purposes of Sections 1.6 and 1.7 of these Amended and Restated Bylaws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, the Associated Press or any comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

Section 1.7 Advance Notice of Shareholder Nominations.

Nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote generally in the election of directors; provided, however, that a shareholder may nominate a person for election as a director at a meeting only if timely notice of such shareholder’s intent to make such nomination has been given to the Secretary of the Corporation. To be timely, a shareholder’s notice must have been received by the Secretary of the Corporation (a) in the case of an annual meeting, not less than 90 nor more than 120 days in advance of the first anniversary of the previous year’s annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder to be timely must have been received no later than the close of business on the fifth day following the date on which public announcement of the date of such meeting is first made; and (b) in the case of a special meeting at which directors are to be elected, not later than the close of business on the fifth day following such public announcement. Each such notice shall set forth: (i) the name and address, as they appear on the Corporation’s books, of (1) the shareholder of record who intends to make the nomination and (2) the beneficial owner, if any, on whose behalf the nomination is made (for purposes of this Section 1.7, each, a “party”), and the name(s) and address list of the person or persons to be nominated; (ii) a representation that the shareholder of record will be a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iii) the class and number of shares of the Corporation that are beneficially owned by each such party, as of the date of the shareholder’s notice (which information shall be supplemented by such party not later than 10

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days after the record date for the meeting to disclose such ownership as of the record date); (iv) a description of all agreements, arrangements, or understandings between each such party or any of its affiliates or associates, on the one hand, and each nominee and any other person or persons, on the other hand (naming such person or persons), pursuant to which the nomination or nominations are to be made by each such party (which information shall be supplemented by each such party not later than 10 days after the record date for the meeting to disclose such agreements, arrangements, or understandings in effect as of the record date); (v) such other information regarding each nominee proposed by each such party as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; (vi) the consent of each nominee to serve as a director of the Corporation, if so elected; (vii) a description of all agreements, arrangements, or understandings (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, each such party or any of its affiliates or associates, the effect or intent of which is to mitigate losses to, manage risk or benefit of share price changes for, or increase or decrease the voting power of each such party or any of its affiliates or associates with respect to shares of stock of the Corporation (which information shall be supplemented by each such party not later than 10 days after the record date for the meeting to disclose such agreements, arrangements, or understandings in effect as of the record date); and (viii) a statement whether or not each such party will deliver a proxy statement and/or form of proxy to holders of at least the percentage of voting power of all the shares of capital stock of the Corporation reasonably believed by the shareholder of record or the beneficial owner, as the case may be, to be sufficient to elect the nominee or nominees proposed to be nominated by the stockholder of record. In addition, each such party making such nomination shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding anything in these Amended and Restated Bylaws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 1.7. Notwithstanding the foregoing provisions of these Amended and Restated Bylaws, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in these Amended and Restated Bylaws.

Except as otherwise required by law, the chairman of any meeting of shareholders shall have the power and duty (x) to determine whether a nomination was made in accordance with the requirements set forth in these Amended and Restated Bylaws and (y) if any proposed nomination was not made in compliance with these Amended and Restated Bylaws, to declare that such defective nomination shall be disregarded.

Section 1.8 Voting.

Except as otherwise provided by law or the Amended and Restated Articles of Incorporation, every shareholder of record shall have the right at every shareholders’ meeting to one (1) vote, in person or by proxy, for every share standing in his or her name on the books of the Corporation on the record date for the meeting. A majority of the votes cast shall decide every question or matter submitted to the shareholders unless otherwise provided by law, the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws. The vote upon any

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matter submitted to the shareholders may be taken viva voce; provided, however, that the vote upon any question shall be by ballot if demand for the same is made by any shareholder or is directed by the chairman of the meeting.

Section 1.9 Informal Action.

For so long as the Sponsors collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, any action required or permitted to be taken at any annual or special meeting of the shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Any action by written consent shall be filed with the Secretary of the Corporation and may become effective immediately upon its authorization, but prompt notice of the action shall be given to those shareholders entitled to vote thereon who have not consented. If the Sponsors collectively beneficially own, directly or indirectly, less than 50.0% of the outstanding shares of Common Stock of the Corporation, then no action may be authorized by the shareholders without a meeting by consent except for action taken with the unanimous consent of all holders of Common Stock of the Corporation.

Section 1.10 Participation in Meetings by Electronic Means.

The Board of Directors may permit, by resolution with respect to a particular meeting of the shareholders, or the presiding officer of such meeting may permit, one or more persons to participate in that meeting, count for the purposes of determining a quorum and exercise all rights and privileges to which such person might be entitled were such person personally in attendance, including the right to vote, by means of conference telephone or other electronic means, including, without limitation, the Internet. Unless the Board of Directors so permits by resolution or the presiding officer of such meeting so permits, no person may participate in a meeting of the shareholders by means of a conference telephone or other electronic means.

ARTICLE II

DIRECTORS

Section 2.1 Number, Qualifications, Election and Term of Office.

The number of directors to manage and control the affairs of the Corporation shall be as determined by the Board of Directors from time to time, but shall not be less than three (3), subject to the terms of the Shareholders Agreement among the Corporation and certain of its shareholders, dated as of October 7, 2009 (as amended from time to time, the “Shareholders Agreement”), if in effect. Directors need not be shareholders of the Corporation or residents of the Commonwealth of Pennsylvania. Directors shall be elected by the shareholders at the annual meeting or any special meeting called for such purpose. Each director shall be elected to serve until the next annual meeting of the shareholders and until his or her successor is duly elected

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and qualified. Subject to the terms of the Shareholders Agreement, if in effect, and any rights of holders of any series of Preferred Stock then outstanding, if any, in the case of any increase in the number of directors of the Corporation, the additional director or directors shall be filled by the affirmative vote of a majority of the remaining members of the Board of Directors. No decrease in the number of directors of the Corporation shall shorten the term of any incumbent director.

Section 2.2 Vacancies.

Subject to the terms of the Shareholders Agreement, if in effect, vacancies in the Board of Directors caused by death, resignation, increase in the number of directors or otherwise shall be filled by a majority vote of the remaining member or members of the Board, provided that if a director is removed by a vote of the shareholders at a meeting of the shareholders, a new director may be elected at that same meeting to fill the vacancy resulting from such removal; and each director so elected shall hold office until the next annual meeting of the shareholders and until his or her successor is duly elected and qualified.

Section 2.3 Removal of Directors.

The entire Board of Directors or any individual director may be removed from office by vote of the shareholders entitled to vote thereon only for cause; provided, that, so long as the shareholders have the right to act by partial written consent pursuant to Section 1.9, the entire Board of Directors or any individual director may be removed from office by partial written consent without assigning any cause. In case the Board or any one or more directors are so removed, new directors may be elected at the same meeting (or by the same partial written consent), subject to the terms of the Shareholders Agreement, if in effect. Except as stated above, the repeal of a provision of the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws prohibiting, or the addition of a provision to the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws permitting, the removal by the shareholders of the Board or a director without assigning any cause shall not apply to any incumbent director during the balance of the term for which he or she was elected.

Section 2.4 Chairman of the Board of Directors.

A chairman of the Board of Directors shall be elected by the Board of Directors and shall preside at all meetings of the Board of Directors and shareholders at which he or she is present.

Section 2.5 Annual Meeting; Other Regular Meetings.

An annual meeting of the Board of Directors shall be held each year as soon as practicable after the annual meeting of shareholders, at the place where such meeting of shareholders was held or at such other place as the Board of Directors may determine, for the purposes of organization, election or appointment of officers and the transaction of such other business as shall come before the annual meeting. No notice of the annual meeting need be given. Other regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors may from time to time by resolution appoint; and no notice shall be required to be

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given of any such regular meeting. No minimum number of regular meetings and no more than one annual meeting of the Board of Directors need be called in any year.

Section 2.6 Special Meetings.

Special meetings of the Board of Directors may be called by the chairman of the Board of Directors, the Chief Executive Officer (or, in the absence of a Chief Executive Officer, the President), or a majority of the directors in office, to be held at such time (as will permit the giving of notice as provided in this Section) and at such place in the Commonwealth of Pennsylvania or elsewhere as may be designated by the person or persons calling the meeting. Notice of the place, day and hour of such special meeting shall be given to each director by the Secretary (i) by written notice deposited in the United States mail not later than during the third full business day immediately preceding the day for such meeting, or (ii) by telephone, or facsimile transmission or other oral, written or electronic means received not later than 24 hours before the meeting. The notice need not refer to the business to be transacted at the meeting except action under Article VII of the Amended and Restated Bylaws. Notice may be waived by any director with respect to any meeting. No minimum number of special meetings of the Board of Directors need be called in any year.

Section 2.7 Quorum.

A majority of the directors in office shall constitute a quorum for the transaction of business, and actions may be taken by a majority of the members present at any meeting at which a quorum is present, subject, in each case, to the terms of the Shareholders Agreement, if in effect.

Section 2.8 Powers of Directors.

Except as otherwise provided by statute or the Amended and Restated Articles of Incorporation, all powers vested by law in the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors.

Section 2.9 Informal Action.

Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting and without notice if, prior or subsequent to the action, a consent or consents thereto by all of the directors in office is filed with the Secretary of the Corporation.

Section 2.10 Electronic Participation in Meetings.

Any one or more directors may participate in a meeting of the Board of Directors by means of a conference telephone or other electronic technology by means of which all persons participating in the meeting can hear each other. Such participation will count as such director’s “presence” at the meeting for all purposes.

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Section 2.11 Compensation of Directors.

Each director of the Corporation who is not a salaried officer or employee of the Corporation or of a subsidiary of the Corporation, shall receive such compensation (whether in cash or otherwise) and reimbursement of expenses for serving as a director and for attendance at meetings of the Board of Directors or any committee appointed by the Board of Directors as the Board of Directors may from time to time determine.

Section 2.12 Director Emeritus.

The Board of Directors may, at its discretion, designate any former director as a Director Emeritus. The designation, number and term of each Director Emeritus shall be within the sole discretion of the Board of Directors, and the Board of Directors may remove, with or without cause, a Director Emeritus of the Corporation at any time. A Director Emeritus shall provide consulting or advisory services to the Board of Directors as requested from time to time by the Board of Directors and may be invited to attend meetings of the Board of Directors at the request of the Chief Executive Officer (or, in the absence of a Chief Executive Officer, the President), but shall not vote, or serve on any committee of the Board of Directors, or be counted in determining a quorum, or have any of the duties or obligations imposed on a director or officer of the Corporation under the Pennsylvania Business Corporation Law of 1988, as amended, the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws or, except as provided in the last sentence of this Section 2.12, otherwise be considered to be a director or officer of the Corporation. Each Director Emeritus shall be compensated for his or her services and reimbursed expenses incurred in such person’s capacity as Director Emeritus as determined by the Board of Directors from time to time. A Director Emeritus shall be entitled to benefits and protections in accordance with Article VI (Limitation of Liability of Directors) and Article VII (Indemnification of Directors and Officers) of these Amended and Restated Bylaws as if such person were deemed to be, as the case may be, a director or former director of the Corporation.

Section 2.13 Resignation.

Any director of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall be made in writing and shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

ARTICLE III

COMMITTEES OF DIRECTORS

Section 3.1 Appointment and Powers.

Subject to the Shareholders Agreement, the Board of Directors may, by resolution adopted by a majority of the directors in office, establish one or more committees, each of which shall consist of one or more of the directors of the Corporation. To the extent provided in the resolution

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establishing any committee, such committee shall have and may exercise all of the powers and authority of the Board of Directors; provided, however, that no such committee shall have any power or authority as to the following:

(i) the submission to the shareholders of the Corporation of any action requiring approval of the shareholders under the Pennsylvania Business Corporation Law of 1988, as amended;

(ii) the creation or filling of vacancies in the Board of Directors;

(iii) the adoption, amendment or repeal of the Bylaws;

(iv) the amendment or repeal of any resolution of the Board that by its terms is amendable or repealable only by the Board; or

(v) action on matters committed by the Bylaws or resolution of the Board of Directors to another committee of the Board.

Section 3.2 Appointment by Committees of Substitute Members.

In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may by unanimous action appoint another director to act at the meeting in the place of any such absent or disqualified member.

Section 3.3 Procedure.

The Board of Directors may establish reasonable rules and regulations for the conduct of the proceedings of any such committee and may appoint a chairman of the committee who shall be a member thereof and a secretary of the committee who need not be a member thereof. To the extent that the Board of Directors shall not exercise such powers, they may be exercised by the Committee.

Section 3.4 Electronic Participation in Meetings.

Any one or more committee members may participate in a meeting of a committee of the Board of Directors by means of a conference telephone or other electronic technologies by means of which all persons participating in the meeting can hear each other.

Section 3.5 Informal Action.

Any action required or permitted to be taken at a meeting of any such committee may be taken without a meeting and without notice if, prior or subsequent to the action, a consent or consents thereto by all of the members of any such committee is filed with the Secretary of the Corporation.

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ARTICLE IV

OFFICERS

Section 4.1 Enumeration.

The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chief Executive Officer, a President, one or more Vice-Presidents, a Secretary, a Treasurer and, in the discretion of the Board of Directors, such other officers as shall from time to time be chosen and appointed by the Board of Directors. Any two (2) or more offices may be held by one (1) person. Every officer of the Corporation shall hold his or her position at the will of the Board of Directors.

Section 4.2 Chief Executive Officer.

The Chief Executive Officer shall have general charge and control over the affairs of the Corporation, subject to the Board of Directors. The Chief Executive Officer or the President, together with the Secretary or an Assistant Secretary, shall sign certificates for shares of capital stock of the Corporation. In addition, the Chief Executive Officer or President (or other officers authorized by the Board of Directors or Chief Executive Officer or President) may execute on behalf of the Corporation any contract which has been authorized by the Board of Directors. In the absence of the chairman of the Board of Directors, the Chief Executive Officer shall preside at meetings of the shareholders. In the absence of the President or if the Board of Directors has not appointed a person holding the title of “President,” the Chief Executive Officer shall also perform the duties and exercise the powers of president within the meaning of the Pennsylvania Business Corporation Law of 1988, as amended.

Section 4.3 President.

In the absence of the Chief Executive Officer or if the Board of Directors has not appointed a person holding the title of “Chief Executive Officer,” the President shall perform the duties and exercise the powers of chief executive officer, and shall report to the Board of Directors. The President shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The President or the Chief Executive Officer, together with the Secretary or an Assistant Secretary, shall sign certificates for shares of capital stock of the Corporation.

Section 4.4 Vice President.

The Vice President, or, if there shall be more than one, the Vice Presidents, in the order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 4.5 Secretary.

The Secretary shall keep a record of the minutes of the proceedings of meetings of shareholders and directors and shall give notice as required by statute or these Amended and Restated Bylaws

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of all such meetings. The Secretary shall have custody of the seal of the Corporation and of all the books, records and papers of the Corporation, except such as shall be in the charge of the Treasurer or of some other person authorized to have custody and be in possession thereof by resolution of the Board of Directors. The Secretary or an Assistant Secretary, together with the Chief Executive Officer or President, shall sign certificates for shares of the capital stock of the Corporation.

Section 4.6 Treasurer.

The Treasurer shall keep accounts of all moneys of the Corporation received and disbursed, and shall deposit all moneys and valuables of this Corporation in its name and to its credit in such banks and depositories as the Board of Directors shall designate. In the absence of the Treasurer or if the Board of Directors has not appointed a person holding the title of “Treasurer,” the chief financial officer of the Corporation shall perform the duties and exercise the powers of treasurer within the meaning of the Pennsylvania Business Corporation Law of 1988, as amended. The Treasurer shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 4.7 Other Officers.

The duties and powers of other officers who may from time to time be chosen by the Board of Directors shall be as specified by the Board of Directors at the time of the appointment of such other officers.

Section 4.8 Compensation.

The salaries and other compensation (whether cash or otherwise) of all officers listed in Sections 4.2 through 4.7 of this Article shall be fixed by, or pursuant to authority delegated by, the Board of Directors.

Section 4.9 Additional Duties of Officers.

The Board of Directors may from time to time by resolution increase or decrease the duties and powers of the Chief Executive Officer, the President, one or more Vice-Presidents, the Secretary, the Treasurer, or any other officer.

Section 4.10 Resignation.

Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall be made in writing and shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.

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Section 4.11 Removal.

Any officer of the Corporation may be removed, with or without cause, by the Board of Directors at any time.

ARTICLE V

STOCK

Section 5.1 Issuance of Stock.

Shares of capital stock of any class now or hereafter authorized, securities convertible into such shares or options or other rights to purchase such shares or securities may be issued or granted only in accordance with the authority granted by the Board of Directors.

Section 5.2 Certificate of Stock.

Subject to Section 5.8 hereof, every holder of capital stock of the Corporation shall be entitled to a certificate or certificates, in such form as the Board of Directors may from time to time prescribe, signed by the Chief Executive Officer or the President and the Secretary or an Assistant Secretary, and sealed with the seal of the Corporation. Where any such certificate is signed by a registrar other than the Corporation or its employee, the signatures thereon of any officer of the Corporation and, where authorized by the Board of Directors, any transfer agent, may be facsimiles. All such certificates shall be numbered consecutively; and the name of the person owning the shares and the date of issue shall be stated on each certificate and entered on the books of the Corporation. In case any officer, transfer agent or registrar who has executed, by facsimile or otherwise, any share certificate shall have ceased to be such officer, transfer agent or registrar by reason of death, resignation or otherwise, before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer, transfer agent or registrar had not ceased to be such at the date of its issue.

Section 5.3 Transfer of Stock.

Shares of capital stock of the Corporation shall be transferred only on the books of the Corporation by the holder thereof in person or by his or her duly authorized attorney. All stock certificates transferred by endorsement thereon shall be surrendered for cancellation and new certificates issued to the transferee.

Section 5.4 Lost, Stolen, Destroyed or Mutilated Certificates.

New certificates of stock may be issued to replace certificates of stock lost, stolen, destroyed or mutilated, upon such terms and conditions, including proof of loss or destruction, and, if appropriate, the giving of a satisfactory bond of indemnity, as the Board of Directors or as one or more of the officers of the Corporation, as delegated to by the Board of Directors, may determine from time to time.

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Section 5.5 Regulations.

The Board of Directors shall have power and authority to make all such rules and regulations not inconsistent with these Amended and Restated Bylaws as it may deem expedient concerning the issue, transfer and registration of certificates of stock of the Corporation. The Board of Directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers, and may require all stock certificates to bear the signature of a transfer agent or assistant transfer agent and a registrar of transfers. The Board of Directors may at any time terminate the appointment of any transfer agent or any assistant transfer agent or any registrar of transfers.

Section 5.6 Holders of Record.

The Corporation shall be entitled to treat the holder of record of any stock of the Corporation as the holder and owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or right, title or interest in, such stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

Section 5.7 Record Date.

The Board of Directors may fix a time prior to the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting of shareholders. Only shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as provided herein. The Board of Directors may similarly fix a record date for the determination of shareholders of record for any other purpose. When a determination of shareholders of record has been made as provided herein for purposes of a meeting, the determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. If a record date is not fixed by the Board of Directors: (i) the record date for determining shareholders entitled to notice of or to vote at a meeting of the shareholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held; and (ii) the record date for determining shareholders entitled to express consent or dissent to corporate action in writing without a meeting, when prior action by the Board of Directors is not necessary, shall be the close of business on the day on which the first written consent or dissent is filed with the Secretary of the Corporation.

Section 5.8 Uncertificated Shares.

Notwithstanding anything herein to the contrary, any or all classes and series of shares, or any part thereof, may be uncertificated shares to the extent determined by the Board of Directors, except that this Section 5.8 shall not apply to shares represented by a certificate that is issued and outstanding until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and

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the rights and obligations of the holders of uncertificated shares of the same class and series shall be identical.

Section 5.9 Dividends.

Subject to applicable law and the Amended and Restated Articles of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting of the Board of Directors, declare dividends upon the capital stock of the Corporation as and when it deems expedient. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by applicable law or the Amended and Restated Articles of Incorporation. Before declaring any dividend there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Board of Directors from time to time in its discretion deems proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors deems conducive to the interests of the Corporation.

ARTICLE VI

LIMITATION OF LIABILITY OF DIRECTORS

Section 6.1 Directors’ Personal Liability.

A director of the Corporation shall not be personally liable to the Corporation or its stockholders or otherwise for monetary damages for any action taken, or any failure to take any action, in his or her capacity as a director; provided, however, that this provision shall not eliminate or limit the liability of a director to the extent that such elimination or limitation of liability is expressly prohibited by the Pennsylvania Business Corporation Law of 1988, as amended, or any successor statute as in effect at the time of the alleged action or failure to take action by such director.

Section 6.2 Preservation of Rights.

Any repeal or modification of this Article VI shall not adversely affect any right or protection existing at the time of such repeal or modification to which any director or former director may be entitled under this Article VI. The rights conferred by this Article VI shall continue as to any person who has ceased to be a director of the Corporation and shall inure to the benefit of the heirs, executors and administrators of any director or former director.

ARTICLE VII

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 7.1 Mandatory Indemnification of Directors and Officers.

(A) The Corporation shall promptly indemnify, to the fullest extent now or hereafter permitted by law or by Section 7.1(B) hereof, each director or officer (including each former director or officer) of the Corporation (hereafter, an “indemnitee”) who was or is made a party to

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or a witness in or is threatened to be made a party to or a witness in, any threatened, pending or completed action, suit, investigation, or proceeding, whether civil, criminal, administrative or investigative and whether external or internal to the Corporation (hereafter, a “proceeding”), by reason of the fact that the indemnitee is or was an authorized representative of the Corporation, against all expenses (including attorneys’ fees, disbursements and other charges), judgments, losses, fines (including excise taxes and penalties) and amounts paid in settlement (collectively, “Losses”) actually and reasonably incurred or suffered by the indemnitee in connection with such proceeding .

(B) Indemnification pursuant to this Section 7.1 shall include, but shall not be limited to, cases in which indemnification is permitted pursuant to the provisions of Chapter 17, Subchapter D, of the Pennsylvania Business Corporation Law of 1988, as amended. Indemnification pursuant to this Section 7.1 shall be made in every case described in Section 7.1(A) hereof except:

(i) in connection with a proceeding (or any claim, issue or matter therein or any part thereof) initiated by the indemnitee, except (i) if the Board of Directors of the Corporation has approved the initiation or bringing of such claim or (ii) any compulsory counterclaim, compulsory cross-claim, or required joinder made by indemnitee in a proceeding not initiated by indemnitee ; or

(ii) with respect to any act that is established, by a final, unappealable adjudication adverse to the indemnitee, as having been material to the cause of action so adjudicated and as having constituted either willful misconduct or recklessness; or

(iii) with respect to any benefit or advantage gained by the indemnitee to which the indemnitee was not legally entitled; or

(iv) for liability imposed in a proceeding by or for the benefit of the Corporation to recover any profit pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and regulations thereunder or similar provisions of any applicable state law; provided, however, that the exclusion in this Section 7.1(B)(iv) shall not apply to expenses (including attorney’s fees, disbursements and other charges) incurred by indemnitee in such a proceeding.

(C) Notwithstanding the foregoing provisions of this Section 7.1, to the extent that an indemnitee is successful on the merits or otherwise in defense of any proceeding or any part thereof or in defense of any claim, issue or matter therein, including but not limited to obtaining a dismissal without prejudice or a settlement without admission of liability, the indemnitee shall be promptly indemnified by the Corporation against all Losses actually and reasonably incurred or suffered by the indemnitee in connection therewith.

(D) The right of indemnification pursuant to this Section 7.1 is conferred in order to attract and retain the services of highly qualified directors and officers and to encourage them to make corporate decisions without fear of strike suits and legal harassment. Indemnification pursuant to this Section 7.1 is therefore declared to be consistent with the fiduciary duty of the Corporation’s Board of Directors. Except as specifically provided in this Section 7.1, such indemnification shall be made by the Corporation without any requirement that any determination be made or any action be taken by the Board of Directors, shareholders, or legal counsel. A failure of the

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Board of Directors, shareholders, or legal counsel to make a determination or take action favorable to the claim of an indemnitee for indemnification pursuant to this Section 7.1, or the making of a determination or taking of action adverse to such a claim, shall not preclude indemnification under this Article or create any presumption that the indemnitee is not entitled to such indemnification.

(E) The Corporation agrees that if any party with a right to nominate a representative to a position on the Board of Directors of the Corporation pursuant to the Shareholders Agreement pays or causes to be paid, or its affiliate or insurer pays, for any reason, any amounts otherwise indemnifiable pursuant to this Article VII, then (a) such party (or such affiliate or insurer, as the case may be) shall be fully subrogated to all rights of indemnitee with respect to such payment and (b) the Corporation shall reimburse such party (or such affiliate or insurer) for the payments actually made.

Section 7.2 Mandatory Advancement of Expenses to Directors and Officers.

The Corporation shall promptly pay all expenses (including attorneys’ fees, disbursements and other charges) actually incurred by an indemnitee in defending or appearing in any proceeding described in Section 7.1(A) hereof in advance of the final disposition of such proceeding upon receipt of (i) an undertaking by or on behalf of the indemnitee to repay all amounts advanced if it is ultimately specifically determined by a final, unappealable adjudication that the indemnitee is not entitled to be indemnified by the Corporation and (ii) an irrevocable assignment to the Corporation of all payments to which the indemnitee may be or become entitled, under any policy of insurance or otherwise (except with respect to payments made under Section 7.1(e) by or on behalf of a party with a right to nominate a representative to a position on the Board of Directors of the Corporation pursuant to the Shareholders Agreement), in reimbursement of any such expenses paid by the Corporation pursuant to this Section 7.2. Notwithstanding the foregoing, no advance payment shall be made by the Corporation pursuant to this Section 7.2 if the Board of Directors reasonably and promptly determines by a majority vote of the directors who are not parties to the proceeding that, based upon the facts known to the Board at the time the determination is made, the matter is of the kind described in Section 7.1(B)(i) hereof or the indemnitee’s actions were of the kind described in Section 7.1(B)(iii) hereof.

Section 7.3 Permissive Indemnification and Advancement of Expenses.

The Corporation may, as determined by the Board of Directors from time to time:

(A) indemnify, to the fullest extent permitted by Section 7.1 hereof, any other person who was or is made a party to or required to appear in, or is threatened to be made a party to or required to appear in, or was or is otherwise involved in, any threatened, pending or completed proceeding by reason of the fact that such person is or was an authorized representative of the Corporation, both as to action in such person’s official capacity and as to action in another capacity while holding such office or position, against all Losses actually and reasonably incurred or suffered by such person in connection with such action or proceeding, with the same effect as though such person were an “indemnitee” as defined in Section 7.1 hereof; and

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(B) pay expenses incurred by any such other person by reason of his or her participation in any such proceeding in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation and to repay all amounts advanced for which he or she is reimbursed under any policy of insurance or otherwise, with the same effect as though such person were an “indemnitee” as defined in Section 7.1 hereof.

Section 7.4 Enforcement.

If the Corporation refuses or fails to make any payment to an indemnitee required by this Article, the indemnitee shall be promptly indemnified by the Corporation against expenses (including attorneys’ fees, disbursements and other charges) actually incurred by the indemnitee in connection with the successful establishment of his or her right to indemnification or advancement of expenses, in whole or in part, in an action in a court of competent jurisdiction.

Section 7.5 General.

Each director or officer of the Corporation shall be deemed to act in such capacity in reliance upon such rights of indemnification and advancement of expenses as are provided in this Article. The rights of indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any bylaws, agreement, vote of shareholders or disinterested directors, statute or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be an authorized representative of the Corporation and shall inure to the benefit of the heirs and personal representatives of such person. Indemnification and advancement of expenses under this Article shall be provided whether or not the indemnified liability arises or arose from any threatened, pending or completed action by or in the right of the Corporation. Any repeal or modification of this Article shall not adversely affect any right or protection existing at the time of such repeal or modification to which any person may be entitled under this Article.

Section 7.6 Definition of Corporation.

For the purposes of this Article, references to “the Corporation” shall include all constituent corporations absorbed in a consolidation, merger or division, as well as the surviving or new corporations surviving or resulting therefrom, so that (i) any person who is or was an authorized representative of a constituent, surviving or new corporation shall stand in the same position under the provisions of this Article with respect to the surviving or new corporation as such person would if he or she had served the surviving or new corporation in the same capacity and (ii) any person who is or was an authorized representative of the Corporation shall stand in the same position under the provisions of this Article with respect to the surviving or new corporation as such person would with respect to the Corporation if its separate existence had continued.

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Section 7.7 Definition of Authorized Representative.

For the purposes of this Article, the term “authorized representative” shall mean, and the indemnification provisions of this Article VII shall be deemed to apply to, a director, officer, employee or agent of the Corporation or of any subsidiary of the Corporation, or a trustee, custodian, administrator, committeeman or fiduciary of any employee benefit plan established and maintained by the Corporation or by any direct or indirect subsidiary of the Corporation, or a person serving another corporation, partnership, joint venture, trust or other enterprise in any of the foregoing capacities at the request of the Corporation.

Section 7.8 Savings Clause.

If a court of competent jurisdiction determines that any provision of this Article requires the Corporation to take an action that would violate applicable law, such provision shall be limited or modified in its application to such action to the minimum extent necessary to avoid such violation of law, and, as so limited or modified, such provision and the balance of this Article shall be enforceable in accordance with their terms to the fullest extent permitted by applicable law, including but not limited to the Pennsylvania Business Corporation Law of 1988, as amended.

Section 7.9 Insurance.

The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was an authorized representative of the Corporation, against any liability asserted against or incurred by such person in any such capacity, or arising out of the status of such person as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article.

Section 7.10 Funding to Meet Indemnification Obligations.

The Board of Directors, without approval of the shareholders, shall have the power to borrow money on behalf of the Corporation, including the power to pledge the assets of the Corporation, from time to time to discharge the Corporation’s obligations with respect to indemnification, the advancement and reimbursement of expenses, and the purchase and maintenance of insurance referred to in this Article. The Corporation may, in lieu of or in addition to the purchase and maintenance of insurance referred to in Section 7.9 hereof, establish and maintain a fund of any nature or otherwise secure or insure in any manner its indemnification obligations, whether arising under or pursuant to this Article or otherwise.

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ARTICLE VIII

GENERAL PROVISIONS

Section 8.1 Corporate Seal.

The Corporate seal of the Corporation shall be a circular seal with the name of the Corporation and state of incorporation around the border or a seal in such form as the Board of Directors shall from time to time determine.

Section 8.2 Fiscal Year.

The fiscal year of the Corporation shall be as designated by the Board of Directors.

Section 8.3 Authorization.

All checks, notes, vouchers, warrants, drafts, acceptances and other orders for the payment of moneys of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 8.4 Inapplicability of Subchapter 25E.

Subchapter E of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended (former Section 910 of the Pennsylvania Business Corporation Law of 1933, as amended), shall not be applicable to the Corporation.

Section 8.5 Inapplicability of Subchapter 25F.

Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended (former Section 911 of the Pennsylvania Business Corporation Law of 1933, as amended), shall not be applicable to the Corporation.

Section 8.6 Inapplicability of Subchapter 25G.

Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

Section 8.7 Inapplicability of Subchapter 25H.

Subchapter H of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

Section 8.8 Inapplicability of Subchapter 25I.

Subchapter I of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

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Section 8.9 Inapplicability of Subchapter 25J.

Subchapter J of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

Section 8.10 Inapplicability of Section 2538.

Section 2538 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

ARTICLE IX

AMENDMENTS

The authority to adopt, amend or repeal the Amended and Restated Bylaws of the Corporation is expressly conferred upon the Board of Directors, which may take such action by the affirmative vote of a majority of the whole Board of Directors at any annual, regular or special meeting duly convened after notice of that purpose, subject always to the provisions of the Shareholders Agreement, if in effect, and the power of the shareholders to adopt, amend or repeal the Amended and Restated Bylaws of the Corporation by the affirmative vote of the holders of at least two-thirds (or, if the Sponsors collectively beneficially own, directly or indirectly, 50.0% or more of the outstanding shares of Common Stock of the Corporation, a majority) of the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of directors of the board of directors of the Corporation, voting together as a single class. Any change in the Amended and Restated Bylaws shall take effect when adopted unless otherwise provided in the resolution effecting the change.

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EX-10.1

Exhibit 10.1

SHAREHOLDERS AGREEMENT

by and among

EDUCATION MANAGEMENT CORPORATION,

GS CAPITAL PARTNERS V FUND, L.P.,

GS CAPITAL PARTNERS V OFFSHORE FUND, L.P.,

GS CAPITAL PARTNERS V GmbH & Co. KG,

GS CAPITAL PARTNERS V INSTITUTIONAL, L.P.,

GSCP V EDMC HOLDINGS, L.P.,

GOLDMAN SACHS EDMC INVESTORS, L.P.,

PROVIDENCE EQUITY PARTNERS V L.P.,

PROVIDENCE EQUITY PARTNERS V-A L.P.,

PROVIDENCE EQUITY PARTNERS IV L.P.,

PROVIDENCE EQUITY OPERATING PARTNERS IV L.P.,

PEP EDMC L.L.C.,

LEEDS EQUITY PARTNERS IV, L.P.

LEEDS EQUITY PARTNERS IV CO-INVESTMENT FUND A, L.P.

LEEDS EQUITY PARTNERS IV CO-INVESTMENT FUND B, L.P.

and

THE OTHER SHAREHOLDERS THAT ARE SIGNATORIES HERETO

Dated as of October 7, 2009

TABLE OF CONTENTS

		Page
	ARTICLE I. EFFECTIVENESS; DEFINITIONS
Section 1.1.	Effectiveness	1
Section 1.2.	Definitions	1
Section 1.3.	Other Interpretive Provisions	5
	ARTICLE II. REPRESENTATIONS AND WARRANTIES
Section 2.1.	Existence; Authority; Enforceability	6
Section 2.2.	Absence of Conflicts	6
Section 2.3.	Consents	6
	ARTICLE III. GOVERNANCE
Section 3.1.	Board of Directors	6
Section 3.2.	Committees	9
	ARTICLE IV. TRANSFERS OF SHARES
Section 4.1.	Limitations on Transfer	10
Section 4.2.	Transfer to Permitted Transferees	12
Section 4.3.	Tag Along Rights	12
Section 4.4.	Drag Along Rights	13
Section 4.5.	Rights and Obligations of Transferees	15
Section 4.6.	Additional Transfer Restrictions	16
Section 4.7.	Termination of Transfer Restrictions	16
	ARTICLE V. GENERAL PROVISIONS
Section 5.1.	Waiver by Shareholders	16
Section 5.2.	Assignment; Benefit	17
Section 5.3.	Freedom to Pursue Opportunities	17
Section 5.4.	Termination	17
Section 5.5.	Subsequent Acquisition of Shares	17
Section 5.6.	Severability	17
Section 5.7.	Entire Agreement	17
Section 5.8.	Amendment	18
Section 5.9.	Waiver	18
Section 5.10.	Counterparts	18

		Page
Section 5.11.	Notices	19
Section 5.12.	Governing Law	19
Section 5.13.	Jurisdiction	19
Section 5.14.	Waiver of Jury Trial	20
Section 5.15.	Specific Performance	20
Section 5.16.	Marketing Materials	20
Section 5.17.	Notice of Events	20
Section 5.18.	No Third Party Beneficiaries	20

ii

     THIS SHAREHOLDERS AGREEMENT (as it may be amended from time to time in accordance with the terms hereof, this “Agreement”), dated as of October 7, 2009, is made by and among the GSCP Parties, the Providence Parties, the Leeds Parties (each as defined herein) and the other shareholders that are signatories hereto (collectively, the “Shareholders”), and Education Management Corporation, a Pennsylvania corporation (the “Company”).

RECITALS

     WHEREAS, the Company is proposing to sell Company Shares (as defined below), to the public in an initial public offering (the “IPO”);

     WHEREAS, immediately after the completion of the Company’s IPO, it is expected that the Shareholders will own approximately 84.28% of the outstanding Company Shares (or 82.51% of the outstanding Company Shares if the underwriters exercise their option to purchase additional Company Shares from the Company);

     WHEREAS, each of the Shareholders and the Company are parties to an Amended and Restated Shareholders’ Agreement, dated as of October 30, 2006, as amended (the “October 2006 Agreement”); and

     WHEREAS, subject to the terms and conditions herein, the Shareholders and the Company desire to terminate the October 2006 Agreement and enter into this Agreement to provide for the management of the Company and to set forth certain rights and obligations of the Shareholders upon the consummation of the IPO.

     NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements of the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

EFFECTIVENESS; DEFINITIONS

     Section 1.1. Effectiveness. This Agreement shall become effective simultaneous with, and subject to, the listing of Company Shares on The Nasdaq Stock Market in connection with the completion of the IPO. In no event shall this Agreement become effective prior to the listing of Company Shares on The Nasdaq Stock Market.

     Section 1.2. Definitions. As used in this Agreement, the following terms shall have the following meanings:

     “Affected Shareholder” has the meaning set forth in Section 5.8.

     “Affiliate” means (i) with respect to any Person, (x) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person and (y) if such Person is a private equity investment fund, any other private equity investment fund the primary investment advisor to which is the primary investment advisor to such specified Person or an Affiliate thereof, or (ii) with respect to any individual, the

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spouse, parent, sibling, child, step-child, grandchild, niece or nephew of such Person, or the spouse thereof and any trust, limited liability company, limited partnership, private foundation or other estate planning vehicle for such Person or for the benefit of any of the foregoing or other Persons pursuant to the laws of descent and distribution. It being understood and agreed that, for purposes hereof, (A) each GSCP Party shall be deemed to be an Affiliate of every other GSCP Party, (B) each Providence Party shall be deemed to be an Affiliate of every other Providence Party, (C) neither the Company nor any Person controlled by the Company shall be deemed to be an Affiliate of any Shareholder, (D) (1) none of the GSCP Parties, the GS PEP Funds or Goldman Sachs EDMC Investors, L.P. shall be deemed to be an Affiliate of any of the Providence Parties or the Providence Co-Investors and (2) except for purposes of Sections 3.3, 5.3, 5.16 and 5.17 and except as expressly provided, none of the GS PEP Funds or Goldman Sachs EDMC Investors L.P. shall be deemed to be an Affiliate of any of the GSCP Parties, (E) none of the Providence Co-Investors shall be deemed to be an Affiliate of any of the GSCP Parties, the GS PEP Funds, Goldman Sachs EDMC Investors, L.P., or the Providence Parties, and (F) none of the Leeds Parties shall be deemed to be an Affiliate of any of the GSCP Parties, the GS PEP Funds, Goldman Sachs EDMC Investors, L.P., the Providence Parties or the Providence Co-Investors.

     “Affiliated Officer” means an officer of the Company affiliated with the GSCP Parties, the Providence Parties or the Leeds Parties.

     “Agreement” has the meaning set forth in the preamble.

     “Board of Directors” means the board of directors of the Company.

     “Breaching Drag-Along Shareholder” has the meaning set forth in Section 4.4(d).

     “Breaching Shareholder” has the meaning set forth in Section 3.1(g).

     “Business Day” means any day other than a Saturday, Sunday or day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Company” has the meaning set forth in the preamble.

     “Company Shares” means common shares of the Company, par value $0.01 per share.

     “Cure Period” has the meaning set forth in Section 3.1(g).

     “Drag-Along Buyer” has the meaning set forth in Section 4.4(a).

     “Drag-Along Election” has the meaning set forth in Section 4.4(a).

     “Drag-Along Notice” has the meaning set forth in Section 4.4(a).

     “Drag-Along Proxy Holder” has the meaning set forth in Section 4.4(d).

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     “Drag-Along Sale” has the meaning set forth in Section 4.4(a).

     “Drag-Along Shareholders” has the meaning set forth in Section 4.4(a).

     “Escrow Agent” has the meaning set forth in Section 4.4(e).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

     “Governing Documents” means the amended and restated articles of incorporation of the Company, as amended or modified from time to time, and the amended and restated by-laws of the Company, as amended or modified from time to time.

     “GS PEP Funds” means GS Private Equity Partners 2000, L.P., GS Private Equity Partners 2000 Offshore Holdings, L.P., GS Private Equity Partners 2000 — Direct Investment Fund, L.P., GS Private Equity Partners 2002, L.P., GS Private Equity Partners 2002 Offshore Holdings, L.P., GS Private Equity Partners 2002 — Direct Investment Fund, L.P., GS Private Equity Partners 2002 Employee Fund, L.P., Goldman Sachs Private Equity Partners 2004, L.P., Goldman Sachs Private Equity Partners 2004 Offshore Holdings, L.P., Goldman Sachs Private Equity Partners 2004 — Direct Investment Fund, L.P., Goldman Sachs Private Equity Partners 2004 Employee Fund, L.P. and Multi-Strategy Holdings, L.P.

     “GSCP Parties” means, collectively, GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG, GS Capital Partners V Institutional, L.P., GSCP V EDMC Holdings, L.P., and any Affiliates of the foregoing to whom Company Shares are Transferred after the date hereof.

     “Initial Post-IPO Share Ownership” means, with respect to the GSCP Parties, 28.61% Company Shares, with respect to the Providence Parties, 28.61% Company Shares, and with respect to each other Shareholder, the number of Company Shares held by such Shareholder immediately following the Company’s IPO, in each case, as adjusted pursuant to any stock splits, dividends, recapitalizations or other similar events.

     “IPO” has the meaning set forth in the recitals.

     “Leeds IV” means Leeds Equity Partners IV, L.P.

     “Leeds Parties” means, collectively, Leeds IV, Leeds Equity Partners IV Co-Investment Fund A, L.P. and Leeds Equity Partners IV Co-Investment Fund B, L.P.

     “Nasdaq” means the Nasdaq Global Market.

     “Necessary Action” means, with respect to a specified result, all actions (to the extent such actions are permitted by law and by the Governing Documents) necessary to cause such result, including (i) voting or providing a written consent or proxy with respect to the Company Shares, (ii) causing the adoption of shareholders’ resolutions and amendments to the Governing Documents, (iii) causing members of the Board of Directors (to the extent such members were

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nominated or designated by the Person obligated to undertake the Necessary Action, and subject to any fiduciary duties that such members may have as directors of the Company) to act in a certain manner or causing them to be removed in the event they do not act in such a manner, (iv) executing agreements and instruments, and (v) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.

     “October 2006 Agreement” has the meaning set forth in the recitals.

     “Permitted Transferee” means (i) in the case of any Shareholder that is a partnership or limited liability company, any Affiliate of such Shareholder, (ii) in the case of any Shareholder that is a corporation, any Person that owns a majority of the voting stock of such Shareholder, or any Person that is a direct or indirect wholly-owned subsidiary of such Shareholder, (iii) in the case of any Shareholder that is an individual, any successor by death or divorce, (iv) in the case of any Shareholder that is a trust whose sole beneficiaries are individuals, such individuals or their spouses or lineal descendants, or (v) in the case of AlpInvest Partners CS Investments 2006 C.V., and AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V., Stichting Pensioenfonds ABP and Stichting Pensioenfonds Zorg en Welzijn and their Affiliates.

     “Person” means an individual, partnership, limited liability company, corporation, trust, association, estate, unincorporated organization or a government or any agency or political subdivision thereof.

     “Proposed Transfer” has the meaning set forth in Section 4.3(a).

     “Proposed Transferee” has the meaning set forth in Section 4.3(a).

     “Providence Co-Investors” means Fisher Lynch Co-Investment Partnership, L.P., Ontario Teachers’ Pension Plan Board, General Electric Pension Trust, Citigroup Capital Partners II Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P., Citigroup Capital Partners II Cayman Holdings, L.P., Citigroup Capital Partners II 2006 Citigroup Investment, L.P., AlpInvest Partners CS Investments 2006 C.V., and AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V., in each case, if and to the extent such parties own Company Shares.

     “Providence Parties” means Providence Equity Partners V L.P., Providence Equity Partners V-A L.P., Providence Equity Partners IV L.P., Providence Equity Operating Partners IV L.P., PEP EDMC L.L.C., and any Affiliates of the foregoing to whom Company Shares are Transferred after the date hereof.

     “Proxy Holder” has the meaning set forth in Section 3.1(g).

     “Qualifying Shareholder” means (a) the GSCP Parties so long as the GSCP Parties beneficially own in the aggregate 2.0% or more of the outstanding Company Shares and (b) the Providence Parties so long as the Providence Parties beneficially own in the aggregate 2.0% or more of the outstanding Company Shares.

     “Required Shareholders” has the meaning set forth in Section 5.8.

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     “Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of June 1, 2006, by and among the Shareholders and the other parties that are signatories thereto.

     “Registration Statement” means any registration statement of the Company filed with, or to be filed with, the Securities and Exchange Commission under the rules and regulations promulgated under the Securities Act, including any related prospectus, amendments and supplement to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement other than a registration statement (and related prospectus) filed on Form S-8 or any successor form thereto.

     “SEC” means the Securities and Exchange Commission.

     “Securities Act” means the United States Securities Act of 1933, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

     “Selling Shareholders” has the meaning set forth in Section 4.4(a).

     “Shareholders” has the meaning set forth in the preamble.

     “Sponsor Director” means any director appointed by a GSCP Party or a Providence Party.

     “Sponsor Party” has the meaning set forth in Section 5.3.

     “Tagging Shareholder” has the meaning set forth in Section 4.3(a).

     “Transfer” means, with respect to any Company Shares, a direct or indirect transfer, sale, exchange, assignment, pledge, hypothecation or other encumbrance or other disposition of such Company Shares, including the grant of an option or other right, whether directly or indirectly, whether voluntarily, involuntarily or by operation of law; and “Transferred,” “Transferee,” and “Transferability” shall each have a correlative meaning. For the avoidance of doubt, a transfer, sale, exchange, assignment, pledge, hypothecation or other encumbrance or other disposition of an interest in any Shareholder, or direct or indirect parent thereof, all or substantially all of whose assets are Company Shares shall constitute a “Transfer” of Company Shares for purposes of this Agreement. For the avoidance of doubt, it is understood and agreed that any change in ownership of The Goldman Sachs Group, Inc., Goldman, Sachs & Co., or their successors shall not be deemed to be a “Transfer” by any GSCP Party, any GS PEP Fund, Goldman Sachs EDMC Investors, L.P. or any of their respective Affiliates.

     Section 1.3. Other Interpretive Provisions.

     (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

     (b) The words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and any subsection and Section references are to this Agreement unless otherwise specified.

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     (c) The term “including” is not limiting and means “including without limitation.”

     (d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

     (e) Whenever the context requires, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES

     Each of the parties to this Agreement hereby represents and warrants to each other party to this Agreement that as of the date such party executes this Agreement:

     Section 2.1. Existence; Authority; Enforceability. Such party has the power and authority to enter into this Agreement and to carry out its obligations hereunder. Such party is duly organized and validly existing under the laws of its jurisdiction of organization, and the execution of this Agreement, and the consummation of the transactions contemplated herein, have been authorized by all necessary action, and no other act or proceeding on its part is necessary to authorize the execution of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed by it and constitutes its legal, valid and binding obligations, enforceable against it in accordance with its terms.

     Section 2.2. Absence of Conflicts. The execution and delivery by such party of this Agreement and the performance of its obligations hereunder does not and will not (a) conflict with, or result in the breach of any provision of the constitutive documents of such party; (b) result in any violation, breach, conflict, default or event of default (or an event which with notice, lapse of time, or both, would constitute a default or event of default), or give rise to any right of acceleration or termination or any additional payment obligation, under the terms of any contract, agreement or permit to which such party is a party or by which such party’s assets or operations are bound or affected; or (c) violate any law applicable to such party.

     Section 2.3. Consents. Other than any consents which have already been obtained, no consent, waiver, approval, authorization, exemption, registration, license or declaration is required to be made or obtained by such party in connection with (a) the execution, delivery or performance of this Agreement or (b) the consummation of any of the transactions contemplated herein.

ARTICLE III.

GOVERNANCE

     Section 3.1. Board of Directors.

          (a) The Shareholders and the Company shall take all Necessary Action to cause the Board of Directors to be comprised of not less than three (3) nor more than fifteen (15)

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directors, (i) two (2) of whom shall be designated by the GSCP Parties, (ii) two (2) of whom shall be designated by the Providence Parties, (iii) one (1) of whom shall be designated by Leeds IV, (iv) one (1) of whom shall be the Chief Executive Officer (or equivalent) of the Company, (v) one (1) of whom shall be the Chairman of the Company, and (vi) the remainder of whom shall be elected in accordance with the articles of incorporation and bylaws of the Company, provided that:

     (i) if the GSCP Parties cease to beneficially own in the aggregate 10% or more of the outstanding Company Shares, then the GSCP Parties shall only be entitled to designate one (1) director for election to the Board of Directors; and provided, further, that if the GSCP Parties cease to beneficially own in the aggregate 2% or more of the outstanding Company Shares, then the GSCP Parties shall not be entitled to designate any directors for election to the Board of Directors pursuant to this Agreement;

     (ii) for so long as the GSCP Parties are entitled to designate one or more directors for election to the Board of Directors, one of such directors shall be designated by GS Capital Partners V Institutional, L.P.;

     (iii) if the Providence Parties cease to beneficially own in the aggregate 10% or more of the outstanding Company Shares, then the Providence Parties shall only be entitled to designate one (1) director for election to the Board of Directors; and provided, further, that if the Providence Parties cease to beneficially own in the aggregate 2% or more of the outstanding Company Shares, then the Providence Parties shall not be entitled to designate any directors for election to the Board of Directors pursuant to this Agreement;

     (iv) for so long as the Providence Parties are entitled to designate two (2) directors for election to the Board of Directors, one of such directors shall be designated by Providence Equity Partners V L.P and one of such directors shall be designated by Providence Equity Partners IV L.P.; and provided, further, that if the Providence Parties are entitled to designate only one director for election to the Board of Directors, such director shall be designated by Providence Equity Partners V L.P.;

     (v) if the Leeds Parties cease to beneficially own 2% or more of the outstanding Company Shares, then Leeds IV shall not be entitled to designate any directors for election to the Board of Directors pursuant to this Agreement; and

     (vi) within one year after the Company ceases to qualify as a “controlled company” under Nasdaq rules, the GSCP Parties, the Providence Parties and Leeds IV shall cause a sufficient number of their designees to qualify as “independent directors” under Nasdaq rules to ensure that the Board of Directors complies with applicable Nasdaq independence rules.

     To the extent that the number of directors that the GSCP Parties, the Providence Parties or Leeds IV are entitled to designate pursuant to this Section 3.1(a) is reduced, the GSCP Parties,

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the Providence Parties or Leeds IV, as the case may be, shall cause the required number of directors to promptly resign from the Board of Directors and any vacancies resulting from such resignation shall be filled with independent directors (within the meaning of the Nasdaq rules) by the Board of Directors in accordance with the Governing Documents.

          (b) Subject to Section 3.1(a), each of the GSCP Parties, the Providence Parties and Leeds IV shall have the exclusive right to appoint and remove its respective designees to the Board of Directors, as well as the exclusive right to fill vacancies created by reason of death, removal or resignation of such designees, and the Shareholders and the Company shall take all Necessary Action to cause the Board to be so constituted.

          (c) The initial directors designated by the GSCP Parties pursuant to Section 3.1(a) shall be Adrian M. Jones and Mick J. Beekhuizen. The initial directors designated by the Providence Parties pursuant to Section 3.1(a) shall be Paul J. Salem and Peter O. Wilde. The initial director designated by Leeds IV pursuant to Section 3.1(a) shall be Jeffrey T. Leeds. The remainder of the initial directors shall be (i) pursuant to Section 3.1(a), (1) the Chief Executive Officer (or equivalent) of the Company, and (2) the Chairman of the Company, (ii) Leo F. Mullin, (iii) Michael K. Powell, and (iv) Samuel C. Cowley.

          (d) A majority of the directors in office shall constitute a quorum for the transaction of business, and actions may be taken by a majority of the members present at any meeting at which a quorum is present. The Board of Directors shall designate a chairman.

          (e) The Company shall reimburse the directors for all reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors and any committees thereof, including without limitation travel, lodging and meal expenses. For the avoidance of doubt, directors designated by the GSCP Parties, the Providence Parties and Leeds IV shall receive compensation for serving on the Board of Directors and on any committees thereof equivalent to the compensation paid to other non-management directors for such service.

          (f) The Company shall obtain customary director and officer indemnity insurance on commercially reasonable terms and the terms of such insurance shall be reasonably acceptable to (i) the GSCP Parties for so long as the GSCP Parties are entitled to designate at least one director for election to the Board of Directors pursuant to Section 3.1(a) and (ii) the Providence Parties for so long as the Providence Parties are entitled to designate at least one director for election to the Board of Directors pursuant to Section 3.1(a).

          (g) Solely for purposes of Section 3.1(a), and in order to secure the performance of each Shareholder’s obligations under Section 3.1(a), each Shareholder hereby irrevocably appoints each other Shareholder that qualifies as a Proxy Holder (as defined below) the attorney-in-fact and proxy of such Shareholder (with full power of substitution) to vote or provide a written consent with respect to its Company Shares as described in this paragraph if, and only in the event that, such Shareholder fails to vote or provide a written consent with respect to its Company Shares in accordance with the terms of Section 3.1(a) (each such Shareholder, a “Breaching Shareholder”). Each Breaching Shareholder shall have five (5) Business Days from the date of a request for such vote or written consent (the “Cure Period”) to

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cure such failure. If after the Cure Period the Breaching Shareholder has not cured such failure, any Shareholder whose designees to the Board were required to be approved by the Breaching Shareholder pursuant to Section 3.1(a) but were not approved by the Breaching Shareholder, shall have and is hereby irrevocably granted a proxy to vote or provide a written consent with respect to each such Breaching Shareholder’s Company Shares for the purposes of taking the actions required by Section 3.1(a) (such Shareholder, a “Proxy Holder”), and of removing from office any directors elected to the Board in lieu of the designees of the Proxy Holder who should have been elected pursuant to Section 3.1(a). Each Shareholder intends this proxy to be, and it shall be, irrevocable and coupled with an interest, and each Shareholder will take such further action and execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revoke any proxy previously granted by it with respect to the matters set forth in Section 3.1(a) with respect to the Company Shares owned by such Shareholder. Notwithstanding the foregoing, the conditional proxy granted by this Section 3.1(g) shall be deemed to be revoked upon the termination of this Article III in accordance with its terms.

          (h) Notwithstanding the foregoing, the provisions of this Section 3.1 shall not apply to Citigroup Capital Partners II Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P., Citigroup Capital Partners II Cayman Holdings, L.P., and Citigroup Capital Partners II 2006 Citigroup Investment, L.P.

     Section 3.2. Committees. For so long as the GSCP Parties are entitled to designate at least one director for election to the Board of Directors pursuant to Section 3.1(a), the GSCP Parties shall have the right to have at least one (1) of its designated directors on each committee (with the exception of the Audit Committee) of the Board of Directors of the Company, to the extent such directors are permitted to serve on such committees under SEC and Nasdaq rules applicable to the Company. For so long as the Providence Parties are entitled to designate at least one director for election to the Board of Directors pursuant to Section 3.1(a), the Providence Parties shall have the right to have at least one (1) of its designated directors on each committee (with the exception of the Audit Committee) of the Board of Directors of the Company, to the extent such directors are permitted to serve on such committees under SEC and Nasdaq rules applicable to the Company. For so long as the GSCP Parties and the Providence Parties collectively beneficially own 30% or more of the outstanding Company Shares and each of the GSCP Parties and the Providence Parties are entitled to designate at least one director for election to the Board of Directors pursuant to Section 3.1(a), (i) Sponsor Directors shall constitute the majority of each committee with one or more Sponsor Directors and (ii) at the election of the GSCP Parties and the Providence Parties that beneficially own Company Shares, the chairman of each committee with one or more Sponsor Directors shall be a Sponsor Director mutually agreed upon by the GSCP Parties and the Providence Parties that beneficially own Company Shares. In the event that SEC or Nasdaq rules applicable to the Company limit the number of Sponsor Directors that can serve on any committee (other than the Audit Committee), the parties shall allocate committee membership among Sponsor Directors in as equitable a manner as possible, taking into account the relative level of ownership by such sponsor and considering committee preferences.

Section 3.3. Information; Duties.

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          (a) Each Shareholder agrees and acknowledges that the directors designated by the GSCP Parties, the Providence Parties and Leeds IV may share confidential, non-public information about the Company with the GSCP Parties, the Providence Parties and the Leeds Parties, respectively; provided that such parties agree to keep such information confidential and agree to comply with all applicable securities laws in connection therewith, and provided, further, that information protected by attorney client privilege or attorney work product will not be disclosed to the extent such disclosure will cause the loss of such privilege.

          (b) The Company and the Shareholders hereby agree, notwithstanding anything to the contrary in any other agreement or at law or in equity, that when any of the GSCP Parties, the Providence Parties, the Leeds Parties or their respective Affiliates takes any action under this Agreement to give or withhold its consent, such Person shall, to the fullest extent permitted by Pennsylvania law, have no duty to consider the interests of the Company or the other Shareholders or any other shareholders of the Company and may act exclusively in its own interest and shall have only the duty to act in good faith; provided, however, that the foregoing shall in no way affect the obligations of the parties hereto to comply with the provisions of this Agreement.

ARTICLE IV.

TRANSFERS OF SHARES

     Section 4.1. Limitations on Transfer.

          (a) No Shareholder shall be entitled to Transfer any of its Company Shares at any time if such Transfer would:

     (i) violate the Securities Act, or any state (or other jurisdiction) securities or “Blue Sky” laws applicable to the Company or the applicable Transfer of Company Shares;

     (ii) cause the Company to become subject to the registration requirements of the U.S. Investment Company Act of 1940, as amended from time to time; or

     (iii) be a “prohibited transaction” under ERISA or the Code or cause all or any portion of the assets of the Company to constitute “plan assets” under ERISA or Section 4975 of the Code.

          (b) In addition, except (w) in connection with the exercise of “piggyback” rights under the Registration Rights Agreement, (x) as permitted by Section 4.2, (y) as Tagging Shareholders pursuant to Section 4.3, or (z) in order to comply with Section 4.4 as a Drag-Along Shareholder, until both the GSCP Parties and the Providence Parties cease to be Qualifying Shareholders, no Shareholder may Transfer any Company Shares, except (i) in the case of the GSCP Parties, with the prior written consent of the Providence Parties; provided, however, that no such consent shall be required if the Providence Parties are no longer Qualifying Shareholders; (ii) in the case of the GS PEP Funds and Goldman Sachs EDMC Investors, L.P., with the prior written consent of the GSCP Parties; provided, however, that no such consent shall

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be required if the GSCP Parties are no longer Qualifying Shareholders; (iii) in the case of the Providence Parties, with the prior written consent of the GSCP Parties; provided, however, that no such consent shall be required if the GSCP Parties are no longer Qualifying Shareholders; (iv) in the case of the Providence Co-Investors, with the prior written consent of the Providence Parties; provided, however, that no such consent shall be required if the Providence Parties are no longer Qualifying Shareholders; and (v) in the case of any other Shareholder, with the prior written consent of either the Providence Parties (for so long such parties are Qualifying Shareholders) or the GSCP Parties (for so long such parties are Qualifying Shareholders); provided, however, that no such consent shall be required if at such time neither the GSCP Parties nor the Providence Parties are Qualifying Shareholders. For the avoidance of doubt, any Company Shares received by a Shareholder pursuant to a pro-rata distribution by any other Shareholder to its partners or members that is consented to pursuant to this Section 4.1(b) shall not be subject to the restrictions set forth in Sections 4.1, 4.2, 4.3 and 4.4 unless the other partners or members receiving such Company Shares become a party to this Agreement (if they are not already parties hereto) or otherwise agree to the restrictions set forth in Sections 4.1, 4.2, 4.3 and 4.4. In addition, each of the GSCP Parties and the Providence Parties (as applicable) agrees (a) to provide the other (i.e. either the GSCP Parties or the Providence Parties, as appropriate) written notice as soon as reasonably practicable (x) after receiving a request from any Shareholder to consent to a Transfer of Company Shares pursuant to this Section 4.1(b) and (y) after granting a consent to Transfer Company Shares pursuant to this Section 4.1(b), (b) to provide written notice, as soon as reasonably practicable after the granting of a consent to a Shareholder to Transfer Company Shares pursuant to this Section 4.1(b), to each other Shareholder of the granting of such consent and (c) that when granting a consent to any Shareholder to Transfer Company Shares pursuant to this Section 4.1(b), such GSCP Party or Providence Party (as applicable) will not unreasonably withhold its consent from any other Shareholder requesting a consent to contemporaneously Transfer a proportionate number of Company Shares pursuant to this Section 4.1(b).

          (c) In the event of a purported Transfer by a Shareholder of any Company Shares in violation of the provisions of this Agreement (including Section 4.6), such purported Transfer will be void and of no effect, and the Company will not give effect to such Transfer.

          (d) Each certificate evidencing the Company Shares shall bear the following restrictive legend, either as an endorsement or on the face thereof:

THE SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF A SHAREHOLDERS AGREEMENT, DATED AS OF OCTOBER 7, 2009, COPIES OF WHICH ARE ON FILE WITH THE ISSUER OF THIS CERTIFICATE. NO SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF SUCH SHAREHOLDERS AGREEMENT HAVE BEEN COMPLIED WITH IN FULL.

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE SOLD OR TRANSFERRED OTHER THAN IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (OR OTHER APPLICABLE LAW), OR AN EXEMPTION THEREFROM.

          (e) In the event that the restrictive legend set forth in Section 4.1(d) has ceased to be applicable, or upon request by a Shareholder proposing to Transfer Company Shares pursuant to any Transfer permitted under this Agreement, the Company shall provide such Shareholder, or its transferees, at their request, without any expense to such Persons (other than applicable transfer taxes and similar governmental charges, if any), with new certificates for such securities not bearing the legend with respect to which the restriction has ceased and terminated (it being understood that the restriction referred to in the first paragraph of the legend in Section 4.1(d) shall cease and terminate upon the termination of this Article IV).

     Section 4.2. Transfer to Permitted Transferees. Subject to the provisions of Section 4.1(a), Section 4.5, and Section 4.6, a Shareholder may Transfer any or all of its Company Shares to a Permitted Transferee of such Shareholder; provided that each Permitted Transferee of any Shareholder to which Company Shares are Transferred shall, and such Shareholder shall cause such Permitted Transferee to, Transfer back to such Shareholder (or to another Permitted Transferee of such Shareholder) any Company Shares it owns if such Permitted Transferee ceases to be a Permitted Transferee of such Shareholder.

     Section 4.3. Tag Along Rights.

          (a) In the case of a proposed Transfer (a “Proposed Transfer”) approved pursuant to Section 4.1(b) by a Shareholder (a “Transferring Shareholder”) to a proposed transferee (a “Proposed Transferee”) of Company Shares owned by such Transferring Shareholder, other than a Transfer (i) to a Permitted Transferee, (ii) pursuant to an underwritten registered public offering, (iii) pursuant to a bona fide sale pursuant to a brokers’ transaction, transaction directly with a market maker or riskless principal transaction in each case in accordance with Rule 144 under the Securities Act (including, without limitation, block trades), (iv) pursuant to the Registration Rights Agreement, (v) in order to comply with Section 4.4 as a Drag-Along Shareholder or (vi) pursuant to a pro-rata distribution made by a Shareholder to its partners or members, each other Shareholder who exercises its rights under this Section 4.3(a) (a “Tagging Shareholder”) shall have the right to require the Transferring Shareholder to cause the Proposed Transferee to purchase from such Tagging Shareholder up to a number of its Company Shares equal to the product of (A) (x) the total number of Company Shares held by the Tagging Shareholder divided by (y) the total number of Company Shares held by all Shareholders participating in such Transfer (including the Transferring Shareholder and the Tagging Shareholders) and (B) the aggregate number of Company Shares proposed to be Transferred to the Proposed Transferee.

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          (b) The Transferring Shareholder shall give notice to each other Shareholder of a Proposed Transfer not later than five (5) Business Days prior to the closing of the Proposed Transfer, setting forth the number of Company Shares proposed to be so Transferred, the name and address of the Proposed Transferee, the proposed amount and form of consideration (and, if such consideration consists in part or in whole of property other than cash, the Transferring Shareholder shall provide such information, to the extent reasonably available to the Transferring Shareholder, relating to such non-cash consideration as the other Shareholders may reasonably request in order to evaluate such non-cash consideration), and other terms and conditions of payment offered by the Proposed Transferee. The Transferring Shareholder shall deliver or cause to be delivered to each Tagging Shareholder copies of all transaction documents relating to the Proposed Transfer as the same become available. The tag-along rights provided by this Section 4.3 must be exercised by a Shareholder within three (3) Business Days following receipt of the notice required by the first sentence of this Section 4.3(b), by delivery of a written notice to the Transferring Shareholder indicating its desire to exercise its rights and specifying the number of Company Shares it desires to Transfer.

          (c) Any Transfer of Company Shares by a Tagging Shareholder to a Proposed Transferee pursuant to this Section 4.3 shall be on the same terms and conditions (including, without limitation, price, time of payment and form of consideration) as to be paid to the Transferring Shareholder and each Tagging Shareholder must agree to the same conditions to the Proposed Transfer as the Transferring Shareholder agrees (including representations, warranties, covenants, indemnities and other agreements, but not any non-competition or similar agreements or covenants that would bind the Tagging Shareholder or its Affiliates); provided, however, that no Shareholder shall be required to make any representations or warranties in any agreement relating to a Proposed Transfer other than representations and warranties relating to such Shareholder and the ownership of its Company Shares that are customary in similar transactions including, without limitation, representations and warranties relating to title, authorization and execution and delivery; it being further understood that all such representations, warranties, covenants, indemnities and agreements shall be made by the Transferring Shareholder and each Tagging Shareholder severally and not jointly and that, except with respect to individual representations, warranties, covenants, indemnities and other agreements of the Tagging Shareholder as to the unencumbered title to its Company Shares and authorization and execution and delivery of the applicable agreements and such Company Shares, the aggregate amount of the liability of the Tagging Shareholder shall not exceed the lesser of (i) such Tagging Shareholder’s pro rata portion of any such liability to be determined in accordance with such Tagging Shareholder’s portion of the total number of Company Shares included in such Transfer or (ii) the proceeds to such Tagging Shareholder in connection with such Transfer. Each Tagging Shareholder shall be responsible for its proportionate share of the costs of the Proposed Transfer to the extent not paid or reimbursed by the Proposed Transferee or the Company.

     Section 4.4. Drag Along Rights.

          (a) If Shareholders holding, in the aggregate, greater than fifty percent (50%) of the Company Shares owned by the Shareholders from time to time (the “Selling Shareholders”) agree to enter into a bona fide sale transaction (the “Drag-Along Sale”) which would result in the Transfer of more than fifty percent (50%) of the aggregate Company Shares (including any Company Shares held by other holders of Company Shares, including any Drag-

13

Along Shareholders) to one or more third parties that is not a Permitted Transferee or Affiliate of any Selling Shareholder (the “Drag-Along Buyer”), the Selling Shareholders may deliver written notice (a “Drag-Along Notice”) to each other Shareholder (the “Drag-Along Shareholders”), stating that such Selling Shareholders wish to exercise their rights under this Section 4.4 with respect to such Transfer (a “Drag-Along Election”), and setting forth the name and address of the Drag-Along Buyer, the number of Company Shares proposed to be Transferred, the proposed amount and form of the consideration, and all other material terms and conditions offered by the Drag-Along Buyer. Notwithstanding the foregoing, no Drag-Along Election may be made (i) without the approval of the GSCP Parties so long as the GSCP Parties collectively hold at least 25% of their aggregate Initial Post-IPO Share Ownership and (ii) without the approval of the Providence Parties so long as the Providence Parties collectively hold at least 25% of their aggregate Initial Post-IPO Share Ownership.

          (b) Upon delivery of a Drag-Along Notice, each Drag-Along Shareholder shall be required to Transfer that percentage of its Company Shares equal to the percentage of the Company Shares held by the Selling Shareholders which are being Transferred to the Drag-Along Buyer, upon the same terms and conditions (including, without limitation, as to price, time of payment and form of consideration) as agreed by the Selling Shareholders and the Drag-Along Buyer and shall agree to the same conditions to the Transfer as the Selling Shareholders agree (including representations, warranties, covenants, indemnities and other agreements, but not any non-competition or similar agreements or covenants that would bind the Drag-Along Shareholder or its Affiliates); provided, however, that no Shareholder shall be required to make any representations or warranties in any agreement relating to a Drag-Along Sale other than representations and warranties relating to such Shareholder and the ownership of its Company Shares that are customary in similar transactions including, without limitation, representations and warranties relating to title, authorization and execution and delivery; it being further understood that all such representations, warranties, covenants, indemnities and agreements shall be made by each Selling Shareholder and each Drag-Along Shareholder severally and not jointly and that, except with respect to individual representations, warranties, covenants, indemnities and other agreements of the Drag-Along Shareholder as to the unencumbered title to its Company Shares and the authorization and execution and delivery of the applicable agreements and such Company Shares, the aggregate amount of the liability of the Drag-Along Shareholder shall not exceed the lesser of (i) such Drag-Along Shareholder’s pro rata portion of any such liability, to be determined in accordance with such Drag-Along Shareholder’s portion of the total number of Company Shares included in such Transfer or (ii) the proceeds to such Drag-Along Shareholder in connection with such Transfer.

          (c) In the event that any such Transfer is structured as a merger, consolidation, or similar business combination, each Drag-Along Shareholder agrees to (i) vote all of the Company Shares held by such Drag-Along Shareholder in favor of the transaction, (ii) take such other Necessary Action as may be required to effect such transaction (subject to Section 4.4(b)) and (iii) take all action to waive any dissenters, appraisal or other similar rights with respect thereto.

          (d) Solely for purposes of Section 4.4(c)(i) and in order to secure the performance of each Shareholder’s obligations under Section 4.4(c)(i), each Shareholder hereby irrevocably appoints each other Shareholder that qualifies as a Drag-Along Proxy Holder (as

14

defined below) the attorney-in-fact and proxy of such Shareholder (with full power of substitution) to vote or provide a written consent with respect to its Company Shares as described in this paragraph if, and only in the event that, such Shareholder fails to vote or provide a written consent with respect to its Company Shares in accordance with the terms of Section 4.4(c)(i) (each such Shareholder, a “Breaching Drag-Along Shareholder”) within three (3) days of a request for such vote or written consent. Upon such failure, the Selling Shareholders shall have and are hereby irrevocably granted a proxy to vote or provide a written consent with respect to each such Breaching Drag-along Shareholder’s Company Shares for the purposes of taking the actions required by Section 4.4(c)(i) (such Selling Shareholders, a “Drag-Along Proxy Holder”). Each Shareholder intends this proxy to be, and it shall be, irrevocable and coupled with an interest, and each Shareholder will take such further action and execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revoke any proxy previously granted by it with respect to the matters set forth in Section 4.4(c)(i) with respect to the Company Shares owned by such Shareholder. Notwithstanding the foregoing, the conditional proxy granted by this Section 4.4(d) shall be deemed to be revoked upon the termination of this Article IV in accordance with its terms.

          (e) If any Drag-Along Shareholder fails to deliver to the Drag-Along Buyer the certificate or certificates evidencing Company Shares to be sold pursuant to this Section 4.4, the Selling Shareholders may, at their option, in addition to all other remedies they may have, deposit the purchase price (including any promissory note constituting all or any portion thereof) for such Company Shares with any national bank or trust company having combined capital, surplus and undivided profits in excess of $100 million (the “Escrow Agent”), and the Company shall cancel on its books the certificate or certificates representing such Company Shares and thereupon all of such Drag-Along Shareholder’s rights in and to such Company Shares shall terminate. Thereafter, upon delivery to the Company by such Drag-Along Shareholder of the certificate or certificates evidencing such Company Shares (duly endorsed, or with stock powers duly endorsed, for transfer, with signature guaranteed, free and clear of any liens or encumbrances, and with any stock transfer tax stamps affixed), the Selling Shareholders shall instruct the Escrow Agent to deliver the purchase price (without any interest from the date of the closing to the date of such delivery, any such interest to accrue to the Company) to such Drag-Along Shareholder.

     Section 4.5. Rights and Obligations of Transferees.

          (a) Any Transfer of Company Shares to any Permitted Transferee of a Shareholder, which Transfer is otherwise in compliance herewith, shall be permitted hereunder only if such Permitted Transferee agrees in writing that it shall, upon such Transfer, assume with respect to such Company Shares the transferor’s obligations under this Agreement and become a party to this Agreement for such purpose, and any other agreement or instrument executed and delivered by such transferor in respect of the Company Shares.

          (b) Notwithstanding the foregoing, Section 4.5(a) shall not apply to any Transfer of Company Shares to a Permitted Transferee completed pursuant to (i) a Registration Statement, (ii) an underwritten registered public offering, or (iii) a bona fide sale pursuant to a brokers’ transaction, transaction directly with a market maker or riskless principal transaction in each case in accordance with Rule 144 under the Securities Act (including, without limitation,

15

block trades), in each case for which the transferor does not have knowledge that such Company Shares are being sold to a Permitted Transferee.

     Section 4.6. Additional Transfer Restrictions. Notwithstanding any other provisions of this Agreement, without the prior written consent of either the Company or the Shareholders holding greater than 70% of the Company Shares owned by the Shareholders from time to time, no Shareholder may Transfer any of its Company Shares at any time if such Transfer would:

          (a) result in any Transferee holding of record 25% or more of the total outstanding Company Shares or otherwise becoming a “controlling shareholder” under applicable United States Department of Education regulations (as in effect from time to time); or

          (b) result in any Person or Persons acquiring ownership and control of the Company such that the Company would be required to file a Form 8-K with the SEC notifying the SEC of a change in control; or

          (c) require the consent, approval, or authorization, in connection with a change of ownership or otherwise, of the United States Department of Education or of any federal, state, local or foreign education regulatory body or of any organization which engages in the granting or withholding of accreditation of post-secondary schools or their education programs.

     Section 4.7. Termination of Transfer Restrictions. The provisions of this Article IV (other than Section 4.4) shall terminate and be of no further force and effect upon the earlier of (i) the fifth anniversary of the IPO or (ii) the date on which the GSCP Parties and the Providence Parties cease to hold collectively at least 25% of their aggregate Initial Post-IPO Share Ownership. The provisions of Section 4.4 shall terminate upon the date on which the GSCP Parties and the Providence Parties cease to hold collectively at least a majority of the outstanding Company Shares.

ARTICLE V.

GENERAL PROVISIONS

     Section 5.1. Waiver by Shareholders. The rights and obligations contained in this Agreement are in addition to the relevant provisions of the Governing Documents in force from time to time and shall be construed to comply with such provisions. To the extent that this Agreement is determined to be in contravention of the Governing Documents, this Agreement shall constitute a waiver by each Shareholder, to the fullest extent permissible under applicable laws, of any right such Shareholder may have pursuant to the Governing Documents that is inconsistent with this Agreement.

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     Section 5.2. Assignment; Benefit. The rights and obligations hereunder shall not be assignable without the prior written consent of the other parties hereto except as provided under Article IV. Any assignment of rights or obligations in violation of this Section 5.2 shall be null and void. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

     Section 5.3. Freedom to Pursue Opportunities. The parties expressly acknowledge and agree that to the fullest extent permitted by applicable law, the Company, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Company and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to any Shareholder, Sponsor Director or Affiliated Officer of the Company or any of their respective officers, directors, agents, shareholders, members, partners, Affiliates and subsidiaries (other than the Company and its subsidiaries) (each a “Sponsor Party”), even if the opportunity is one that the Company or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so and such Person shall have no duty to communicate or offer such business opportunity to the Company and, to the fullest extent permitted by applicable law, shall not be liable to the Company or any of its subsidiaries or shareholders for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such Person pursues or acquires such business opportunity, directs such business opportunity to another Person or fails to present such business opportunity, or information regarding such business opportunity, to the Company or its subsidiaries unless, in the case of any such Person who is a director or officer of the Company, such business opportunity (x) is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of the Company and (y) is not separately offered to a Sponsor Party by a party other than such director or officer.

     Section 5.4. Termination. Article III of this Agreement shall terminate as set forth in such Article. Article IV of this Agreement shall terminate as set forth in Section 4.7. The remainder of this Agreement shall terminate after each GSCP Party and each Providence Party, and each of their respective Permitted Transferees shall have transferred all Company Shares owned by it.

     Section 5.5. Subsequent Acquisition of Shares. Any Company Shares acquired subsequent to the date hereof by a Shareholder shall be subject to the terms and conditions of this Agreement and such shares shall be considered to be “Company Shares” as such term is used herein for purposes of this Agreement.

     Section 5.6. Severability. In the event that any provision of this Agreement shall be invalid, illegal or unenforceable such provision shall be construed by limiting it so as to be valid, legal and enforceable to the maximum extent provided by law and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     Section 5.7. Entire Agreement. This Agreement, the Governing Documents, the Registration Rights Agreement, the letter agreement, dated June 1, 2006, between EM Acquisition Corporation, which was merged with and into the Company, and GS Capital Partners V Institutional, L.P., the letter agreement, dated June 1, 2006, between EM Acquisition Corporation and Goldman Sachs Private Equity Partners 2004 — Direct Investment Fund, L.P.,

17

the letter agreement, dated June 1, 2006, between EM Acquisition Corporation and Goldman Sachs Private Equity Partners 2000 — Direct Investment Fund, L.P., the letter agreement, dated June 1, 2006, between EM Acquisition Corporation and Goldman Sachs Private Equity Partners 2002 — Direct Investment Fund, L.P., the letter agreement, dated June 1, 2006, between EM Acquisition Corporation and Providence Equity Partners V L.P., and the letter agreement, dated June 10, 2006, between Education Management Corporation and Leeds Equity Partners IV, L.P. constitute the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes any prior agreement or understanding among them with respect to the matters referred to herein. There are no representations, warranties, promises, inducements, covenants or undertakings relating to Company Shares, other than those expressly set forth or referred to herein, the Governing Documents or in the Registration Rights Agreement. The October 2006 Agreement shall terminate in full upon the effectiveness of this Agreement.

     Section 5.8. Amendment. This Agreement may not be amended, modified, supplemented, waived or terminated (other than pursuant to Section 5.4) except by written approval of the GSCP Parties and the Providence Parties so long as the GSCP Parties or the Providence Parties, as applicable, are a Qualifying Shareholder (each, for as long as it is a Qualifying Shareholder, a “Required Shareholder”); provided that, any amendment, modification, supplement, waiver or termination that (x) materially and adversely affects the rights of any Shareholder under this Agreement (other than the Required Shareholders) disproportionately vis-à-vis any Required Shareholder (each an “Affected Shareholder”) will require the written approval of (i) the Required Shareholders and (ii) Affected Shareholders holding a majority of the outstanding Company Shares then held by all Affected Shareholders; (y) materially and adversely affects the rights of the Leeds Parties under this Agreement disproportionately vis-à-vis any Required Shareholder will require the written approval of (i) the Required Shareholder and (ii) Leeds IV; and (z) materially and adversely affects the rights of the Company under this Agreement, imposes additional obligations on the Company, or amends or modifies Section 3.1(a), 3.2, 4.1(a), 4.6 or 5.8, will require the written approval of the Company. In addition, (i) any modification or amendment of this Section 5.8 will require the written approval of all Shareholders who then hold Company Shares and (ii) if neither the GSCP Parties or the Providence Parties are a Qualifying Shareholder, this Agreement may not be amended, modified, supplemented, waived or terminated (other than pursuant to Section 5.4) except by written approval of all Shareholders who hold a majority of the Company Shares held by all Shareholders.

     Section 5.9. Waiver. No waiver of any breach of any of the terms of this Agreement shall be effective unless such waiver is expressly made in writing and executed and delivered by the party against whom such waiver is claimed. Waiver by any party hereto of any breach or default by any other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by any party to assert its or his or her rights hereunder on any occasion or series of occasions.

     Section 5.10. Counterparts. This Agreement may be executed in any number of separate counterparts each of which when so executed shall be deemed to be an original and all of which together shall constitute one and the same agreement.

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     Section 5.11. Notices. Unless otherwise specified herein, all notices, consents, approvals, reports, designations, requests, waivers, elections and other communications authorized or required to be given pursuant to this Agreement shall be in writing and shall be given, made or delivered (and shall be deemed to have been duly given, made or delivered upon receipt) by personal hand-delivery, by facsimile transmission, by electronic mail, by mailing the same in a sealed envelope, registered first-class mail, postage prepaid, return receipt requested, or by air courier guaranteeing overnight delivery, addressed to the Company at the address set forth below or to the applicable Shareholder at the address indicated on Annex A hereto (or at such other address for a Shareholder as shall be specified by like notice):

Education Management Corporation
210 Sixth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Chief Executive Officer
Telephone: (412) 562-0900
Telecopy: (412) 562-0598

with a copy (which shall not constitute notice) to:

K&L Gates LLP
535 Smithfield Street
Pittsburgh, Pennsylvania 15222
Attention: Robert P. Zinn, Esq.
Telephone: (412) 355-6500
Telecopy: (412) 355-6501
Email: Robert.Zinn@klgates.com

     Section 5.12. Governing Law. THIS AGREEMENT AND ANY CLAIM OR DISPUTE ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER IN CONTRACT, TORT OR OTHERWISE) OR THE SUBJECT MATTER HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS LAW, PROVIDED THAT THE PROVISIONS SET FORTH HEREIN AND ANY CLAIMS OR DISPUTES ARISING OUT OF OR RELATED TO SUCH PROVISIONS OR THE SUBJECT MATTER THEREOF THAT ARE REQUIRED TO BE GOVERNED BY THE PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED, SHALL BE GOVERNED BY THE PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED.

     Section 5.13. Jurisdiction. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN OR (TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFORE) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. ANY ACTIONS OR PROCEEDINGS TO ENFORCE A JUDGMENT

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ISSUED BY ONE OF THE FOREGOING COURTS MAY BE ENFORCED IN ANY JURISDICTION.

     Section 5.14. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH SHAREHOLDER WAIVES, AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH THE DEALINGS OF ANY SHAREHOLDER OR THE COMPANY IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. The Company or any Shareholder may file an original counterpart or a copy of this Section 5.14 with any court as written evidence of the consent of the Shareholders to the waiver of their rights to trial by jury.

     Section 5.15. Specific Performance. It is hereby agreed and acknowledged that it will be impossible to measure the money damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them by this Agreement and that, in the event of any such failure, an aggrieved party will be irreparably damaged and will not have an adequate remedy at law. Any such party shall, therefore, be entitled (in addition to any other remedy to which such party may be entitled at law or in equity) to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.

     Section 5.16. Marketing Materials. The Company grants the GSCP Parties, the Providence Parties, the Leeds Parties and their respective Affiliates permission to use the Company’s name and logo in marketing materials of such Shareholder or any of its Affiliates. Such Shareholder or its Affiliates, as applicable, shall include a trademark attribution notice giving notice of the Company’s ownership of its trademarks in the marketing materials in which the Company’s name and logo appear.

     Section 5.17. Notice of Events. Except as otherwise would require early disclosure under applicable law or regulation, unless a GSCP Party, a Providence Party or a Leeds Party notifies the Company that it does not want to receive information pursuant to this Section 5.17, the Company shall notify each of the GSCP Parties, the Providence Parties and the Leeds Parties on a reasonably current basis, of any events, discussions, notices or changes with respect to any criminal or regulatory investigation or action involving the Company or any of its subsidiaries (but, excluding traffic violations or similar misdemeanors), and shall reasonably cooperate with such Shareholder or its Affiliates in efforts to mitigate any adverse consequences to such Shareholder or its Affiliates which may arise (including by coordinating and providing assistance in meeting with regulators).

     Section 5.18. No Third Party Beneficiaries. Except as otherwise provided herein, this Agreement is not intended to confer upon any Person, except for the parties hereto, any rights or remedies hereunder.

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* * *

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

EDUCATION MANAGEMENT CORPORATION
By:	/s/ J. Devitt Kramer
	Name:	J. Devitt Kramer
	Title:	SVP, General Counsel and Secretary
GS CAPITAL PARTNERS V FUND, L.P.
By:	GSCP V Advisors, L.L.C.,
	its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Managing Director
GS CAPITAL PARTNERS V OFFSHORE FUND, L.P.
By:	GSCP V Offshore Advisors, L.L.C.,
	its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Managing Director
GS CAPITAL PARTNERS V GmbH & Co. KG
By:	Goldman, Sachs Management GP GmbH,
	its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Managing Director

[Signature Page to Shareholders’ Agreement]

GS CAPITAL PARTNERS V INSTITUTIONAL, L.P.
By:	GS Advisors V, L.L.C.,
	its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Managing Director
PROVIDENCE EQUITY PARTNERS V L.P.
By:	Providence Equity Partners GP V L.P.,
	its general partner
By:	Providence Equity Partners V LLC,
	its general partner
By:	/s/ Paul J. Salem
	Name:	Paul J. Salem
	Title:
PROVIDENCE EQUITY PARTNERS V-A L.P.
By:	Providence Equity Partners GP V L.P.,
	its general partner
By:	Providence Equity Partners V LLC,
	its general partner
By:	/s/ Paul J. Salem
	Name:	Paul J. Salem
	Title:
PROVIDENCE EQUITY PARTNERS IV L.P.
By:	Providence Equity GP IV LP,
	its general partner
By:	Providence Equity Partners IV L.L.C.,
	its general partner
By:	/s/ Paul J. Salem
	Name:	Paul J. Salem
	Title:

[Signature Page to Shareholders’ Agreement]

PROVIDENCE EQUITY OPERATING PARTNERS IV L.P.
By:	Providence Equity GP IV LP,
	its general partner
By:	Providence Equity Partners IV L.L.C.,
	its general partner
By:	/s/ Paul J. Salem
	Name:	Paul J. Salem
	Title:
PEP EDMC L.L.C.
By:	/s/ Paul J. Salem
	Name:	Paul J. Salem
	Title:

[Signature Page to Shareholders’ Agreement]

LEEDS EQUITY PARTNERS IV, L.P.
By:	Leeds Equity Associates IV, L.L.C.,
	its general partner
By:	/s/ Jeffrey T. Leeds
	Name:	Jeffrey T. Leeds
	Title:	Managing Member
LEEDS EQUITY PARTNERS IV CO-INVESTMENT FUND A, L.P.
By:	Leeds Equity Associates IV, L.L.C.,
	its general partner
By:	/s/ Jeffrey T. Leeds
	Name:	Jeffrey T. Leeds
	Title:	Managing Member
LEEDS EQUITY PARTNERS IV CO-INVESTMENT FUND B, L.P.
By:	Leeds Equity Associates IV, L.L.C.,
	its general partner
By:	/s/ Jeffrey T. Leeds
	Name:	Jeffrey T. Leeds
	Title:	Managing Member

[Signature Page to Shareholders’ Agreement]

GS PRIVATE EQUITY PARTNERS 2000, L.P.
By:	GS PEP 2000 Advisors, L.L.C.,
	its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GS PRIVATE EQUITY PARTNERS 2000 OFFSHORE HOLDINGS, L.P.
By:	GS PEP 2000 Offshore Holdings Advisors, Inc.,
	its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GS PRIVATE EQUITY PARTNERS 2000 — DIRECT INVESTMENT FUND, L.P.
By:	GS PEP 2000 Direct Investment Advisors, L.L.C.,
	its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President

[Signature Page to Shareholders’ Agreement]

GS PRIVATE EQUITY PARTNERS 2002, L.P.
By:	GS PEP 2002 Advisors, L.L.C.,
	its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GS PRIVATE EQUITY PARTNERS 2002 OFFSHORE HOLDINGS, L.P.
By:	GS PEP 2002 Offshore Holdings Advisors, Inc.,
	its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GS PRIVATE EQUITY PARTNERS 2002 — DIRECT INVESTMENT FUND, L.P.
By:	GS PEP 2002 Direct Investment Advisors, L.L.C.,
	its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President

[Signature Page to Shareholders’ Agreement]

GS PRIVATE EQUITY PARTNERS 2002 EMPLOYEE FUND, L.P.
By:	GS PEP 2002 Employee Funds GP, L.L.C.,
	its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GOLDMAN SACHS PRIVATE EQUITY PARTNERS 2004, L.P.
By:	Goldman Sachs PEP 2004 Advisors, L.L.C.,
	its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GOLDMAN SACHS PRIVATE EQUITY PARTNERS 2004 OFFSHORE HOLDINGS, L.P.
By:	Goldman Sachs PEP 2004 Offshore Holdings Advisors, Inc., its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President

[Signature Page to Shareholders’ Agreement]

GOLDMAN SACHS PRIVATE EQUITY PARTNERS 2004 — DIRECT INVESTMENT FUND, L.P.
By:	Goldman Sachs PEP 2004 Direct Investment Advisors, L.L.C., its general partner
By:	GSAM Gen-Par, L.L.C.,
	its Managing Member
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GOLDMAN SACHS PRIVATE EQUITY PARTNERS 2004 EMPLOYEE FUND, L.P.
By:	Goldman Sachs PEP 2004 Employee Funds GP,
	L.L.C., its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
MULTI-STRATEGY HOLDINGS, L.P.
By:	Multi-Strategy Holdings Offshore Advisors, Inc.,
	its general partner
By:	/s/ Ryan Boucher
	Name:	Ryan Boucher
	Title:	Vice President
GOLDMAN SACHS EDMC INVESTORS, L.P.
By:	GS EDMC Advisors, L.L.C., its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Vice President

[Signature Page to Shareholders’ Agreement]

GSCP V EDMC HOLDINGS, L.P.
By:	GSCP V EDMC GP, L.L.C., its general partner
By:	/s/ John E. Bowman
	Name:	John E. Bowman
	Title:	Vice President
FISHER LYNCH CO-INVESTMENT PARTNERSHIP, L.P.
By:	Fisher Lynch GP, L.P., its general partner
By:	FLC G.P., Inc., its general partner
By:	/s/ Brett Fisher
	Name:	Brett Fisher
	Title:	Authorized Officer
ONTARIO TEACHERS’ PENSION PLAN BOARD
By:	/s/ Chris Ferrara
	Name:	Chris Ferrara
	Title:	Portfolio Manager
GENERAL ELECTRIC PENSION TRUST
By:	GE Asset Management Incorporated, its Investment Manager
By:	/s/ Patrick J. McNeela
	Name:	Patrick J. McNeela
	Title:	Chief Investment Officer & Senior Managing Member

[Signature Page to Shareholders’ Agreement]

ALPINVEST PARTNERS CS INVESTMENTS 2006 C.V.
By:	AlpInvest Partners 2006 B.V., its general partner
By:	AlpInvest Partners N.V., its managing director
By:	/s/ E.M.J Thyssen
	Name:	E.M.J Thyssen
	Title:	Managing Partner
By:	/s/ P.F.P. de van der Schueren
	Name:	P.F.P. de van der Schueren
	Title:	Chief Legal Officer
ALPINVEST PARTNERS LATER STAGE CO-INVESTMENTS CUSTODIAN IIA B.V., (as custodian for ALPINVEST PARTNERS LATER STAGE CO-INVESTMENTS IIA C.V.)
By:	AlpInvest Partners N.V., its managing director
By:	/s/ E.M.J Thyssen
	Name:	E.M.J Thyssen
	Title:	Managing Partner
By:	/s/ P.F.P. de van der Schueren
	Name:	P.F.P. de van der Schueren
	Title:	Chief Legal Officer

[Signature Page to Shareholders’ Agreement]

CITIGROUP CAPITAL PARTNERS II EMPLOYEE MASTER FUND, L.P.
By:	Citigroup Private Equity LP, its general partner
By:	/s/ Jason Ment
	Name:	Jason Ment
	Title:	Secretary
CITIGROUP CAPITAL PARTNERS II ONSHORE, L.P.
By:	Citigroup Private Equity LP, its general partner
By:	/s/ Jason Ment
	Name:	Jason Ment
	Title  Secretary
CITIGROUP CAPITAL PARTNERS II CAYMAN HOLDINGS, L.P.
By:	Citigroup Private Equity LP, its general partner
By:	/s/ Jason Ment
	Name:	Jason Ment
	Title  Secretary
CITIGROUP CAPITAL PARTNERS II 2006 CITIGROUP INVESTMENT, L.P.
By:	Citigroup Private Equity LP, its general partner
By:	/s/ Jason Ment
	Name:	Jason Ment
	Title  Secretary

[OTHER SHAREHOLDERS]

[Signature Page to Shareholders’ Agreement]

EX-10.2

Exhibit 10.2

EDUCATION MANAGEMENT CORPORATION
OMNIBUS LONG-TERM INCENTIVE PLAN

     EDUCATION MANAGEMENT CORPORATION, a Pennsylvania corporation (the “Company”), sets forth herein the terms of its Omnibus Long-Term Incentive Plan (the “Plan”), as follows:

1. PURPOSE

     The Plan is intended to enhance the Company’s and its Affiliates’ (as defined herein) ability to attract and retain highly qualified officers, non-employee members of the Board, key employees, consultants and advisors, and to motivate such officers, non-employee members of the Board, key employees, consultants and advisors to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other stock-based awards and cash awards. Any of these awards may, but need not, be made as performance incentives to reward attainment of performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.

2. DEFINITIONS

     For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:

     2.1. “Affiliate” means any company or other trade or business that “controls,” is “controlled by” or is “under common control” with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

     2.2. “Award” means a grant of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, other Stock-based Award or cash award under the Plan.

     2.3. “Award Agreement” means a written agreement between the Company and a Grantee, or notice from the Company or an Affiliate to a Grantee that evidences and sets out the terms and conditions of an Award.

     2.4. “Board” means the Board of Directors of the Company.

     2.5. “Business Combination” shall have the meaning set forth in Section 15.2.

     2.6. “Cause” shall be defined as that term is defined in a Grantee’s offer letter or other applicable employment agreement; or, if there is no such definition, “Cause” means, as determined by the Company and unless otherwise provided in an applicable

Award Agreement with the Company or an Affiliate: (i) engaging in any act, or failing to act, or misconduct that is injurious to the Company or its Affiliates; (ii) gross negligence or willful misconduct in connection with the performance of duties; (iii) conviction of (or entering a plea of guilty or nolo contendere to) a criminal offense (other than minor traffic offenses); (iv) fraud, embezzlement or misappropriation of funds or property of the Company or an Affiliate; (v) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider and the Company or an Affiliate; (vi) the entry of an order duly issued by any regulatory agency (including federal, state and local regulatory agencies and self-regulatory bodies) having jurisdiction over the Company or an Affiliate requiring the removal from any office held by the Service Provider with the Company or prohibiting a Service Provider from participating in the business or affairs of the Company or any Affiliate; or (vii) the revocation or threatened revocation of any of the Company’s or any Affiliate’s government licenses, permits or approvals, which is primarily due to the Service Provider’s action or inaction and such revocation or threatened revocation would be alleviated or mitigated in any material respect by the termination of the Service Provider’s Services.

     2.7. “Change in Control” shall have the meaning set forth in Section 15.2.

     2.8. “Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.

     2.9. “Committee” means the Compensation Committee of the Board, or such other committee as determined by the Board. The Compensation Committee of the Board may, in its discretion, designate a subcommittee of its members to serve as the Committee (to the extent the Board has not designated another person, committee or entity as the Committee). Following the Company’s initial public offering, (i) the Board will cause the Committee to satisfy the applicable requirements of any stock exchange on which the Common Stock may then be listed; (ii) for purposes of Awards to Covered Employees intended to constitute Performance Awards, to the extent required by Code Section 162(m), “Committee” means all of the members of the Compensation Committee who are “outside directors” within the meaning of Section 162(m) of the Code; and (iii) for purposes of Awards to Grantees who are subject to Section 16 of the Exchange Act, “Committee” means all of the members of the Compensation Committee who are “non-employee directors” within the meaning of Rule 16b-3 adopted under the Exchange Act.

     2.10. “Company” means Education Management Corporation, a Pennsylvania corporation, or any successor corporation.

     2.11. “Common Stock” or “Stock” means a share of common stock of the Company, par value $0.01 per share.

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     2.12. “Covered Employee” means a Grantee who is a “covered employee” within the meaning of Section 162(m)(3) of the Code as qualified by Section 12.4 herein.

     2.13. “Disability” means as determined by the Company and unless otherwise provided in an applicable Award Agreement with the Company or an Affiliate, the Grantee is unable to perform each of the essential duties of such Grantee’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option following termination of the Grantee’s Service, “Disability” means “permanent and total disability” as set forth in Section 22(e)(3) of the Code.

     2.14. “Effective Date” means the effective date of the Company’s Initial Public Offering.

     2.15. “Exchange Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.

     2.16. “Fair Market Value” of a share of Common Stock as of a particular date shall mean (1) if the Common Stock is listed on a national securities exchange, the closing or last price of the Common Stock on the composite tape or other comparable reporting system for the applicable date, or if the applicable date is not a trading day, the trading day immediately preceding the applicable date, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Board in good faith in its sole discretion (but in any event not less than fair market value within the meaning of Section 409A); notwithstanding the foregoing, the Fair Market Value of a share of Common Stock for purposes of determining Awards with a Grant Date as of the Company’s initial public offering shall be the price per share of Common Stock set in the final prospectus for such initial public offering.

     2.17. “Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the applicable individual, any person sharing the applicable individual’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the applicable individual) control the management of assets, and any other entity in which one or more of these persons (or the applicable individual) own more than fifty percent of the voting interests.

     2.18. “Grant Date” means, as determined by the Board, the latest to occur of (i) the date as of which the Board approves an Award, (ii) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6

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hereof, or (iii) such other date as may be specified by the Board in the Award Agreement.

     2.19. “Grantee” means a person who receives or holds an Award under the Plan.

     2.20. “Incentive Stock Option” means an “incentive stock option” within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.

     2.21. “Incumbent Board” shall have the meaning set forth in Section 15.2.

     2.22. “Initial Public Offering” shall mean the initial public offering of shares of Common Stock pursuant to a registration statement (other than a Form S-8 or successor forms) filed with, and declared effective by, the SEC.

     2.23. “Non-qualified Stock Option” means an Option that is not an Incentive Stock Option.

     2.24. “Option” means an option to purchase one or more shares of Stock pursuant to the Plan.

     2.25. “Option Price” means the exercise price for each share of Stock subject to an Option.

     2.26. “Outside Director” means a member of the Board who is not an officer or employee of the Company or an Affiliate, determined in accordance with the requirements of Section 162(m) of the Code.

     2.27. “Outstanding Company Common Stock” shall have the meaning set forth in Section 15.2.

     2.28. “Outstanding Company Voting Securities” shall have the meaning set forth in Section 15.2.

     2.29. “Performance Award” means an Award made subject to the attainment of performance goals (as described in Section 12) over a performance period of from one (1) to five (5) years.

     2.30. “Person” shall have the meaning set forth in Section 15.2.

     2.31. “Plan” means this Education Management Corporation Omnibus Long-Term Incentive Plan.

     2.32. “Principal Stockholders” means GS Capital Partners V Fund, L.P., a Delaware limited partnership, GS Capital Partners V Offshore Fund, L.P., a Cayman Islands exempted limited partnership, GS Capital Partners V GmbH & Co. KG, a limited partnership formed under the laws of the Federal Republic of Germany, GS

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Capital Partners V Institutional, L.P., a Delaware limited partnership, Providence Equity Partners V L.P., a Delaware limited partnership, Providence Equity Partners V-A L.P., a Delaware limited partnership, Providence Equity Partners IV L.P., a Delaware limited partnership, Providence Equity Operating Partners IV L.P., a Delaware limited partnership and Leeds Equity Partners IV, L.P., a Delaware limited partnership.

     2.33. “Purchase Price” means the purchase price for each share of Stock pursuant to a grant of Restricted Stock.

     2.34. “Reporting Person” means a person who is required to file reports under Section 16(a) of the Exchange Act.

     2.35. “Restricted Stock” means shares of Stock awarded to a Grantee pursuant to Section 10 hereof.

     2.36. “Restricted Stock Unit” means a bookkeeping entry representing the equivalent of shares of Stock, awarded to a Grantee pursuant to Section 10 hereof.

     2.37. “SAR Exercise Price” means the per share exercise price of a SAR granted to a Grantee under Section 9 hereof.

     2.38. “SEC” means the United States Securities and Exchange Commission.

     2.39. “Section 409A” shall mean Section 409A of the Code and all formal guidance and regulations promulgated thereunder.

     2.40. “Securities Act” means the Securities Act of 1933, as now in effect or as hereafter amended.

     2.41. “Separation from Service” means a termination of Service by a Service Provider, as determined by the Board, which determination shall be final, binding and conclusive; provided if any Award governed by Section 409A is to be distributed on a Separation from Service, then the definition of Separation from Service for such purposes shall comply with the definition provided in Section 409A.

     2.42. “Service” means service as a Service Provider to the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to be a Service Provider to the Company or an Affiliate.

     2.43. “Service Provider” means an employee, officer, non-employee member of the Board, consultant or advisor of the Company or an Affiliate.

     2.44. ”Stock Appreciation Right” or “SAR” means a right granted to a Grantee under Section 9 hereof.

     2.45. “Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

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     2.46. “Substitute Award” means any Award granted in assumption of or in substitution for an award of a company or business acquired by the Company or a Subsidiary or with which the Company or an Affiliate combines, shares issued or issuable.

     2.47. “Ten Percent Stockholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

     2.48. “Termination Date” means the date that is ten (10) years after the Effective Date, unless the Plan is earlier terminated by the Board under Section 5.2 hereof.

     2.49. “Transaction” shall have the meaning set forth in Section 15.1.

     2.50. “Transition Period” means the period beginning with the consummation of an Initial Public Offering and ending as of the earlier of (i) the date of the first annual meeting of shareholders of the Company at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Initial Public Offering occurs and (ii) the expiration of the “reliance period” under Treasury Regulation Section 1.162-27(f)(2).

3. ADMINISTRATION OF THE PLAN

                3.1. General.

     The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s certificate of incorporation and bylaws and applicable law. The Board shall have the power and authority to delegate its responsibilities hereunder to the Committee, which shall have full authority to act in accordance with its charter, and with respect to the authority of the Board to act hereunder, all references to the Board shall be deemed to include a reference to the Committee, to the extent such power or responsibilities have been delegated. Except as specifically provided in Section 14 or as otherwise may be required by applicable law, regulatory requirement or the certificate of incorporation or the bylaws of the Company, the Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan. Following the Company’s initial public offering, the Committee shall administer the Plan; provided that, the Board shall retain the right to exercise the authority of the Committee to the extent consistent with applicable law and the applicable requirements of any securities exchange on which the Common Stock may then be listed. The interpretation and construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final, binding and conclusive. Without limitation, the Board shall have full and final authority, subject to the other terms and conditions of the Plan, to:

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     (i) designate Grantees;

     (ii) determine the type or types of Awards to be made to a Grantee;

     (iii) determine the number of shares of Stock to be subject to an Award;

     (iv) establish the terms and conditions of each Award (including, but not limited to, the Option Price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options);

     (v) prescribe the form of each Award Agreement; and

     (vi) amend, modify, or supplement the terms of any outstanding Award including the authority, in order to effectuate the purposes of the Plan, to modify Awards to foreign nationals or individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom.

     To the extent permitted by applicable law, the Board may delegate its authority as identified herein to any individual or committee of individuals (who need not be directors), including without limitation the authority to make Awards to Grantees who are not subject to Section 16 of the Exchange Act or who are not Covered Employees. To the extent that the Board delegates its authority to make Awards as provided by this Section 3.1, all references in the Plan to the Board’s authority to make Awards and determinations with respect thereto shall be deemed to include the Board’s delegate. Any such delegate shall serve at the pleasure of, and may be removed at any time by the Board.

          3.2. Restrictions; No Repricing.

     Notwithstanding the foregoing, no amendment or modification may be made to an outstanding Option or SAR that causes the Option or SAR to become subject to Section 409A, without the Grantee’s written prior approval. Notwithstanding any provision herein to the contrary, the repricing of Options or SARs is prohibited without prior approval of the Company’s stockholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (A) changing the terms of an Option or SAR to lower its Option Price or SAR Exercise Price; (B) any other action that is treated as a “repricing” under generally accepted accounting principles; and (C) repurchasing for cash or canceling an Option or SAR at a time when its Option Price or SAR Exercise Price is greater than the Fair Market Value of the underlying shares in exchange for another Award, unless the cancellation and exchange occurs in connection with a change in capitalization or similar change under Section 15. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Grantee.

          3.3. Award Agreements.

     The grant of any Award may be contingent upon the Grantee executing the appropriate Award Agreement. The Company may retain the right in an Award Agreement to cause a

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forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any employment agreement, non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable.

     If any of the Company’s financial statements are required to be restated, the Company may recover all or a portion of any Award made to any Grantee with respect to any fiscal year of the Company the financial results of which are negatively affected by such restatement. The amount to be recovered shall be the amount, as determined by the Committee, by which the affected Award exceeds the amount that would have been payable had the financial statements been initially filed as restated. In no event shall the amount to be recovered by the Company be less than the amount required to be repaid or recovered as a matter of law.

          3.4. Deferral Arrangement.

     The Board may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish and in accordance with Section 409A, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock units.

          3.5. No Liability.

     No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any Award or Award Agreement.

          3.6. Book Entry.

     Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use of book-entry.

4. STOCK SUBJECT TO THE PLAN

     Subject to adjustment as provided in Section 15 hereof, the maximum number of shares of Stock available for issuance under the Plan shall be 6,597,869, plus a number of shares equal to the number of shares subject to stock options granted under the Company’s 2006 Stock Plan that are canceled, expired, forfeited, settled in cash, settled by issuance of fewer shares than the number of shares underlying such stock options or otherwise terminated without delivery of shares to the grantees, plus a number of shares equal to the number of shares reserved but not previously granted under the Company’s 2006 Stock Option Plan. 3,519,861 of such shares of Stock available for issuance under the Plan shall be available for issuance pursuant to Incentive

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Stock Options. Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the Company. Following the end of the Transition Period and subject to adjustments in accordance with Section 15, the maximum number of each type of Award (other than cash-based Performance Awards) intended to constitute “performance-based compensation” under Code Section 162(m) granted to any Grantee in any thirty-six (36) month period shall not exceed the following: Options: 7,039,723; SARs: 7,039,723; Restricted Stock: 4,223,833; Restricted Stock Units: 4,223,833 and other Stock-based Performance Awards : 3,519,861.

     The Board may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or Substitute Awards) and make adjustments in accordance with Section 15. If the Option Price of any Option granted under the Plan, or if pursuant to Section 17.3 the withholding obligation of any Grantee with respect to an Option or other Award, is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation) or by withholding shares of Stock, the number of shares of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. To the extent that an Award under the Plan or a stock option granted under the Company’s 2006 Stock Option Plan is canceled, expired, forfeited, settled in cash, settled by issuance of fewer shares than the number underlying the Award or stock option, or otherwise terminated without delivery of shares to the Grantee, the shares retained by or returned to the Company will be available under the Plan; and shares that are withheld from such an Award or stock option granted under the Company’s 2006 Stock Option Plan, or separately surrendered by the Grantee in payment of any exercise price or taxes relating to such an Award or stock option shall be deemed to constitute shares not delivered to the Grantee and will be available under the Plan. In addition, in the case of any Substitute Award, such Substitute Award shall not be counted against the number of shares reserved under the Plan.

5. EFFECTIVE DATE, DURATION AND AMENDMENTS

          5.1. Term.

     The Plan shall be effective as of the Effective Date and shall terminate automatically as of the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs unless the Plan is approved by the stockholders of the Company prior to such meeting but subsequent to the Effective Date. The Plan shall terminate automatically on the ten (10) year anniversary of the Effective Date and may be terminated on any earlier date as provided in Section 5.2.

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          5.2. Amendment and Termination of the Plan.

     The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any Awards which have not been made. An amendment shall be contingent on approval of the Company’s stockholders to the extent stated by the Board, required by applicable law or required by applicable stock exchange listing requirements. Notwithstanding the foregoing, any amendment to Section 3.2 shall be contingent upon the approval of the Company’s stockholders. No Awards shall be made after the Termination Date. The applicable terms of the Plan, and any terms and conditions applicable to Awards granted prior to the Termination Date shall survive the termination of the Plan and continue to apply to such Awards. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, materially impair rights or obligations under any Award theretofore awarded.

6. AWARD ELIGIBILITY AND LIMITATIONS

          6.1. Service Providers.

     Subject to this Section 6, Awards may be made to any Service Provider, including any Service Provider who is an officer, Non-employee member of the Board, consultant or advisor of the Company or of any Affiliate, as the Board shall determine and designate from time to time in its discretion.

          6.2. Successive Awards.

     An eligible person may receive more than one Award, subject to such restrictions as are provided herein.

          6.3. Stand-Alone, Additional, Tandem, and Substitute Awards.

     Awards may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall have the right to require the surrender of such other Award in consideration for the grant of the new Award. The Board shall have the right, in its discretion, to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Stock subject to the Award is equivalent in value to the cash compensation (for example, Restricted Stock Units or Restricted Stock).

7. AWARD AGREEMENT

     Each Award shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Without limiting the foregoing, an Award Agreement may be provided in the form of a notice which provides that acceptance of the Award constitutes

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acceptance of all terms of the Plan and the notice. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.

8. TERMS AND CONDITIONS OF OPTIONS

          8.1. Option Price.

     The Option Price of each Option shall be fixed by the Board and stated in the related Award Agreement. The Option Price of each Option (except those that constitute Substitute Awards) shall be at least the Fair Market Value on the Grant Date of a share of Stock; provided, however, that in the event that a Grantee is a Ten Percent Stockholder as of the Grant Date, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.

          8.2. Vesting.

     Subject to Section 8.3 hereof, each Option shall become exercisable at such times and under such conditions (including, without limitation, performance requirements) as shall be determined by the Board and stated in the Award Agreement.

          8.3. Term.

     Each Option shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten (10) years from the Grant Date, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the related Award Agreement; provided, however, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option at the Grant Date shall not be exercisable after the expiration of five (5) years from its Grant Date.

          8.4. Limitations on Exercise of Option.

     Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, (i) prior to the date the Plan is approved by the stockholders of the Company as provided herein or (ii) after the occurrence of an event which results in termination of the Option.

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          8.5. Method of Exercise.

     An Option that is exercisable may be exercised by the Grantee’s delivery to the Company of written notice of exercise on any business day, at the Company’s principal office, on the form specified by the Company. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised plus the amount (if any) of federal and/or other taxes which the Company may, in its judgment, be required to withhold with respect to an Award. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) the number set forth in the related Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise.

          8.6. Rights of Holders of Options.

     Unless otherwise stated in the related Award Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 15 hereof or the related Award Agreement, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.

          8.7. Delivery of Stock Certificates.

     Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option.

          8.8. Limitations on Incentive Stock Options.

     An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.

9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS

          9.1. Right to Payment.

     A SAR shall confer on the Grantee a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Stock on the date of exercise over (ii) the SAR Exercise Price, as determined by the Board. The Award Agreement for an SAR shall specify the SAR Exercise Price, which shall be fixed at the Fair Market Value of a share of Stock on the Grant

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Date. SARs may be granted alone or in conjunction with all or part of an Option or at any subsequent time during the term of such Option or in conjunction with all or part of any other Award. A SAR granted in tandem with an outstanding Option following the Grant Date of such Option shall have a grant price that is equal to the Option Price; provided, however, that the SAR’s grant price may not be less than the Fair Market Value of a share of Stock on the Grant Date of the SAR.

          9.2. Other Terms.

     The Board shall determine at the Grant Date or thereafter, the time or times at which and the circumstances under which an SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following Separation from Service or upon other conditions, the method of exercise, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.

          9.3. Term of SARs.

     The term of a SAR granted under the Plan shall be determined by the Board, in its sole discretion; provided, however, that such term shall not exceed ten (10) years.

          9.4. Payment of SAR Amount.

     Upon exercise of a SAR, a Grantee shall be entitled to receive payment from the Company (in cash or Stock, as determined by the Board) in an amount determined by multiplying:

     (i) the difference between the Fair Market Value of a share of Stock on the date of exercise over the SAR Exercise Price; by

     (ii) the number of shares of Stock with respect to which the SAR is exercised.

10. TERMS AND CONDITIONS OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS

          10.1. Restrictions.

     At the time of grant, the Board may, in its sole discretion, establish a period of time (a “restricted period”) and any additional restrictions including the satisfaction of corporate or individual performance objectives applicable to an Award of Restricted Stock or Restricted Stock Units in accordance with Section 12.1 and 12.2. Each Award of Restricted Stock or Restricted Stock Units may be subject to a different restricted period and additional restrictions. Neither Restricted Stock nor Restricted Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other applicable restrictions.

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          10.2. Restricted Stock Certificates.

     The Company shall issue stock, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates or other evidence of ownership representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the Grantee’s benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee; provided, however, that such certificates shall bear a legend or legends that comply with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement.

          10.3. Rights of Holders of Restricted Stock.

     Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have rights as stockholders of the Company.

          10.4. Rights of Holders of Restricted Stock Units.

          10.4.1. Settlement of Restricted Stock Units.

     Restricted Stock Units may be settled in cash or Stock, as determined by the Board and set forth in the Award Agreement. The Award Agreement shall also set forth whether the Restricted Stock Units shall be settled (i) within the time period specified in Section 17.9.1 for short term deferrals or (ii) otherwise within the requirements of Section 409A, in which case the Award Agreement shall specify upon which events such Restricted Stock Units shall be settled.

          10.4.2. Voting and Dividend Rights.

     Unless otherwise stated in the applicable Award Agreement, holders of Restricted Stock Units shall not have rights as stockholders of the Company.

          10.4.3. Creditor’s Rights.

     A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.

          10.5. Purchase of Restricted Stock.

     The Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the related Award Agreement. If specified in the Award Agreement, the Purchase Price may be deemed paid by Services already rendered. The Purchase Price shall be payable in a form described in Section 11 or, in the discretion of the Board, in consideration for past Services rendered.

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          10.6. Delivery of Stock.

     Upon the expiration or termination of any restricted period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Restricted Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.

11. FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

          11.1. General Rule.

     Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company, except as provided in this Section 11.

          11.2. Surrender of Stock.

     To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part through the tender to the Company of shares of Stock, which shares shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price for Restricted Stock has been paid thereby, at their Fair Market Value on the date of exercise or surrender. Notwithstanding the foregoing, in the case of an Incentive Stock Option, the right to make payment in the form of already owned shares of Stock may be authorized only at the time of grant.

          11.3. Cashless Exercise.

     With respect to an Option only (and not with respect to Restricted Stock), to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price may be made all or in part by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in Section 17.3.

          11.4. Other Forms of Payment.

     To the extent the Award Agreement so provides, payment of the Option Price or the Purchase Price for Restricted Stock may be made in any other form that is consistent with applicable laws, regulations and rules, including, but not limited to, the Company’s withholding of shares of Stock otherwise due to the exercising Grantee.

12. TERMS AND CONDITIONS OF PERFORMANCE AWARDS

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          12.1. Performance Conditions.

     The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Section 12.2 hereof in the case of a Performance Award intended to qualify under Code Section 162(m).

          12.2. Performance Awards Granted to Designated Covered Employees.

          If and to the extent that the Committee determines that a Performance Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 12.2.

               12.2.1. Performance Goals Generally.

     The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 12.2. Following the end of the Transition Period, performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may, in the discretion of the Committee, be established on a Company-wide basis, or with respect to one or more business units, divisions, subsidiaries or business segments, as applicable. Performance goals may be absolute or relative (to the performance of one or more comparable companies or indices). Measurement of performance goals may exclude (in the discretion of the Committee) the impact of charges for restructuring, discontinued operations, extraordinary items, and other unusual non-recurring items, and the cumulative effects of tax or accounting changes (each as defined by generally accepted accounting principles and as identified in the Company’s financial statements or other SEC filings). Performance goals may differ for Performance Awards granted to any one Grantee or to different Grantees.

                12.2.2. Business Criteria.

     One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance Awards: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre-or after-tax

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income (before or after allocation of corporate overhead and bonuses; net earnings; earnings per share; net income (before or after taxes); return on equity; total shareholder return; return on assets or net assets; appreciation in and/or maintenance of, share price; market share; gross profits; earnings (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reduction in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital; cash flow return on investment; improvement in or attainment of expense levels or working capital levels; operating margins; gross margins or cash margin; year-end cash; debt reductions; shareholder equity; regulatory performance; academic performances; student loan performance; implementation, completion or attainment of measurable objectives with respect to research, development, products or projects and recruiting and maintaining personnel and, prior to the end of the Transition Period, any other business criteria established by the Committee.

                12.2.3. Timing for Establishing Performance Goals.

     Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).

                12.2.4. Settlement of Performance Awards; Other Terms.

     Settlement of Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards. Following the end of the Transition Period, the maximum amount of each cash-based Performance Award intended to constitute “performance-based compensation” under Code Section 162(m) granted to any Grantee in any twelve (12) month period shall not exceed One Million Dollars ($1,000,000).

               12.3. Written Determinations.

          All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m), to the extent required by Code Section 162(m). To the extent permitted by Code Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards.

                12.4. Status of Section 12.2 Awards under Code Section 162(m).

          It is the intent of the Company that Performance Awards under Section 12.2 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute “qualified performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Section 12.2, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing

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notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

13. OTHER STOCK-BASED AWARDS

                13.1. Grant of Other Stock-based Awards.

     Other Stock-based Awards, consisting of Stock units, or other Awards, valued in whole or in part by reference to, or otherwise based on, Common Stock, may be granted either alone or in addition to or in conjunction with other Awards under the Plan. Other Stock-based Awards may be granted in lieu of other cash or other compensation to which a Service Provider is entitled from the Company or may be used in the settlement of amounts payable in shares of Common Stock under any other compensation plan or arrangement of the Company, including without limitation, the Company’s Incentive Compensation Plan. Subject to the provisions of the Plan, the Committee shall have the sole and complete authority to determine the persons to whom and the time or times at which such Awards shall be made, the number of shares of Common Stock to be granted pursuant to such Awards, and all other conditions of such Awards. Unless the Committee determines otherwise, any such Award shall be confirmed by an Award Agreement, which shall contain such provisions as the Committee determines to be necessary or appropriate to carry out the intent of this Plan with respect to such Award.

                13.2. Terms of Other Stock-based Awards.

     Any Common Stock subject to Awards made under this Section 13 may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.

14. REQUIREMENTS OF LAW

               14.1. General.

     The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or

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obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.

          14.2. Rule 16b-3.

     During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards and the exercise of Options granted to officers and directors hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board or Committee does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.

15. EFFECT OF CHANGES IN CAPITALIZATION

          15.1. Changes in Capitalization.

          15.1.1. Changes in Stock.

     If (i) the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date or (ii) there occurs any spin-off, split-up, extraordinary cash dividend or other distribution of assets by the Company, the number and kinds of shares for which grants of Options and other Stock-based Awards may be made under the Plan (including the per-Grantee maximums set forth in Section 4) shall be equitably adjusted by the Company; provided that any such adjustment shall comply with Section 409A. In addition, in the event of any such increase or decrease in the number of outstanding shares or

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other transaction described in clause (ii) above, the number and kind of shares for which Awards are outstanding and the Option Price per share of outstanding options and SAR Exercise Price per share of outstanding SARs shall be equitably adjusted; provided that any such adjustment shall comply with Section 409A.

          15.1.2. Effect of Certain Transactions.

     Except as otherwise provided in an Award Agreement, in the event of (a) the liquidation or dissolution of the Company or (b) a reorganization, merger, exchange or consolidation of the Company or involving the shares of Common Stock (a “Transaction”), the Plan and the Awards issued hereunder shall continue in effect in accordance with their respective terms, except that following a Transaction either (i) each outstanding Award shall be treated as provided for in the agreement entered into in connection with the Transaction or (ii) if not so provided in such agreement, each Grantee shall be entitled to receive in respect of each share of Common Stock subject to any outstanding Awards, upon exercise or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property or other consideration that each holder of a share of Common Stock was entitled to receive in the Transaction in respect of a share of Common stock; provided, however, that, unless otherwise determined by the Committee, such stock, securities, cash, property or other consideration shall remain subject to all of the conditions, restrictions and performance criteria which were applicable to the Awards prior to such Transaction. Without limiting the generality of the foregoing, the treatment of outstanding Options and SARs pursuant to this Section 15.1.2 in connection with a Transaction in which the consideration paid or distributed to the Company’s stockholders is not entirely shares of common stock of the acquiring or resulting corporation may include the cancellation of outstanding Options and SARs upon consummation of the Transaction as long as, at the election of the Committee, (x) the holders of affected Options and SARs have been given a period of at least fifteen days prior to the date of the consummation of the Transaction to exercise the Options or SARs (whether or not they were otherwise exercisable) or (y) the holders of the affected Options and SARs are paid (in cash or cash equivalents) in respect of each share of Stock covered by the Option or SAR being canceled an amount equal to the excess, if any, of the per share price paid or distributed to stockholders in the transaction (the value of any non-cash consideration to be determined by the Committee in its sole discretion) over the Option Price or SAR Exercise Price, as applicable. For avoidance of doubt, (1) the cancellation of Options and SARs pursuant to clause (y) of the preceding sentence may be effected notwithstanding anything to the contrary contained in this Plan or any Award Agreement and (2) if the amount determined pursuant to clause (y) of the preceding sentence is zero or less, the affected Option or SAR may be cancelled without any payment therefore. The treatment of any Award as provided in this Section 15.1.2 shall be conclusively presumed to be appropriate for purposes of Section 15.1.1.

          15.2. Definition of Change in Control.

     “Change in Control” means:

(1) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d 3 promulgated under the Exchange Act) of 30% or more of either (A) the then-outstanding shares of common stock of the Company (the

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	“Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section 15.2, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition pursuant to a transaction that complies with Sections 15.2(3)(A), (B) and (C) or (v) any acquisition by any of the Principal Stockholders other than in connection with a going private transaction within the meaning of Rule 13e-3 of the Exchange Act.
(2)	Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(3)	Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-

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outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(4)

Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

     Notwithstanding the foregoing, if it is determined that an Award hereunder is subject to the requirements of Section 409A, the Company will not be deemed to have undergone a Change in Control unless the Company is deemed to have undergone a “change in control event” pursuant to the definition of such term in Section 409A.

          15.3. Effect of Change in Control

     The Board shall determine the effect of a Change in Control upon Awards, and such effect may be set forth in the appropriate Award Agreement. Without limiting the foregoing, the Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, the actions that will be taken upon the occurrence of a Change in Control, including, but not limited to, accelerated vesting, termination or assumption. The Board may also provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in Sections 15.1 and 15.2.

          15.4. Reorganization Which Does Not Constitute a Change in Control.

     If the Company undergoes any reorganization, merger, or consolidation of the Company with one or more other entities which does not constitute a Change in Control, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price or SAR Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall be the same as the aggregate Option Price or SAR Exercise Price of the shares remaining subject to the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement, any restrictions applicable to such Award shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation.

          15.5. Adjustments.

     Adjustments under this Section 15 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such

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adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share.

16. NO LIMITATIONS ON COMPANY

          The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.

17. TERMS APPLICABLE GENERALLY TO AWARDS GRANTED UNDER THE PLAN

                17.1. Disclaimer of Rights.

     No provision in the Plan or in any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a Service Provider. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.

                17.2. Nonexclusivity of the Plan.

     Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals), including, without limitation, the granting of stock options as the Board in its discretion determines desirable.

                17.3. Withholding Taxes.

     The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld (i) with respect to the vesting of or other lapse of restrictions applicable to an Award, (ii) upon the issuance of any shares of Stock upon the exercise of an Option or SAR, or (iii) otherwise due in connection with an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which

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may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold the minimum required number of shares of Stock otherwise issuable to the Grantee as may be necessary to satisfy such withholding obligation or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 17.3 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.

                17.4. Captions.

     The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or any Award Agreement.

               17.5. Other Provisions.

     Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion.

                17.6. Number and Gender.

     With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.

                17.7. Severability.

     If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.

               17.8. Governing Law.

     The Plan shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of law, provided that the provisions set forth herein that are required to be governed by the Pennsylvania Business Corporation Law of 1988, as amended, shall be governed by the Pennsylvania Business Corporation Law of 1988, as amended.

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                17.9. Section 409A.

                17.9.1. Short-Term Deferrals.

     For each Award intended to comply with the short-term deferral exception provided for under Section 409A, the related Award Agreement shall provide that such Award shall be paid out by the later of (i) the 15^th day of the third month following the Grantee’s first taxable year in which the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15^th day of the third month following the end of the Company’s first taxable year in which the Award is no longer subject to a substantial risk of forfeiture.

                17.9.2. Adjustments.

     To the extent that the Board determines that a Grantee would be subject to the additional 20% tax imposed on certain deferred compensation arrangements pursuant to Section 409A as a result of any provision of any Award, to the extent permitted by Section 409A, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional tax. The Board shall determine the nature and scope of such amendment.

               17.10. Stockholder Approval; Effective Date of Plan.

     The Plan shall be effective as of the Effective Date. Any Option that is designated as an Incentive Stock Option shall be a Nonqualified Stock Option if the Plan is not approved by the shareholders of the Company within twelve (12) months after the Effective Date of the Plan. Following the end of the Transition Period, no award that is intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

                17.11. Separation from Service.

     The Board shall determine the effect of a Separation from Service upon Awards, and such effect shall be set forth in the appropriate Award Agreement. Without limiting the foregoing, the Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, the actions that will be taken upon the occurrence of a Separation from Service, including, but not limited to, accelerated vesting or termination, depending upon the circumstances surrounding the Separation from Service.

                17.12. Transferability of Awards.

                17.12.1. Transfers in General.

     Except as provided in Section 17.12.2, no Award shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution, and, during the lifetime of the Grantee, only the Grantee personally (or the Grantee’s personal representative) may exercise rights under the Plan.

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               17.12.2. Family Transfers.

     If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Award (other than Incentive Stock Options) to any Family Member. For the purpose of this Section 17.12.2, a “not for value” transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. Following a transfer under this Section 17.12.2, any such Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Awards are prohibited except to Family Members of the original Grantee in accordance with this Section 17.12.2 or by will or the laws of descent and distribution.

                17.13. Dividends and Dividend Equivalent Rights.

     If specified in the Award Agreement, the recipient of an Award under this Plan may be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the Common Stock or other securities covered by an Award. The terms and conditions of a dividend equivalent right may be set forth in the Award Agreement. Dividend equivalents credited to a Grantee may be paid currently or may be deemed to be reinvested in additional shares of Stock or other securities of the Company at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend was paid to shareholders, as determined in the sole discretion of the Committee.

EDUCATION MANAGEMENT CORPORATION

By:	/s/ Todd S. Nelson
Title:	Chief Executive Officer

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EX-10.3

Exhibit 10.3

EDUCATION MANAGEMENT CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
(Time-Vesting)

     THIS AGREEMENT (the “Agreement”), is made effective as of [                    ], 20___ (the “Date of Grant”), between Education Management Corporation, a Pennsylvania corporation, and the participant set forth on the signature page hereto (the “Participant”):

RECITALS:

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

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

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

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

     2. Duration. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the tenth anniversary of the Date of Grant (the “Termination Date”). The Option may not be cancelled or forfeited without the Participant’s prior written consent prior to such Termination Date, other than as expressly provided (x) in Section 15 of the Plan (relating to “Transactions”), or (y) in this Agreement.

     3. Vesting.

          (a) Subject solely to the provisions of Sections 3(b), 3(c), 4(a), 4(b) and 4(c) below and Section 15 of the Plan, the Option shall vest and become exercisable on each anniversary of the Date of Grant with respect to an aggregate of 25% of the Shares originally subject to the Option. The portion of the Option which has become vested and exercisable as described in Sections 3(a), 3(b) or 3(c) is hereinafter referred to as the “Vested Portion.”

          (b) Notwithstanding the foregoing and Section 3(c), one hundred percent (100%) of the Shares then subject to the Option shall be accelerated and become vested and exercisable immediately prior to, but subject to the consummation of, a Change in Control.

          (c) If the Participant’s Employment is terminated by the Company without Cause or by the Participant for Good Reason (as defined in the Employment Agreement), the Option shall vest and become exercisable on the next anniversary of the Date of Grant with respect to 25% of the Shares then subject to the Option. The remaining portion of the Option shall automatically be canceled without payment of any consideration therefor.

          For purposes of this Section 3(c), and of the percentages set forth in it, Shares previously subject to the Option, and in respect of which the Option has already been exercised, shall be treated as still subject to the Option. If the Participant’s Employment is terminated by the Company without Cause or by the Participant for Good Reason, the Vested Portion of the Option (including that which continues to vest in accordance with this Section 3(c)) shall remain exercisable until the second anniversary of the date of termination of Employment.

     4. Certain Other Terminations of Employment.

          (a) If the Participant’s Employment is terminated by the Company for Cause, the Option shall, whether or not vested, automatically be canceled without payment of consideration therefor.

          (b) If the Participant’s Employment is terminated by the Participant without Good Reason (as defined in the Employment Agreement) and not for death or Disability, the Option shall, to the extent not then or previously vested and exercisable, automatically be canceled without payment of consideration therefor, and the Vested Portion of the Option shall remain exercisable until thirty days following the date of termination of Employment.

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

     5. Exercise of Option.

          (a) Subject to Section 2, the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised (the “Purchased Shares”) and shall be accompanied by payment in full of the Option Price in cash or by check or wire transfer; provided, however, that, in the sole discretion of the Committee, payment of such aggregate Option Price may instead be made, in whole or in part, by one or more of the following: (i) provided that the Company is not then contractually prohibited from permitting exercise in this fashion, the delivery to the Company of a certificate or certificates representing Shares, duly endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the Company good and valid title to such Shares, free and clear of any pledge, commitment, lien,

2

claim or other encumbrance (such Shares to be valued at their aggregate Fair Market Value on the date of such exercise), provided that if a certificate or certificates representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall promptly be returned by the Company, (ii) a reduction in the number of Purchased Shares to be issued upon such exercise having a Fair Market Value on the date of exercise equal to the aggregate Option Price in respect of the Purchased Shares, provided that the Company is not then contractually prohibited from permitting exercise in this fashion, or (iii) other cashless exercise procedures approved by the Committee. The Participant shall not have any rights to dividends or other rights of a stockholder with respect to Shares subject to the Option until the Participant has given written notice of exercise of the Option, paid the Option Price in full for such Shares and, if applicable, has satisfied any other conditions pursuant to the Plan or this Agreement (including provisions for the payment of applicable withholding taxes, which provisions may be made in any of the ways in which the Option Price may be paid). Notwithstanding anything to the contrary contained in this Agreement or the Plan, for purposes of this Section 5(a), the Fair Market Value of a Share shall, to the extent necessary to avoid incurring “additional tax,” interest or penalties under Section 409A of the Code, not be treated as greater than the “fair market value” of a Share determined consistently with Section 409A of the Code and the regulations and guidance promulgated thereunder.

          (b) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares under applicable state and Federal securities or other laws, or under any ruling or regulation of any governmental body or national securities exchange (collectively, the “Legal Requirements”) that the Committee shall in its sole discretion determine to be necessary or advisable, unless an exemption to such registration or qualification is available and satisfied. The Committee may establish additional procedures as it deems necessary or desirable in connection with the exercise of the Option or the issuance of any Shares upon such exercise to comply with any Legal Requirements. Such procedures may include but are not limited to the establishment of limited periods during which the Option may be exercised or that following receipt of the notice of exercise, and prior to the completion of the exercise, the Participant will be required to affirm the exercise of the Option following receipt of any disclosure deemed necessary or desirable by the Committee.

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

          (d) In the event of the Participant’s death, the Vested Portion of the Option shall remain exercisable by the Participant’s executor or administrator, or the person or persons to whom the Participant’s rights under this Agreement shall pass by will or by the laws of

3

descent and distribution, or the person or persons to whom such rights have passed under Section 9, as the case may be, to the extent set forth in Section 4 (and the term “Participant” shall be deemed to include such heir or legatee or permitted transferee). Any such heir or legatee or permitted transferee of the Participant shall take rights herein granted subject to the terms and conditions hereof.

     6. Transactions. This Option shall be subject to the provisions of Section 15.2 of the Plan in the event of a Transaction.

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

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

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

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

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

     12. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant

4

or to either party hereto at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.

     13. Choice of Law. This Agreement shall be governed by and construed in accordance with its express terms, and otherwise in accordance with the laws of the State of New York without giving effect to the principles of conflicts of law, provided that the provisions set forth herein that are required to be governed by the Pennsylvania Business Corporation Law of 1988, as amended, shall be governed by the Pennsylvania Business Corporation Law of 1988, as amended.

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

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

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

[signature page follows]

5

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

EDUCATION MANAGEMENT CORPORATION
By:
	Name:
	Title:

Agreed and acknowledged as
of the date first above written:
 

[participant’s name] 

Number of time-vesting Shares subject to the Option:                     

Option Price: $                     

EX-10.4

Exhibit 10.4

NOTICE OF GRANT OF RESTRICTED STOCK AWARD
TO
NON-EMPLOYEE DIRECTOR
UNDER THE
EDUCATION MANAGEMENT CORPORATION
OMNIBUS LONG-TERM INCENTIVE PLAN

FOR GOOD AND VALUABLE CONSIDERATION, Education Management Corporation (the “Company”) hereby grants, under the Company’s Omnibus Long-Term Incentive Plan (the “Plan”), to the Participant designated in this Notice of Grant of Restricted Stock Award (the “Notice”) the number of shares of the common stock of the Company set forth in the Notice, subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Restricted Stock Award (the “Terms and Conditions”).

Participant:     [                    ]

Grant Date:     [                    ]

# of Shares of Restricted Stock:       [                    ]

Purchase Price: Subject to the provisions of Paragraph 5 of the Terms and Conditions, this Restricted Stock Award does not require the Participant to pay any cash consideration in connection with the issuance or delivery of the Restricted Stock.

Vesting Schedule: Subject to the provisions contained in Paragraphs 4 and 6 of the Terms and Conditions, this Restricted Stock Award shall vest, and the applicable restrictions set forth in the Terms and Conditions shall lapse in accordance with the following schedule, in the event the Participant does not have a Separation from Service prior to the applicable vesting date:

Date of Vesting	Cumulative Amount Vested
First Anniversary of Grant Date	100%

Change in Control: Notwithstanding the foregoing vesting schedule, the Restricted Stock Award will be deemed fully vested and no longer subject to forfeiture in the event of a Change in Control of the Company (as defined in and subject to the provisions of the Plan).

Forfeiture: The Participant’s rights in the Restricted Stock Award on which the restrictions have not lapsed pursuant to the vesting schedule provisions above shall be forfeited in full in the event of the Participant’s Separation from Service for any reason.

By signing below, the Participant agrees that this Restricted Stock Award is granted under and governed by the terms and conditions of the Company’s Omnibus Long-Term Incentive Plan and the attached Terms and Conditions.

Participant	Education Management Corporation
	By:
		Title:
Date:		Date:

TERMS AND CONDITIONS OF RESTRICTED STOCK AWARD

These Terms and Conditions of Restricted Stock Award (the “Terms and Conditions”) relate to the Notice of Grant of Restricted Stock Award (the “Notice”) attached hereto, by and between Education Management Corporation (the “Company”), and the person identified in the Notice (the “Participant”).

The Board of Directors and the stockholders of the Company have approved the Omnibus Long-Term Incentive Plan (the “Plan”). The Committee has approved an Award, in accordance with the Company’s Non-Employee Director Compensation Plan, to the Participant, of a number of shares of the Company’s common stock, conditioned upon the Participant’s acceptance of the provisions set forth in the Notice and these Terms and Conditions. For purposes of the Notice and these Terms and Conditions, any reference to the Company shall include a reference to any Affiliate.

1. Grant of Restricted Stock.

     (a) Subject to the terms and conditions of the Plan, as of the Grant Date, the Company grants to the Participant the number of shares of Common Stock set forth in the Notice (the “Restricted Shares”), subject to the restrictions set forth in Paragraph 2 of these Terms and Conditions, the provisions of the Plan and the other provisions contained in these Terms and Conditions. If and when the restrictions set forth in Paragraph 2 expire in accordance with these Terms and Conditions without forfeiture of the Restricted Shares and upon the satisfaction of all other applicable conditions as to the Restricted Shares, such shares shall no longer be considered Restricted Shares for purposes of these Terms and Conditions.

     (b) As soon as practicable after the Grant Date, the Company shall direct that a stock certificate or certificates representing the applicable Restricted Shares be registered in the name of and issued to the Participant. Such certificate or certificates shall be held in the custody of the Company by the Secretary of the Company until the expiration of the applicable Restricted Period (as defined in Paragraph 3).

     (c) Except as provided in Paragraph 1(d), in the event that a certificate for the Restricted Shares is delivered to the Participant, such certificate shall bear the following legend (the “Legend”):

The ownership and transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Omnibus Long-Term Incentive Plan and a Notice of Grant of Restricted Stock Award entered into between the registered owner and Education Management Corporation. Any attempt to dispose of these shares (or any interest therein) in contravention of such terms and conditions shall be null and void and without effect.

In addition, the stock certificate or certificates for the Restricted Shares shall be subject to such stop-transfer orders and other restrictions as the Company may

deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on such certificate or certificates to make appropriate reference to such restrictions.

     (d) As soon as administratively practicable following the expiration of the Restricted Period without a forfeiture of the Restricted Shares, and upon the satisfaction of all other applicable conditions as to the Restricted Shares, the Company shall deliver or cause to be delivered to the Participant a certificate or certificates for the applicable Restricted Shares which shall not bear the Legend or transfer such Restricted Shares to the Participant in book entry form.

2. Restrictions.

     (a) The Participant shall have all rights and privileges of a stockholder as to the Restricted Shares, including the right to vote and receive dividends or other distributions with respect to the Restricted Shares, except that the following restrictions shall apply:

     (i) the Participant shall not be entitled to delivery of the certificate or certificates for the Restricted Shares until the expiration of the Restricted Period without a forfeiture of the Restricted Shares and upon the satisfaction of all other applicable conditions;

     (ii) none of the Restricted Shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period applicable to such shares, except as permitted by the Committee in its sole discretion or pursuant to rules adopted by the Committee in accordance with the Plan; and

     (iii) all of the Restricted Shares shall be forfeited and returned to the Company and all rights of the Participant with respect to the Restricted Shares shall terminate in their entirety on the terms and conditions set forth in Paragraph 4.

     (b) Any attempt to dispose of Restricted Shares or any interest in the Restricted Shares in a manner contrary to the restrictions set forth in these Terms and Conditions shall be null and void and without effect.

3.

Restricted Period and Vesting. The “Restricted Period” is the period beginning on the Grant Date and ending on the date the Restricted Shares are deemed vested under the schedule set forth in the Notice. The Restricted Shares shall be deemed vested and no longer subject to forfeiture under Paragraph 4 in accordance with the vesting schedule set forth in the Notice or earlier in the event of a Change in Control.

4.

Forfeiture.

     (a) Subject to Paragraph 6 below, if during the Restricted Period the Participant incurs a Separation from Service, all rights of the Participant to the

Restricted Shares that have not vested in accordance with Paragraph 3 as of the date of such event shall terminate immediately and be forfeited in their entirety.

     (b) In the event of any forfeiture under this Paragraph 4, the certificate representing the forfeited Restricted Shares shall be canceled to the extent of any Restricted Shares that were forfeited.

5.	Withholding. The Committee shall determine the amount of withholding or other tax required by law (if any) to be withheld or paid by the Company with respect to any income recognized by the Participant with respect to the Restricted Shares, and shall have the right to deduct any such amount from payments otherwise payable to the Participant. The Participant shall be required to meet any applicable tax withholding obligation in accordance with the provisions of Section 17.3 of the Plan.
6.	Committee Discretion. Notwithstanding any provision of the Notice or these Terms and Conditions to the contrary, the Committee shall have discretion under the Plan to waive any forfeiture of the Restricted Shares as set forth in Paragraph 4, the Restricted Period and any other conditions set forth in the Notice or these Terms and Conditions.
7.	Defined Terms. Capitalized terms used but not defined in the Notice and Terms and Conditions shall have the meanings set forth in the Plan.
8.	Nonassignability. The Restricted Shares may not be sold, assigned, transferred (other than by will or the laws of descent and distribution), pledged, hypothecated, or otherwise encumbered or disposed of until the restrictions on such Shares, as set forth in the Notice and Terms and Conditions, have lapsed or been removed.
9.	Participant Representations. The Participant hereby represents to the Company that the Participant has read and fully understands the provisions of the Notice, these Terms and Conditions and the Plan and the Participant’s decision to participate in the Plan is completely voluntary. Further, the Participant acknowledges that the Participant is relying solely on his or her own advisors with respect to the tax consequences of this Restricted Stock Award.
10.	Regulatory Restrictions on the Restricted Shares. Notwithstanding any other provision of the Plan, the obligation of the Company to issue Restricted Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of the Restricted Shares pursuant to these Terms and Conditions prior to the satisfaction of all legal requirements relating to the issuance of such shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.
11.	Miscellaneous.

11.1 Notices. All notices, requests, deliveries, payments, demands and other communications which are required or permitted to be given under these Terms and Conditions shall be in writing and shall be either delivered

personally or sent by registered or certified mail, or by private courier, return receipt requested, postage prepaid to the parties at their respective addresses as either shall have specified by notice in writing to the other. Notice shall be deemed duly given hereunder when delivered or mailed as provided herein.

11.2	Waiver. The waiver by any party hereto of a breach of any provision of the Notice or these Terms and Conditions shall not operate or be construed as a waiver of any other or subsequent breach.
11.3	Entire Terms and Conditions. These Terms and Conditions, the Notice and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof.
11.4	Binding Effect; Successors. These Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in these Terms and Conditions, express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.
11.5	Governing Law. The Notice and these Terms and Conditions shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of law, provided that the provisions set forth herein that are required to be governed by the Pennsylvania Business Corporation Law of 1988, as amended, shall be governed by the Pennsylvania Business Corporation Law of 1988, as amended.
11.6	Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms and Conditions.
11.7	Conflicts; Amendment. The provisions of the Plan are incorporated in these Terms and Conditions in their entirety. In the event of any conflict between the provisions of these Terms and Conditions and the Plan, the provisions of the Plan shall control. The Terms and Conditions may be amended at any time by written agreement of the parties hereto.
11.8	No Right to Continued Service. Nothing in the Notice or these Terms and Conditions shall confer upon the Participant any right to continue in the Service of the Company or affect the right of the Company to terminate the Participant’s Service at any time.
11.9	Further Assurances. The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case

may be, to implement the provisions and purposes of the Notice and these Terms and Conditions and the Plan.

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Todd S. Nelson, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2009 of Education Management Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2009

By:  /s/  Todd S. Nelson

Todd S. Nelson

Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Edward H. West, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2009 of Education Management Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2009

By:  /s/  Edward H. West

Edward H. West

President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS BY THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Education Management Corporation (the “Company”) for the fiscal quarter ended September 30, 2009 on the date hereof (the “Report”), I, Todd S. Nelson, President and Chief Executive Officer of the Company, hereby certify in such capacity, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods reflected therein.

Date: November 10, 2009

By:  /s/  Todd S. Nelson

Todd S. Nelson

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATIONS BY THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Education Management Corporation (the “Company”) for the fiscal quarter ended September 30, 2009 on the date hereof (the “Report”), I, Edward H. West., Executive Vice President and Chief Financial Officer of the Company, hereby certify in such capacity, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods reflected therein.

Date: November 10, 2009

By:  /s/  Edward H. West

Edward H. West

President and Chief Financial Officer