S-1

Table of Contents

As filed with the Securities and Exchange Commission on December 21, 2007

Registration No. 333-                  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

EDUCATION MANAGEMENT CORPORATION

(exact name of registrant as specified in its charter)

Pennsylvania			8200			25-1119571
(state or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code)			(I.R.S. employer identification no.)

210 Sixth Avenue
33^rd Floor
Pittsburgh, Pennsylvania 15222
(412) 562-0900

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

J. Devitt Kramer, Esq.
Senior Vice President, General Counsel and Secretary
Education Management Corporation
210 Sixth Avenue
33^rd Floor
Pittsburgh, Pennsylvania 15222
(412) 562-0900

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With Copies to:

Ronald D. West, Esq. Jeffrey W. Acre, Esq. Kirkpatrick & Lockhart Preston Gates Ellis LLP Henry W. Oliver Building 535 Smithfield Street Pittsburgh, Pennsylvania 15222-2312 (412) 355-6500			Gary I. Horowitz, Esq. Richard A. Fenyes, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017-3954 (212) 455-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered			Proposed Maximum Aggregate Offering Price(1)						Amount of Registration Fee
Common Stock, par value $0.01 per share				$	500,000,000					$	15,350

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes shares to be sold upon exercise of the underwriters’ over-allotment option.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated December 21, 2007

Shares

Common Stock

This is an initial public offering of shares of common stock of Education Management Corporation, which we sometimes refer to in this prospectus as ‘‘EDMC’’. EDMC is offering all of the shares of common stock to be sold in the offering.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $            and $            . EDMC intends to apply for the quotation of the common stock on the Nasdaq Global Market under the symbol ‘‘EDMC’’.

See ‘‘Risk Factors’’ on page 12 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Per Share

Total

Initial public offering price

$

$

Underwriting discount

$

$

Proceeds, before expenses, to EDMC

$

$

To the extent that the underwriters sell more than            shares of common stock, the underwriters have the option to purchase up to an additional            shares from EDMC at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on            , 2008.

Goldman, Sachs & Co.

Prospectus dated                    , 2008

TABLE OF CONTENTS

			Page
Prospectus Summary					1
Risk Factors					12
Special Note Regarding Forward Looking Statements					29
Use of Proceeds					31
Dividend Policy					31
Capitalization					32
Corporate Structure					33
Dilution					34
Selected Consolidated Financial and Other Data					36
Management’s Discussion and Analysis of Financial Condition and Results of Operations					40
Business					61
Management					85
Security Ownership of Certain Beneficial Owners and Management					117
Certain Relationships and Related Transactions					120
Description of Capital Stock					123
Description of Certain Indebtedness					127
Material U.S. Federal Tax Consequences for Non-U.S. Holders of Common Stock					134
Shares Eligible for Future Sale					136
Underwriting					138
Legal Matters					142
Experts					142
Where You Can Find More Information					142
Index to Consolidated Financial Statements					F-1

Through and including, 2008 (the 25^th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

We have not authorized anyone to give you any information or to make any representations about the transactions we discuss in this prospectus other than those contained in the prospectus. If you are given any information or representation about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell anywhere or to anyone where or to whom we are not permitted to offer to sell securities under applicable law.

In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

i

Table of Contents

We have filed with the U.S. Securities and Exchange Commission, or the ‘‘SEC’’, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, filed as part of the registration statement, does not contain all the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. With respect to statements in this prospectus about the contents of any contract, agreement or other document, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, and each such statement is qualified in all respects by reference to the document to which it refers.

The public may read and copy any reports or other information that we and our subsidiaries file with the SEC. Such filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. The SEC’s website is included in this prospectus as an inactive textual reference only. You may also read and copy any document that we file with the SEC at its public reference room at 100 F Street, N.E., Washington D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

Some of the industry and market data contained in this prospectus are based on independent industry publications or other publicly available information, while other information is based on internal company sources. Although we believe that these independent sources and our internal data are reliable as of their respective dates, the information contained in them has not been independently verified, and neither the underwriters nor we can assure you as to the accuracy or completeness of this information. As a result, you should be aware that the market industry data contained in this prospectus, and beliefs and estimates based on such data, may not be reliable. We obtained information relating to the U.S. post-secondary education market from the National Center for Education Statistics, which is the primary federal entity for collecting and analyzing data related to education, the College Board, the U.S. Census Bureau, the U.S. Department of Labor — Bureau of Labor Statistics and Eduventures Inc., a leading information services company for the education market.

ii

Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the risks of investing in our common stock discussed under ‘‘Risk Factors’’ and the financial statements and notes included elsewhere in this prospectus.

On June 1, 2006, EDMC was acquired by a consortium of private investors through a merger of an acquisition company into EDMC, with EDMC surviving the merger. We sometimes refer to that transaction in this prospectus as the ‘‘Transaction’’. Our principal shareholders are private equity funds affiliated with Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity Partners, which we refer to in this prospectus collectively as the ‘‘Sponsors’’. As used in this prospectus, unless otherwise stated or the context otherwise requires, references to ‘‘we’’, ‘‘us’’, ‘‘our’’, the ‘‘Company’’, ‘‘EDMC’’ and similar references refer collectively to Education Management Corporation and its subsidiaries. The term ‘‘Successor’’ refe rs to us following the Transaction, and the term ‘‘Predecessor’’ refers to us prior to the Transaction. References to our fiscal year refer to the 12-month period ended June 30 of the year referenced.

Our Business

We are among the largest providers of post-secondary education in North America, with approximately 96,000 enrolled students as of October 2007. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. We are committed to offering quality academic programs and continuously strive to improve the learning experience for our students. Our educational institutions offer students the opportunity to earn undergraduate and graduate degrees and certain specialized non-degree diplomas in a broad range of disciplines, including design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, education, legal and information technology. Each of our schools located in the United States is recognized by an accreditation agency and by the U.S. Department of Education, enabling students to access federal student loans, grants and other forms of public and private financial aid . Our academic programs are designed with an emphasis on applied, career-oriented content and are taught primarily by faculty members who, in addition to having appropriate credentials, offer practical and relevant professional experience in their respective fields. Our net revenues for fiscal 2007 were $1,363.7 million.

During our more than 35-year operating history, we have expanded the reach of our education systems and currently operate 81 primary locations across 26 U.S. states and in Canada. In addition, we have offered online programs since 2000, enabling our students to pursue degrees fully online or through a flexible combination of both online and campus-based education. Since October 1997, we have experienced a compounded annual enrollment growth rate of 18.0%. During the same time period, the schools that we have owned or operated for one year or more experienced a compounded annual enrollment growth rate of 12.0%.

Since the Transaction in June 2006, we have enhanced our senior management team and made investments to accelerate enrollment growth, while delivering strong financial performance. We have made significant investments in numerous areas of our workforce, including marketing and admissions, new and expanded campuses, online education, and infrastructure in order to support future enrollment growth and enhance the student experience. Our increased focus on online education has resulted in strong enrollment growth. Students enrolled in fully online academic programs have more than doubled to approximately 13,100 students in October 2007, compared to approximately 4,600 students in July 2006. In addition, we have opened eight new locations, acquired two schools, developed 20 new academic programs and introduced 259 new or existing academic programs to locations that had not previously offered such programs. Total enrollment at

1

Table of Contents

our schools has grown by 19.5% between October 2006 and October 2007. During the same time period, same-school enrollment for schools owned or operated for one year or more increased 18.2%.

Each of our 81 schools provides student-centered, career-focused education. Our portfolio of schools is organized and managed to capitalize on recognized brands and align them with specific targeted markets based on field of study, employment opportunity, type of degree offering and student demographics:

	•	The Art Institutes.    The Art Institutes focus on applied arts in creative professions such as graphic design, interior design, web design and interactive media, digital filmmaking, media arts and animation, game art and design, fashion design and marketing and culinary arts. The Art Institutes offer Associate’s, Bachelor’s and Master’s degree programs, as well as certain non-degree diploma programs. Students pursue their degrees through local campuses, fully online programs through The Art Institute of Pittsburgh, Online Division and blended formats, which combine on campus and online education. There are 39 Art Institutes campuses in 22 U.S. states and in Canada.

	•	Argosy University.    Argosy University offers academic programs in psychology and behavioral sciences, education, business and health sciences disciplines. Argosy students can obtain Doctoral, Master’s and undergraduate degrees. Argosy’s academic programs focus on graduate students seeking advanced credentials as a prerequisite to initial licensing, career advancement and/or structured pay increases. Students pursue their degrees through local campuses, fully online programs and blended formats. There are 18 Argosy University campuses in 12 U.S. states.

	•	Brown Mackie Colleges.    Brown Mackie Colleges offer flexible Associate’s and non-degree diploma programs that enable students to develop skills for entry-level positions in high demand vocational specialties and Bachelor’s degree programs that assist students to advance within the workplace. Brown Mackie Colleges offer programs in growing fields such as nursing, medical assisting, business, criminal justice, legal support and information technology. There are 18 Brown Mackie College campuses in eight U.S. states.

	•	South University.    South University offers programs in health sciences and business disciplines, including business administration, health services management, nursing, pharmacy, medical assistant, criminal justice and information technology. South University offers Doctoral, Master’s, Bachelor’s and Associate’s degrees through local campuses, fully online programs and blended formats. There are five South University campuses in four U.S. states.

Our business model has a number of favorable financial characteristics, including consistent historical revenue growth, the opportunity for profit margin expansion and strong operating cash flow generation.

	•	History of consistent revenue growth.    We believe that we benefit from a business model with good insight into future revenue and earnings, given the length of our academic programs and relatively consistent persistence rates. Over 63% of our students as of October 2007 were enrolled in Doctorate, Master’s and Bachelor’s degree programs, which are typically multi-year programs that contribute to the overall stability of our student population. The significant investments we have made since the Transaction in numerous areas of our workforce, including marketing and admissions, new campuses and online education and infrastructure, are designed to support future enrollment growth.

	•	Opportunity for profit margin expansion.    Our business model benefits from scale and permits us to continue to leverage fixed costs across our delivery platforms. We expect to continue to leverage fixed costs as we add new locations and expand our existing locations.

2

Table of Contents

		With respect to our online programs, we have built sufficient presence to enable us to utilize shared technology and infrastructure. We believe that our continued focus on information systems, operating processes and key performance indicators will permit us to enhance our educational quality, growth and profitability over time.

	•	Strong operating cash flow generation.    We historically have generated strong cash flows. We benefit from investments with attractive returns on capital and favorable working capital balances due to advance payment of tuition and fees. In fiscal 2007, we generated cash flows from operations of $179.9 million. Since the Transaction, most of our investments have been made to support growth as well as the infrastructure required to leverage our delivery platforms.

All of these characteristics complement the successful outcomes that we deliver to our students, as reflected in our student persistence and graduate employment rates and in student satisfaction survey data. Approximately 90% of undergraduate students who graduated from our institutions during the calendar year ended December 31, 2006 and were available for employment obtained a position in their field of study or a related field within six months of graduation.

Industry Overview

The U.S. Department of Education estimates that the U.S. public and private post-secondary education market for degree-granting institutions was a $364 billion industry in 2005, representing approximately 17.5 million students enrolled at over 4,300 institutions. According to the National Center of Education Statistics, traditional students, who typically are recent high school graduates under 25 years of age and are pursuing their first higher education degree, represent approximately 61% of the national student population. The remaining 39% of the student population is comprised of non-traditional students, who are largely working adults pursuing further education in their current field or are preparing for a new career.

We believe that there are a number of factors contributing to the long-term growth of the post-secondary education industry. First, the shift toward a services-based economy increases the demand for higher levels of education. According to the U.S. Department of Labor — Bureau of Labor Statistics, the projected growth rate for total job openings from 2006 to 2016 for occupations that require post-secondary education is over 15%, nearly double the growth rate for occupations that do not require post-secondary education. Second, economic incentives are favorable for post-secondary graduates. According to the U.S. Census Bureau, in 2005, the median income for individuals aged 25 years and older with a Bachelor’s degree was approximately 63% higher than for high school graduates of the same age with no college experience, and the average unemployment rate in 2006 for persons aged 25 years and older with a Bachelor’s degree was nearly half that of t hose without college experience. Third, government and private financial aid in various forms, including loan guarantees, grants and tax benefits for post-secondary students, has continued to increase. We believe that this support will continue as the U.S. government emphasizes the development of a highly skilled, educated workforce to maintain global competitiveness. Finally, the strong demand for post-secondary education has enabled educational institutions to consistently increase tuition and fees. According to the College Board, public four-year colleges have increased tuition and fees by 7.1% annually on average over the last ten years.

We believe that for-profit providers will capture an increasing share of the growing demand for post-secondary education, which has not been fully addressed by traditional public and private universities. Non-profit public and private institutions can face limited financial capability to expand their offerings in response to the growing demand for education, due to a combination of state funding challenges, significant expenditures required for research and the professor tenure system. Certain private institutions also may control enrollments to preserve the perceived prestige and exclusivity of their degree offerings.

As a result, we believe that for-profit, post-secondary education providers continue to have significant opportunities for growth. According to the National Center of Education Statistics, the

3

Table of Contents

number of students at for-profit, degree-granting institutions grew at an average annual rate of 15.4% from 1995 to 2005, compared to 2.1% growth for all degree-granting institutions over the same period. For-profit providers have continued their strong growth, primarily due to the higher flexibility of their programmatic offerings and learning structure, their emphasis on applied, career-oriented content and their ability consistently to introduce new campuses and academic programs. Despite rapid growth, the market share of the post-secondary education market that has been captured by for-profit providers remains relatively small. In 2005, according to the National Center for Education Statistics, for-profit institutions accounted for 5.8% of all post-secondary enrollments, up from 1.7% in 1995.

We believe that growth in online education has been supported by favorable student outcomes, the flexibility and convenience associated with the instructional format and the higher penetration of broadband Internet access. According to Eduventures Inc., a leading information services company for the education market, online education programs generated an estimated $8.6 billion of revenues in 2006. Eduventures estimates that online enrollment grew by 36% annually from 2002 to 2005 and projects growth of 20% in 2007 and 17% in 2008.

The post-secondary education industry is highly fragmented, with no one provider controlling a significant share of the market. Students choose among providers based on programs and degrees offered, program flexibility and convenience, quality of instruction, graduate employment rates, reputation and recruiting effectiveness. This multi-faceted market fragmentation results in significant differentiation among various education providers, limited direct competition and minimal overlap between for-profit providers. The main competitors of for-profit, post-secondary education providers are local public and private two-year junior and community colleges, traditional public and private undergraduate and graduate colleges and, to a lesser degree, other for-profit, career-oriented schools.

Our Competitive Strengths

We believe that the combination of the following strengths differentiates our business:

	•	Recognized brands aligned with specific fields of study and degree offerings

We offer academic programs primarily through four education systems. We have devoted significant resources to establishing, and continue to invest in developing, the brand identity for each education system. Through The Art Institutes, Argosy University, Brown Mackie Colleges and South University education systems, we have the ability to align our academic program offerings to address the unique needs of specific student groups. Our marketing strategy is designed to develop brand awareness among practitioners and likely prospects in particular fields of study. We believe that this comprehensive brand building approach in each specific market also enables us to gain economies of scale with respect to student acquisition and retention costs, assists in the recruitment and retention of quality faculty and staff members and accelerates our ability to expand online course offerings.

	•	Diverse program offerings and broad degree capabilities

Our breadth of programmatic and degree offerings enables us to appeal to a diverse range of potential students. We currently offer academic programs in the following areas: design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, education, legal and information technology. Students seeking Bachelor’s or more advanced degrees represent over 63% of our student population, which provides us with a stable student population and consistent revenues.

	•	National portfolio of schools and integrated online learning platform

The combination of our national portfolio of schools and integrated online learning platform provides students at three of our education systems with flexible curriculum delivery options

4

Table of Contents

and academic programs taught on campus, online and in blended formats. This flexibility enables our academic programs to appeal to both traditional students and working adults who may seek convenience due to scheduling, geographical or other constraints.

We have 81 primary locations across 26 U.S. states and in Canada. Our campuses are located primarily in large metropolitan areas, and we focus our marketing efforts on generating demand primarily within a 100-mile radius of the campus. Throughout our history, we have invested in our campuses in order to provide attractive and efficient learning environments. Our schools offer many amenities found in traditional colleges, including libraries, bookstores and laboratories, as well as the industry-specific equipment necessary for the various programs that we offer.

Our online presence offers a practical and flexible solution for our students. We have made a significant investment in online education by strengthening our online presence within The Art Institutes, Argosy University and South University education systems. We have introduced new online academic programs, strengthened our technology infrastructure, hired additional faculty and staff and increased our spending on marketing and admissions. We intend to continue to invest in the expansion of our online program offering and our marketing efforts to capitalize on our well-known branded schools in order to expand our online presence.

	•	Commitment to offering quality academic programs and student and graduate success

We are committed to offering quality academic programs, and we continuously strive to improve the learning experience for our students. We are dedicated to recruiting and retaining quality faculty and instructors with relevant industry experience and appropriate academic credentials. Our advisory boards help us to reassess and update our educational offerings on a regular basis in order to ensure the relevance of our curriculum and to design new academic programs. We do this with the goal of enabling students to either enter or advance in their chosen field. Our staff of trained, dedicated career services specialists maintains strong relationships with employers in order to improve our student graduate employment rates in their chosen fields. We measure the quality of our academic programs through metrics such as student persistence, graduate employment and graduate starting salary.

	•	Strong management team with a focus on long-term performance

Since the Transaction, we have enhanced our senior management team and made investments to accelerate enrollment growth and build infrastructure to establish a platform for sustainable growth, while delivering strong financial performance. Our school presidents and senior operating executives also have substantial experience in the sector and have contributed to our history of success. We plan to continue to build our strong management team as we execute on our growth strategy.

Our Growth Strategy

We intend to pursue the following key elements of our current growth strategy:

	•	Introduce new and existing academic programs across our national portfolio of schools

We seek to identify emerging industry trends in order to understand the evolving educational needs of our students and graduates. With the assistance of over 1,500 industry experts and employers who actively participate on curriculum advisory teams, we are able to rapidly develop new academic programs that address specific market opportunities. We are also able to tailor our existing proprietary content for courses across our degree programs. New

5

Table of Contents

academic programs that we have introduced since the Transaction include Master’s degree programs in Interior Design, Management, Principal Preparation and Health Services Management, Bachelor’s degree programs in Entertainment Design, Hotel and Restaurant Management and Hospitality Management, and Associate’s degree programs in Accessory Design, Early Childhood Education, Restaurant and Catering Operations, Registered Nursing and Veterinary Technician.

In addition to developing new academic programs, we frequently introduce existing academic programs to additional locations in our national portfolio of schools, allowing us to drive incremental enrollment growth, utilize our existing curriculum development in multiple locations and capitalize on identified market needs.

	•	Increase enrollments in online distance learning and blended-format programs

Our investments in online education have enabled us to increase the number of students enrolled in fully online academic programs from approximately 4,600 students as of July 2006 to approximately 13,100 students as of October 2007. We believe that the fully online programs offered by The Art Institute of Pittsburgh, Online Division, Argosy University and South University allow us to offer academic programs that meet the needs of a wide range of distance learning students. In addition, our 81 schools operate under brands that are well-known within various fields, and we believe that our online programs benefit from our strong campus presence and related marketing expenditures. Online offerings are also a cost effective means for us to utilize many of our existing education curricula and generate attractive returns on capital. We intend to continue to invest in the expansion of our online program offerings and enhance our marketing efforts to capitalize on our we ll-known branded schools and further expand our online presence.

	•	Develop new school locations in attractive markets

We believe that many attractive locations are available to open additional campuses across the United States. We have identified target locations in new geographic markets, as well as opportunities to open additional campuses within existing large metropolitan areas. Because of the relatively large number of potential markets available for opening new campuses, we focus our efforts on markets that we believe offer the most attractive projected growth and return on capital. We rigorously analyze employment statistics and demographic data in order to align our new schools with the specific educational needs of a targeted market. This focus enables penetration and presence for new schools. After entering a market, we drive incremental growth through the introduction of new academic programs and degrees, which enhance return on investment in new markets. We pursue additional efficiencies through our centralized and standardized infrastructure, systems and processes.

Risk Factors

We are subject to certain risks related to our industry and our business, and there are risks associated with investing in our common stock. The risks set forth under the section entitled ‘‘Risk Factors’’ beginning on page 12 of this prospectus reflect risks and uncertainties that could significantly and adversely affect our business, prospects, financial condition, operating results and growth strategy. In summary, significant risks related to our business include:

	•	our compliance with extensive laws, regulations and accrediting body standards that may restrict our operations or reduce or eliminate external financial aid funding for our students;

	•	our ability to effectively implement our growth strategies through opening new schools, growing our online programs, improving the content of our existing academic programs and developing new academic programs on a timely basis and in a cost-effective manner; and

	•	consequences of our substantial leverage, including the impact our leverage could have on our ability to raise additional capital, react to changes in the economy or our industry, meet our debt obligations or engage in specified types of transactions.

6

Table of Contents

In connection with your investment decision, you should review the section of this prospectus entitled ‘‘Risk Factors’’.

Education Management Corporation is a Pennsylvania corporation founded in 1962. Our headquarters are located at 210 Sixth Avenue, 33^rd Floor, Pittsburgh, Pennsylvania 15222. Our telephone number is (412) 562-0900. Our website is accessible through www.edmc.com. Information on, or accessible through, this website is not a part of, and is not incorporated into, this prospectus.

‘‘Argosy University’’, ‘‘Brown Mackie College’’ and the names of certain of our other schools included in this prospectus are our trademarks. We have omitted the ‘‘®’’ and ‘‘™’’ trademark designations for such trademarks in this prospectus. Nevertheless, all rights to such trademarks named in this prospectus are reserved. All other brand names and tradenames appearing in this prospectus are the property of their respective holders.

7

Table of Contents

The Offering

Common stock offered by us		shares of common stock, par value $0.01 per share, of EDMC or ‘‘our common stock’’.

Common stock to be outstanding after this offering		shares

Use of proceeds		We will receive net proceeds from this offering of approximately $            million, assuming an initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. We expect to use approximately (i) $            million of the net proceeds from this offering to repay a portion of our indebtedness, including accrued interest and prepayment penalties, (ii) $         million of the net proceeds from this offering to pay the termination fee under the Sponsor Management Agreement and (iii) $            million for general corporate purposes. See ‘‘Certain Relationships and Related Transactions — Sponsor Management Agreement’’.

Dividends		We do not expect to pay dividends on our common stock for the foreseeable future.

Proposed Nasdaq Global Market symbol		EDMC

Risk factors		Please read ‘‘Risk Factors’’ and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Unless we specifically state otherwise, the information in this prospectus:

	•	assumes no exercise of the underwriters’ option to purchase additional shares; and

	•	excludes (i) 1,693,916 shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2007, of which options to purchase 118,438 shares were exercisable as of September 30, 2007; (ii) 151,255 additional shares of our common stock authorized by our Board of Directors for future issuance under the 2006 Stock Option Plan; and (iii) any shares of our common stock which may be issued to satisfy our payment obligations under our Long-Term Incentive Compensation Plan (the ‘‘LTIC Plan’’).

If the underwriters exercise the underwriters’ option in full,                    shares of our common stock will be outstanding after this offering.

8

Table of Contents

Summary Consolidated Financial and Other Data

The following table sets forth our summary consolidated financial and other data as of the dates and for the periods indicated. The summary consolidated balance sheet data of Successor at June 30, 2006 and 2007 and the summary consolidated statement of operations data and the summary consolidated statement of cash flows data for the Predecessor fiscal year ended June 30, 2005, the Predecessor 11-month period from July 1, 2005 through May 31, 2006, the Successor one-month period from June 1, 2006 through June 30, 2006 and the Successor fiscal year ended June 30, 2007 have been derived from our audited consolidated financial statements and related notes appearing elsewhere in this prospectus.

The summary combined consolidated statement of operations data and the summary combined consolidated statement of cash flows data for the 12 months ended June 30, 2006 have been derived from the audited consolidated financial statements and notes thereto of Predecessor and Successor but have not been audited on a combined basis. The combined summary consolidated statement of operations data and the summary combined consolidated statement of cash flows data do not comply with generally accepted accounting principles (‘‘GAAP’’) or with the rules for unaudited pro forma presentation and are not intended to represent what our operating results would have been if the Transaction had occurred at the beginning of the combined period. This information is presented because we believe that it provides a more meaningful comparison of our results of operations for the period presented to other fiscal years.

The summary consolidated statement of operations data and the summary consolidated statement of cash flows data for the Successor three-month periods ended September 30, 2006 and 2007, and the summary consolidated balance sheet data of Successor as of September 30, 2007 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements at June 30, 2006 and 2007, with the exception of our adoption of Financial Accounting Standards Board Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109’’, (‘‘FIN 48’’) on July 1, 2007, and include all adjustments, consisting of only normal recurring adjustmen ts, necessary for a fair statement of our financial position and operating results for the unaudited periods.

The summary consolidated financial and other data as of any date and for any period are not necessarily indicative of the results that may be obtained as of any future date or for any future period.

The following tables also set forth summary unaudited consolidated as adjusted balance sheet data of Successor as of September 30, 2007, which give effect to (i) the sale of                shares of common stock by us in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover page of this prospectus, and (ii) the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’. The summary unaudited consolidated as adjusted balance sheet data are presented for informational purposes only and do not purport to represent what our financial position actually would have been had these transactions occurred on the dates indicated or to project our financial position as of any future date.

You should read the following summary financial and other data in conjunction with ‘‘Selected Consolidated Financial and Other Data’’, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and our consolidated financial statements and related notes included elsewhere in this prospectus.

9

Table of Contents

			Predecessor												Successor												Successor
			Year Ended June 30, 2005(1)						Period from July 1, 2005 to May 31, 2006						Period from June 1, 2006 to June 30, 2006						Combined 12 Months Ended June 30, 2006(2)						Year Ended June 30, 2007						Three Months Ended September 30, 2006						Three Months Ended September 30, 2007
			(dollars in millions)
Statement of Operations Data:
Net revenues				$	1,019.3					$	1,095.8					$	74.4					$	1,170.2					$	1,363.7					$	290.5					$	361.3
Costs and expenses:
Educational services					640.4						649.8						64.7						714.5						801.6						184.6						228.2
General and administrative					203.8						273.3						26.0						299.3						314.9						72.8						96.1
Amortization of intangible assets					6.5						4.0						1.7						5.7						19.3						5.1						5.7
Total costs and expenses					850.7						927.1						92.4						1,019.5						1,135.8						262.5						330.0
Income (loss) before interest and income taxes					168.6						168.7						(18.0	)					150.7						227.9						28.0						31.3
Interest (income) expense, net					(0.2	)					(5.3	)					14.1						8.8						168.3						44.0						40.3
Income (loss) before income taxes					168.8						174.0						(32.1	)					141.9						59.6						(16.0	)					(9.0	)
Provision for (benefit from) income taxes					67.2						73.6						(12.4	)					61.2						27.2						(6.2	)					(3.5	)
Net income (loss)				$	101.6					$	100.4					$	(19.7	)				$	80.7					$	32.4					$	(9.8	)				$	(5.5	)
Statement of Cash Flows Data:
Net cash flows provided by (used in):
Operating activities				$	192.5					$	301.7					$	(22.5	)				$	279.2					$	179.9					$	128.5					$	185.3
Investing activities					(98.1	)					(56.4	)					(3,534.0	)					(3,590.4	)					(110.8	)					(22.4	)					(33.7	)
Financing activities					(39.0	)					(43.2	)					3,445.5						3,402.3						(41.3	)					(163.3	)					(93.2	)
Other Data:
EBITDA(3)				$	252.7					$	231.6					$	(10.6	)				$	221.0					$	318.5					$	50.1					$	59.6
Capital expenditures(4)					74.9						57.9						7.7						65.6						96.1						22.2						32.8
Enrollment at beginning of fall quarter(5)					66,200						72,500												72,500						80,300
Campus locations (at period end)(6)					70						71						71						71						78						73						79

			Successor
			As of June 30,												As of September 30, 2007
			2006						2007						Actual						As Adjusted(7)
			(in millions)
Balance Sheet Data:
Cash and cash equivalents (excludes restricted cash)				$	263.3					$	290.7					$	348.7					$
Total assets					3,945.4						3,988.7						4,075.1
Total debt, including current portion and revolving credit facility					2,110.0						2,030.0						1,936.8
Total shareholders’ equity					1,282.7						1,350.8						1,333.0

(1) Fiscal 2005 results include non-cash, pretax charges of approximately $4.2 million related to fixed asset impairments. Also, cumulative adjustments for lease accounting recorded in fiscal 2005 increased educational services expense by approximately $3.8 million.

(2) Our combined results for the period from July 1, 2005 through June 30, 2006 represent the sum of the Predecessor period results from July 1, 2005 through May 31, 2006 and the Successor period results from June 1, 2006 through June 30, 2006. This combination of operating results does not comply with GAAP or with the rules for unaudited pro

10

Table of Contents

forma presentation but is presented because we believe that it provides a more meaningful comparison of our results of operations for the period presented to other fiscal years.

(3) EBITDA, a measure used by management to measure operating performance, is defined as net income (loss) plus interest (income) expense, net, provision for income taxes and depreciation and amortization, including amortization of intangible assets. 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 activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management believes 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. In addition, management believes that EBITDA provides more comparability between our historical results and results that reflect purchase accounting and the new capital structure. Management compensates 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 other similarly titled measures of other companies. EBITDA is calculated as follows:

			Predecessor												Successor												Successor
			Year Ended June 30, 2005 (a)						Period from July 1, 2005 to May 31, 2006						Period from June 1, 2006 to June 30, 2006						Combined 12 Months Ended June 30, 2006 (b)						Year Ended June 30, 2007						Three Months Ended September 30, 2006						Three Months Ended September 30, 2007
			(in millions)
Net income (loss)				$	101.6					$	100.4					$	(19.7	)				$	80.7					$	32.4					$	(9.8	)				$	(5.5	)
Interest (income) expense, net					(0.2	)					(5.3	)					14.1						8.8						168.3						44.0						40.3
Provision for (benefit from) income taxes					67.2						73.6						(12.4	)					61.2						27.2						(6.2	)					(3.5	)
Depreciation and amortization					84.1						62.9						7.4						70.3						90.6						22.1						28.3
EBITDA (c)				$	252.7					$	231.6					$	(10.6	)				$	221.0					$	318.5					$	50.1					$	59.6

(a) Includes non-cash depreciation and amortization charges related to property and equipment impairments and a $19.5 million charge related to cumulative adjustments for changes in lease accounting. This amount was substantially offset by a cumulative credit of $15.7 million related to the amortization of a deferred rent credit. Both amounts, which net to $3.8 million, are classified in educational services expense in the statement of operations.

(b) Includes $29.8 million of legal and other professional services fees and $9.9 million of employee compensation and payroll taxes incurred in connection with the Transaction, as well as $32.2 million of non-cash equity compensation expense.

(c) EBITDA, as presented above, is different from the Adjusted EBITDA calculated for the purpose of determining compliance with our senior secured credit agreement and the indentures governing our 8¾% senior notes due 2014 and our 10¼% senior subordinated notes due 2016 (collectively, the ‘‘Notes’’). For an explanation of our Adjusted EBITDA, see ‘‘Management Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources’’.

(4) Capital expenditures represent net cash paid for property and equipment, leasehold improvements, software and other long-lived assets.

(5) Represents the number of students enrolled in our schools as of October of the preceding calendar year. Enrollment as of October 2007 was approximately 96,000 students.

(6) The Art Institute of Toronto announced in June 2007 that it will no longer accept new students and that it will close after all current students complete their respective programs. Prior to announcing this closing, approximately 250 students attended The Art Institute of Toronto.

(7) The consolidated as adjusted balance sheet data as of September 30, 2007 give effect to:

• the sale of                shares of common stock by us in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover page of this prospectus; and

• the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

11

Table of Contents

RISK FACTORS

You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. The following risks comprise all the material risks of which we are aware; however, these risks and uncertainties may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business or financial performance. If any of the events or developments described below actually occurred, it could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our common stock would likely decline, and you could lose all or part of your investment in our common stock.

Risks Related to Our Highly Regulated Industry

Failure of our schools to comply with extensive regulations could result in financial penalties, restrictions on our operations, limitations on our growth or loss of external financial aid funding for our students.

Approximately 70% of our net revenues in fiscal 2005, 2006 and 2007 were indirectly derived from federal student financial aid programs pursuant to Title IV of the Higher Education Act of 1965, as amended (‘‘Title IV programs’’). Our participation in Title IV programs is subject to certification and oversight by the U.S. Department of Education and is further conditioned upon approvals granted by other agencies. Each of our schools also must obtain and maintain approval to enroll students, offer instruction and grant credentials from the state authorizing agency in the state in which the school is located. Such approval is also a precondition to the ability of our students to participate in Title IV programs. Participation in Title IV programs also requires each school to be accredited by an accrediting agency recognized by the U.S. Department of Education as a reliable authority on institutional quality and integrity. Accreditation is, i n turn, conditioned upon the maintenance of applicable state authorization. Our schools also must comply with the requirements of any loan guarantee agencies that guarantee certain federal student loans made to our schools’ students, the requirements of such state financial aid programs as may be available to our students and the requirements of specialized accrediting agencies which oversee educational quality in particular program areas. As a result, our schools are subject to extensive regulation and review by these agencies which cover virtually all phases of our operations. These regulations also affect our ability to acquire or open additional schools, add new educational programs, substantially change existing programs or change our corporate or ownership structure. The agencies that regulate our operations periodically revise their requirements and modify their interpretations of existing requirements. See ‘‘Business — Accreditation’’.

If any of our schools were to violate or fail to meet any of these legal and regulatory requirements, we could suffer financial penalty, limitations on our operating activities, loss of accreditation, limitations on our ability to add new schools or offer new programs, termination of or limitations on the school’s ability to grant degrees and certificates, or limitations on or suspension or termination of the school’s eligibility to participate in federal student financial aid programs. A significant portion of our students rely on federal student financial aid funds to finance their education. We cannot predict with certainty how all of these requirements will be applied or interpreted by a regulatory body or whether each of our schools will be able to comply with all of the applicable requirements in the future.

We periodically must seek recertifications for our schools to participate in Title IV programs and may, in certain circumstances, be subject to review by the U.S. Department of Education prior to the next scheduled recertification.

Our schools are required to seek recertifications from the U.S. Department of Education periodically in order to participate in Title IV programs. The current provisional certifications of all but two of our schools expire between March 31, 2009 and December 31, 2009, and our applications for recertifications will be due for submission three months in advance of each expiration. The U.S.

12

Table of Contents

Department of Education also will review our schools’ continued certifications in the event that we undergo a change of ownership and control pursuant to U.S. Department of Education regulations. In addition, the U.S. Department of Education may take emergency action to suspend any of our schools’ certification without advance notice if it receives reliable information that a school is violating Title IV requirements and determines that immediate action is necessary to prevent misuse of Title IV funds. If the U.S. Department of Education were to decide not to renew or to withdraw our certification to participate in Title IV programs at any time, our students no longer would be able to receive Title IV program funds, which would have a material adverse effect on our enrollments, revenues and results of operations.

Congress may change eligibility standards or reduce funding for federal student financial aid programs, or other governmental or regulatory bodies may change similar laws or regulations relating to other student financial aid programs, which could harm our student population and revenue.

Political and budgetary concerns can significantly affect Title IV programs and other laws and regulations governing federal and state student financial aid programs. Title IV programs are made available pursuant to the provisions of the Higher Education Act of 1965, as amended (the ‘‘HEA’’), and the HEA must be reauthorized by Congress approximately every six years. Independent of reauthorization, Congress must annually appropriate funds for Title IV programs. The last reauthorization of the HEA occurred in 1998. Reauthorization or congressional appropriation may result in numerous legislative changes, including funding reductions. Congress also may impose certain requirements upon the state or accrediting agencies with respect to their approval of our schools. Any action by Congress or the U.S. Department of Education that significantly reduces funding for the federal student financial aid programs or the ability of our schools or stude nts to participate in these programs would have a material adverse effect on our student population and revenue. Legislative action also may increase our administrative costs and require us to modify our practices in order for our schools to comply fully with applicable requirements.

In September 2007, President Bush signed into law legislation which, among other things, decreases private lender and guaranty agency yields for participation in the Federal Family Education Loan (‘‘FFEL’’) program, decreases student interest rates on Stafford loans and limits repayment obligations for students who receive loans pursuant to Title IV programs. Decreased yields could discourage private lenders from continuing to provide loans to our students. In addition, Congress is considering legislation to address alternative, non-Title IV program loans as well as lender and educational institution relationships, which could negatively impact our students’ ability to access student loans.

Because a significant percentage of our revenue is derived from Title IV and alternative loan programs, any action by Congress that significantly reduces Title IV program funding, the availability or attractiveness of alternative loans or the ability of our schools or students to participate in Title IV programs could have a material adverse effect on our business, results of operations or financial condition. Legislative action also could increase our administrative costs and require us to adjust our practices in order for our schools to comply fully with Title IV program requirements.

If we do not meet specific financial responsibility ratios and other compliance tests established by the U.S. Department of Education, our schools may lose eligibility to participate in federal student financial aid programs.

To participate in federal student financial aid programs, an institution, among other things, must either satisfy certain quantitative standards of financial responsibility on an annual basis or post a letter of credit in favor of the U.S. Department of Education and possibly accept other conditions or limitations on its participation in the federal student financial aid programs. As of June 30, 2007, we believe that all of our schools satisfied their required quantitative measures of financial responsibility on an institutional basis, although we do not satisfy all such measures on a consolidated basis.

We were required by the U.S. Department of Education to post an $87.9 million letter of credit in October 2006 and are subject to provisional certification and additional financial and cash monitoring

13

Table of Contents

of our disbursements of Title IV funds due to our failure on a consolidated basis to satisfy the financial responsibility standards after the completion of the Transaction resulting from the amount of debt we incurred to complete the Transaction. The amount of this letter of credit is currently set at 10% of the Title IV program funds received by students at our schools during fiscal 2006, and the letter of credit will expire in March 2008. We expect to continue to not satisfy the U.S. Department of Education’s quantitative measure of financial responsibility for the foreseeable future. As a result, we expect each of our schools to be required to continue on provisional certification for additional three-year periods. The provisional certifications of all but two of our schools will expire between March 31, 2009 and December 31, 2009. We expect that the U.S. Department of Education’s evaluation of our schools’ financial responsibility on the basis of our consolidated financial statements wi ll continue through future annual reviews and may result in continuation of the requirement that we maintain a letter of credit, provisional certification and financial and cash monitoring in future years. Any conditions or limitations on our participation in the federal student financial aid programs in addition to the letter of credit, provisional certification and additional financial and cash monitoring could adversely affect our net income and student population. We expect to be required to renew the letter of credit at the 10% level for as long as our schools remain provisionally certified, although the U.S. Department of Education could increase the amount substantially. There can be no assurance that the U.S. Department of Education will not require further restrictions as a condition of the renewal of our certification. Any failure to meet specific financial responsibility ratios and other compliance tests estabilished by the U.S. Department of Education could affect our students’ ability to a ccess student financial assistance programs, which would adversely affect our net income and student population. At September 30, 2007, we had a total of $89.4 million in letters of credit outstanding to the U.S. Department of Education.

A school is ineligible to participate in the federal student financial aid programs if it derives more than 90% of its revenue from Title IV programs in any fiscal year. Recent increases in Pell Grants and Title IV loan limits may result in an increase in the revenues we receive from Title IV programs, which could make it more difficult for us to satisfy this limitation.

An institution may lose its eligibility to participate in some or all of the federal student financial aid programs if defaults by its students on their federal student loans exceed specified rates. Certain of our schools have default rates in excess of specified rates in the Federal Perkins Loan Program, which is not a material federal student aid program for us or any of our institutions. Though we believe our schools do not exceed either the specified rates for student default for our material programs or the percentage of revenue limitation test, loss of eligibility to participate in the federal student financial aid programs by one or more of our schools could have a material adverse effect on our student population and revenue. The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Providers of federally guaranteed student loans have also experienced recent increases in default rates. Any increase in interest rates could contribute to higher default rates with respect to repayment of our students’ education loans. Such higher default rates may adversely impact our eligibility to participate in Title IV programs, which could result in a significant reduction in our student population and our profitability.

In the event of a bankruptcy filing by any of our schools, the schools filing for bankruptcy would not be eligible to receive Title IV program funds, notwithstanding the automatic stay provisions of federal bankruptcy law, which would make any reorganization difficult to implement. In addition, our other schools may be held to be jointly responsible for financial aid defaults experienced at the bankrupt schools.

If any of our schools either fails to demonstrate ‘‘administrative capability’’ to the U.S. Department of Education or violates other requirements of Title IV programs, our business could suffer.

Regulations adopted by the U.S. Department of Education specify criteria an institution must satisfy to establish that it has the requisite ‘‘administrative capability’’ to participate in Title IV programs. These criteria require, among other things, that the institution:

14

Table of Contents

	•	comply with all applicable federal student financial aid regulations;

	•	have capable and sufficient personnel to administer the federal student financial aid programs;

	•	have acceptable methods of defining and measuring the satisfactory academic progress of its students;

	•	provide financial aid counseling to its students; and

	•	submit all reports and financial statements required by the regulations.

If an institution fails to satisfy any of these criteria, or any other of the legal and regulatory requirements of Title IV programs, the U.S. Department of Education may:

	•	require the repayment of federal student financial aid funds improperly disbursed;

	•	transfer the institution from the ‘‘advance’’ system of payment of federal student financial aid funds to the ‘‘reimbursement’’ system of payment or ‘‘cash monitoring’’;

	•	place the institution on provisional certification status; or

	•	commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs.

If one or more of our schools loses or is limited in its access to, or is required to repay, federal student financial aid funds due to a failure to demonstrate administrative capability or to comply with other requirements of Title IV programs, our business could be materially adversely affected.

Our failure to comply with various state regulations or to maintain any national, regional or programmatic accreditation could result in actions taken by those states that would have a material adverse effect on us.

Each of our U.S. campuses, including our campuses that provide online programs, is authorized to offer education programs and grant degrees or diplomas by the state in which such school is physically located. The level of regulatory oversight varies substantially from state to state. In some U.S. states, the schools are subject to licensure by the state education agency and also by a separate higher education agency. Some states have sought to assert jurisdiction over online educational institutions that offer educational services to residents in the state or that advertise or recruit in the state, notwithstanding the lack of a physical location in the state. State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. State laws and regulations may limit our ability to obtain authorization to operate in certain states or to award degrees or diplomas or offer new degree programs. Certain states prescribe standards of financial responsibility that are different from those prescribed by the U.S. Department of Education. In addition, each of our U.S. schools is accredited by a national or regional accreditation agency recognized by the U.S. Department of Education, and some educational programs are also programmatically accredited. The level of regulatory oversight and standards can vary based on the agency. Certain accreditation agencies prescribe standards that are different from those prescribed by the U.S. Department of Education. If we are found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit or enroll students in that state and may have to cease providing services and advertising in that state, which could have a material adverse effect on our student enrollment and revenues.

If one of our schools does not meet its accreditation or applicable state requirements, its accreditation and/or state licensing could be limited, modified, suspended or terminated. Failure to maintain licensure in the state where it is physically located or institutional accreditation would make such school ineligible to participate in Title IV programs, which could have a material adverse effect on our student enrollment and revenues. In addition, if programmatic accreditation is withdrawn or fails to be renewed for any of the individual programs at any of our schools, enrollment in such program could decline, which could have a material adverse impact on student enrollment and revenues at that school.

15

Table of Contents

Loss of or reductions in state financial aid programs for our students could negatively impact our revenues from students.

In fiscal 2007, approximately 3% of our net revenues were indirectly derived from state financial aid programs. State grant programs are generally subject to annual appropriation by the state legislature, which may lead to the state’s eliminating or significantly decreasing the amount of state aid to students at our schools. The loss of access to these state grants by our students could have a material adverse effect on our business due to enrollment losses at our schools.

If regulators do not approve transactions involving a change of control or change in our corporate structure, we may lose our ability to participate in federal student financial aid programs.

If we or one of our schools experiences a change of ownership or control under the standards of applicable state agencies, accrediting agencies or the U.S. Department of Education, we or the schools governed by such agencies must seek the approval of the relevant agencies. Transactions or events that could constitute a change of control include significant acquisitions or dispositions of shares of our stock, acquisition of schools from other owners, significant changes in the composition of a school’s board of directors or certain other transactions or events, several of which are beyond our control. We have requested but have not yet received confirmation from the U.S. Department of Education, and we plan to seek confirmation from the applicable state educational agencies that authorize or license our schools and the applicable institutional accrediting agencies, that this offering will not constitute a change of control under their respective standards. In addition, we are awaiting final approval of The Art Institute of Tucson and Brown Mackie College — Tucson from the U.S. Department of Education to continue to participate in Title IV programs following a change in ownership. Both of these schools are currently eligible to participate in Title IV programs under a Temporary Provisional Program Participation Agreement with the U.S. Department of Education. The failure of any of our schools to reestablish its state authorization, accreditation or U.S. Department of Education certification following a transaction involving a change of ownership or control would result in a suspension of operating authority or suspension or loss of federal student financial aid funding, which could have a material adverse effect on our student population and revenue. Further, such a change of ownership or control could result in the imposition of growth restrictions on our schools, including limitations on our ability to open new campuses or initiate new educational progr ams. Restrictions on growth such as these could have a material adverse impact on our student population and revenue and future growth plans. The potential adverse effects of a change of control also could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock, which could discourage bids for your shares of our common stock and could have an adverse effect on the market price of your shares.

Government and regulatory and accrediting agencies may conduct compliance reviews, bring claims or initiate litigation against us.

From time to time, we may be subject to program reviews, audits, investigations, claims of non-compliance or lawsuits by governmental or accrediting agencies or third parties, which may allege statutory violations, regulatory infractions or common law causes of action. If the results of any such proceedings are unfavorable to us, we may lose or have limitations imposed on our accreditation, state licensing or Title IV program participation, be required to pay monetary damages or be subject to fines, penalties, injunctions or other censure that could materially and adversely affect our business. We also may be limited in our ability to open new schools or add new program offerings and may be adversely impacted by the negative publicity surrounding an investigation or lawsuit. Even if we adequately address the issues raised by an agency review or investigation or successfully defend a third-party lawsuit, we may suffer interruptions in cash flows due to, among oth er things, transfer from the advance funding to the ‘‘reimbursement’’ or ‘‘heightened cash monitoring’’ method of Title IV program funding, and we may have to devote significant money and management resources to address these issues, which could harm our business. Additionally, we may experience adverse collateral consequences, including declines in the number of students

16

Table of Contents

enrolling at our schools and the willingness of third parties to deal with us or our schools, as a result of any negative publicity associated with such reviews, claims or litigation.

Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions.

In recent years, there have been a number of regulatory investigations and civil litigation matters targeting post-secondary education institutions. These investigations and lawsuits have alleged, among other things, deceptive trade practices, false claims against the United States and non-compliance with state and U.S. Department of Education regulations. These allegations have attracted adverse media coverage and have been the subject of federal and state legislative hearings. Allegations against the overall student lending and post-secondary education sectors may impact general public perceptions of educational institutions, including us, in a negative manner. Adverse media coverage regarding other educational institutions or regarding us directly could damage our reputation, reduce student demand for our programs, adversely impact our revenues and operating profit or result in increased regulatory scrutiny.

Risks Related to Our Business

If our students were unable to obtain alternative loans from third party lenders, our business could be adversely affected given our increasing reliance on such lenders as a source of net revenues.

During fiscal 2007, alternative loans to students at our schools represented approximately 23% of our net revenues, as compared to 19% of net revenues in fiscal 2006 and 15% of net revenues in fiscal 2005. These loans were provided pursuant to private loan programs and were made available to eligible students at our schools to fund a portion of the students’ costs of education not covered by federal and state financial aid grants due to increases in tuition and the cost of living. While these private loans are typically credit based, we have also developed a program for students with low credit scores who otherwise may not qualify for credit-based loans and pursue a post-secondary education. We pay a fee to the lender in connection with this program. Private loans are made to our students by institutions and are non-recourse to us and our schools. Approximately 95% of the private loans in fiscal 2007 were offered by one lender and its affiliates and servic ed by its affiliated loan servicer. If that lender or loan servicer terminated the programs or reduced the volume of loans made or serviced under the programs at a time when we were unable to timely identify alternate lenders and loan servicers, our students’ ability to finance their education could be adversely affected and our student population could decrease, which could have a material adverse effect on our financial condition, results of operations and cash flows.

The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Providers of federally guaranteed student loans and alternative student loans have also experienced recent increases in default rates. Adverse market conditions for consumer and federally guaranteed student loans could result in providers of alternative loans reducing the attractiveness and/or decreasing the availability of alternative loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based alternative loans. Prospective students may find that these increased financing costs make borrowing prohibitively expensive and abandon or delay enrollment in post-secondary education programs. Private lenders could also require that we pay them new or increased fees in order to provide alternative loans to prospective students. If any of these scenarios were to occur. o ur students’ ability to finance their education could be adversely affected and our student population could decrease, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Opening additional new schools and growing our online academic programs could be difficult for us.

We anticipate continuing to open new schools in the future. Establishing new schools poses unique challenges and requires us to make investments in management, capital expenditures,

17

Table of Contents

marketing expenses and other resources. When opening a new school, we are required to obtain appropriate state or provincial and accrediting agency approvals. In addition, to be eligible for federal student financial aid programs, a school has to be certified by the U.S. Department of Education. Our failure to effectively manage the operations of newly established schools or service areas, or any diversion of management’s attention from our core school operating activities, could harm our business.

We anticipate significant future growth from online courses we offer to students. As of September 30, 2007, we offer fully online programs at The Art Institute of Pittsburgh, Online Division, Argosy University and South University. We plan to continue to introduce new online programs at these schools in the future. The success of any new online programs and classes depends in part on our ability to expand the content of our programs, develop new programs in a cost-effective manner and meet the needs of our students in a timely manner. The expansion of our existing online programs, the creation of new online classes and the development of new fully online programs may not be accepted by students or the online education market for many reasons, including as a result of the expected increased competition in the online education market or because of any problems with the performance or reliability of our online program infrastructure. In addition, a general dec line in Internet use for any reason, including due to security or privacy concerns, the cost of Internet service or changes in government regulation of Internet use may result in less demand for online educational services, in which case we may not be able to grow our online programs as planned.

We may not be able to implement our growth strategy optimally if we are not able to improve the content of our existing academic programs or to develop new programs on a timely basis and in a cost-effective manner.

We continually seek to improve the content of our existing academic programs and develop new programs in order to meet changing market needs. Revisions to our existing academic programs and the development of new programs may not be accepted by existing or prospective students or employers in all instances. If we cannot respond effectively to market changes, our business may be adversely affected. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as students require or as quickly as our competitors are able to introduce competing programs. Our efforts to introduce a new academic program may be conditioned or delayed by requirements to obtain federal, state and accrediting agency approvals. The development of new programs and classes, both conventional and online, is subject to requirements and limitations imposed by the U.S. Department of Education, state licensing agencies and the relevant accr editing bodies. The imposition of restrictions on the initiation of new educational programs by any of our regulatory agencies may delay such expansion plans. If we do not respond adequately to changes in market requirements, our ability to attract and retain students could be impaired and our financial results could suffer.

Establishing new academic programs or modifying existing academic programs also may require us to make investments in specialized personnel and capital expenditures, increase marketing efforts and reallocate resources away from other uses. We may have limited experience with the subject matter of new programs and may need to modify our systems and strategy. If we are unable to increase the number of students, offer new programs in a cost-effective manner or otherwise manage effectively the operations of newly established academic programs, our results of operations and financial condition could be adversely affected.

Our success depends, in part, on the effectiveness of our marketing and advertising programs in recruiting new students.

In order to maintain and increase our revenues and margins, we must continue to attract new students in a cost-effective manner. Over the last several fiscal years, we have increased the amounts spent on marketing and advertising, and we anticipate that this trend will continue. If we are unable to successfully advertise and market our schools and programs, our ability to attract and enroll new students could be adversely impacted and, consequently, our financial performance could

18

Table of Contents

suffer. We use marketing tools such as the Internet, radio, television and print media advertising to promote our schools and programs. Our representatives also make presentations at high schools. Additionally, we rely on the general reputation of our schools and referrals from current students, alumni and employers as a source of new students. Among the factors that could prevent us from successfully marketing and advertising our schools and programs are the failure of our marketing tools and strategy to appeal to prospective students, current student and/or employer dissatisfaction with our program offerings or results and diminished access to high school campuses.

A decline in the overall growth of enrollment in post-secondary institutions could cause us to experience lower enrollment at our schools, which would negatively impact our future growth.

According to the U.S. Department of Education, enrollment in degree-granting, post-secondary institutions is projected to grow 15.5% over the ten-year period ending fall 2015 to approximately 20.2 million. This growth is slower than the 22.6% increase reported in the prior ten-year period ended in 2005, when enrollment increased from 14.3 million in 1995 to 17.5 million in 2005. In order to maintain current growth rates, we will need to attract a larger percentage of students in existing markets and increase our addressable market by adding locations in new markets and rolling out new academic programs. If we fail to accomplish this, the failure would have an adverse impact on our future growth.

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our debt obligations.

The following chart shows our level of consolidated long-term indebtedness at September 30, 2007 (in millions), as adjusted to reflect the sale of         shares of common stock by us in this offering at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus and the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

Revolving credit facility(1)				$
Senior secured term loan facility
8¾% senior notes due 2014
10¼% senior subordinated notes due 2016
Capital leases
Mortgage debt of consolidated entities
Total				$

(1) Upon the closing of the Transaction, we entered into a $300.0 million revolving credit facility with a six-year maturity. As of September 30, 2007, we had an aggregate of $92.4 million in outstanding letters of credit, including an $87.9 million letter of credit issued to the U.S. Department of Education due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce the availability under our revolving credit facility.

Our high degree of leverage could have important consequences for you, including:

	•	making it more difficult for us to make payments on our indebtedness;

	•	increasing our vulnerability to general economic and industry conditions;

	•	requiring a substantial portion of cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund our operations, capital expenditures and future business opportunities;

19

Table of Contents

	•	increasing the likelihood of our not satisfying, on a consolidated basis, the U.S. Department of Education’s annual responsibility requirements and subjecting us to letter of credit and provisional certification requirements for the foreseeable future;

	•	exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities, will bear interest at variable rates;

	•	restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

	•	limiting our ability to obtain additional financing for working capital, capital expenditures, program development, debt service requirements, acquisitions and general corporate or other purposes; and

	•	limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indentures governing our Notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our senior secured credit facilities and the indentures governing the Notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit certain of our subsidiaries’ ability to, among other things:

	•	incur additional indebtedness or issue certain preferred shares;

	•	pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments;

	•	make certain investments, including capital expenditures;

	•	sell certain assets;

	•	create liens;

	•	consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

	•	enter into certain transactions with affiliates.

In addition, under our senior secured credit agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests. A breach of any of these covenants could result in a default under the senior secured credit agreement. Upon the occurrence of an event of default under the senior secured credit agreement, the lenders could elect to declare all amounts outstanding under the senior secured credit agreement immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness. Certain of our subsidiaries have pledged a significant portion of our assets as collateral under the senior secured credit agreement. If the lenders accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our indebtedness under our senior secured credit facilities, as well as our unsecured indebtedness. See ‘‘Description of Certain Indebtedness’’.

Failure to keep pace with changing market needs and technology could harm our ability to attract students.

The success of our schools depends to a large extent on the willingness of prospective employers to employ our students upon graduation. Increasingly, employers demand that their new

20

Table of Contents

employees possess appropriate technological skills and also appropriate ‘‘soft’’ skills, such as communication, critical thinking and teamwork skills. These skills can evolve rapidly in a changing economic and technological environment. Accordingly, it is important that our educational programs evolve in response to those economic and technological changes. The expansion of existing academic programs and the development of new programs may not be accepted by current or prospective students or the employers of our graduates. Even if our schools are able to develop acceptable new programs, our schools may not be able to begin offering those new programs as quickly as required by prospective employers or as quickly as our competitors offer similar programs. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, unusually rapid technological changes or other factors, our ability to attract and retain students could be impaired, the rates at which our graduates obtain jobs involving their fields of study could suffer and our results of operations and cash flows could be adversely affected.

Failure to obtain additional capital in the future could adversely effect our ability to grow.

We believe that funds from operations, cash, investments and borrowings under our revolving credit facility will be adequate to fund our current operating plans for the foreseeable future. However, we may need additional debt or equity financing in order to finance our continued growth. The amount and timing of such additional financing will vary principally depending on the timing and size of acquisitions and new school openings, the willingness of sellers to provide financing for future acquisitions and the amount of cash flows from our operations. To the extent that we require additional financing in the future and are unable to obtain such additional financing, we may not be able to fully implement our growth strategy.

Failure to effectively manage our growth could harm our business.

Our business recently has experienced rapid growth. Growth and expansion of our operations may place a significant strain on our resources and increase demands on our management information and reporting systems, financial management controls and personnel. We may not be able to maintain or accelerate our current growth rate, effectively manage our expanding operations or achieve planned growth on a timely or profitable basis. If we are unable to manage our growth effectively, we may experience operating inefficiencies and our net income may be materially adversely affected.

Capacity constraints or system disruptions to our online computer networks could have a material adverse effect on our ability to attract and retain students.

The performance and reliability of the program infrastructure of our schools’ online operations is critical to the reputation of these campuses and our ability to attract and retain students. Any computer system error or failure, or a sudden and significant increase in traffic on our computer networks that host our schools’ online operations, may result in the unavailability of our schools’ online operations’ computer networks. In addition, any significant failure of our computer networks could disrupt our on campus operations. Individual, sustained or repeated occurrences could significantly damage the reputation of our schools’ online operations and result in a loss of potential or existing students. Additionally, our schools’ online computer systems and operations are vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and network and telecommunications failures. Any inter ruption to our schools’ online computer systems or operations could have a material adverse effect on the ability of our schools’ online operations to attract and retain students.

The personal information that we collect may be vulnerable to breach, theft or loss that could adversely affect our reputation and operations.

Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. Our schools collect, use and retain large amounts of personal information regarding our students and their families, including social security numbers, tax return information,

21

Table of Contents

personal and family financial data and credit card numbers. We also collect and maintain personal information of our employees in the ordinary course of our business. Our computer networks and the networks of certain of our vendors that hold and manage confidential information on our behalf may be vulnerable to unauthorized access, computer hackers, computer viruses and other security threats. Confidential information also may become available to third parties inadvertently when we integrate or convert computer networks into our network following an acquisition of a school or in connection with upgrades from time to time.

Due to the sensitive nature of the information contained on our networks, such as students’ grades, our networks may be targeted by hackers. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access and use of personal information, a third party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. As a result, we may be required to expend significant resources to protect against the threat of the se security breaches or to alleviate problems caused by these breaches. A major breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in further regulation and oversight by federal and state authorities and increased costs of compliance.

Our success depends upon our ability to recruit and retain key personnel.

Our success depends, in large part, upon our ability to attract and retain highly qualified faculty, school presidents and administrators and corporate management. We may have difficulty locating and hiring qualified personnel, and retaining such personnel once hired. In addition, key personnel may leave and subsequently compete against us. The loss of the services of any of our key personnel, many of whom are not party to employment agreements with us, or our failure to attract and retain other qualified and experienced personnel on acceptable terms could cause our business to suffer.

If we are not able to integrate acquired schools, our business could be harmed.

From time to time, we engage in acquisitions of schools. Integrating acquired operations into our institutions involves significant risks and uncertainties, including:

	•	inability to maintain uniform standards, controls, policies and procedures;

	•	distraction of management’s attention from normal business operations during the integration process;

	•	expenses associated with the integration efforts; and

	•	unidentified issues not discovered in our due diligence process, including legal contingencies.

We may be unable to operate one or more of our schools due to a natural disaster.

A number of our schools are located in Florida and elsewhere in the Southeastern United States in areas prone to hurricane damage, which may be substantial. We also have a number of schools located in southern California in areas vulnerable to earthquakes. One or more of these schools may be unable to operate for an extended period of time in the event of a hurricane, earthquake or other natural disaster which does substantial damage to the area in which a school is located. The failure of one or more of our schools to operate for a substantial period of time could have a material adverse effect on our results of operations.

22

Table of Contents

We operate in a highly competitive industry, and competitors with greater resources could harm our business.

The post-secondary education market is highly fragmented and competitive. Our schools compete for students with traditional public and private two-year and four-year colleges and universities and other for-profit schools, including those that offer online learning programs. Many public and private colleges and universities, as well as other private career-oriented schools, offer programs similar to those we offer. We expect to experience additional competition in the future as more colleges, universities and for-profit schools offer an increasing number of online programs. Public institutions receive substantial government subsidies, and public and private institutions have access to government and foundation grants, tax-deductible contributions and other financial resources generally not available to for-profit schools. Accordingly, public and private institutions may have instructional and support resources superior to those in the for-profit sector, and publi c institutions can offer substantially lower tuition prices. Some of our competitors in both the public and private sectors also have substantially greater financial and other resources than we do.

We could experience an event of default under our senior secured credit agreement if the Sponsors cease to own an aggregate of at least 35% of the voting interests of our outstanding capital stock.

Under the current terms of our senior secured credit agreement, an event of default would occur if the Sponsors cease to own, collectively, at least 35% of the voting interests of our outstanding capital stock. This event of default could be triggered during the term of the senior secured credit agreement either by future sales or transfers of our capital stock by any of the Sponsors or by additional issuances of voting capital stock by us. Upon completion of this offering, the Sponsors will own, in the aggregate, approximately         % of the voting interests of our outstanding capital stock (or         % assuming the exercise in full of the underwriters’ option to purchase additional shares) of the voting interests of our outstanding capital stock.

Because we cannot control when future transactions by any of the Sponsors will occur, we cannot assure you that one or more Sponsors will not engage in transactions that trigger an event of default under the current terms of our senior secured credit agreement, or that we will be able to amend this provision of our senior secured credit agreement prior to any such sale or transfer. If an event of default occurs as a result of a future sale or transfer by any of the Sponsors, the lenders could elect to declare all amounts outstanding under the senior secured credit agreement to be immediately due and payable and terminate all commitments to extend further credit. It is possible that we would not be in a position at that time to refinance the amounts due under the senior secured credit agreement on economical terms, or at all, or repay the amounts due to the lenders, and the lenders then could proceed against the collateral securing our indebtedness.

If we expand in the future into new markets outside the United States, we would be subject to risks inherent in non-domestic operations.

If we acquire or establish schools in new markets outside the United States, we will face risks that are inherent in non-domestic operations, including the complexity of operations across borders, currency exchange rate fluctuations, monetary policy risks, such as inflation, hyperinflation and deflation, and potential political and economic instability in the countries into which we expand.

Risks Related to Investing in Our Common Stock

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.

Immediately prior to this offering, there has been no public market for our common stock. An active and liquid public market for our common stock may not develop or be sustained after this offering. The price of our common stock in any such market may be higher or lower than the price

23

Table of Contents

you pay. If you purchase shares of common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters and such price may not be indicative of prices that will prevail in the open market following this offering.

The market price of our common stock may be volatile, which could cause the value of your investment to decline or could subject us to securities class action litigation.

Many factors could cause the market price of our common stock to rise and fall, including the following:

	•	variations in our or our competitors’ actual or anticipated operating results;

	•	our or our competitors’ growth rates;

	•	our or our competitors’ introduction of new schools, new programs, concepts, or pricing policies;

	•	recruitment or departure of key personnel;

	•	changes in the estimates of our operating performance or changes in recommendations by any securities analyst that follows our stock;

	•	changes in the conditions in the education industry, the financial markets or the economy as a whole;

	•	substantial sales of our common stock;

	•	failure of any of our schools to secure or maintain accreditation;

	•	announcements of regulatory or other investigations, adverse regulatory action by the U.S. Department of Education, state agencies or accrediting agencies, regulatory scrutiny of our operations or operations of our competitors or lawsuits filed against us or our competitors; and

	•	changes in accounting principles.

Market volatility, as well as general economic, market or potential conditions, could reduce the market price of our common stock in spite of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation often has been brought against that company. Due to the potential volatility of our stock price, we therefore may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

Private equity funds affiliated with the Sponsors will continue to own the majority of our voting stock immediately after this offering, which, if they acted together, would allow them to control substantially all matters requiring shareholder approval.

Upon the completion of this offering, private equity funds affiliated with Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity Partners will beneficially own approximately         %,         % and         %, respectively, of our outstanding common stock (or         %,         % and         %, respectively, if the underwriters fully exercise their option to purchase additional shares). In addition, we expect that five of our eight directors immediately following this offering will be representatives of the private equity funds affiliated by the Sponsors. See ‘‘Certain Relationships and Related Transactions — Shareholders Agreement’’. As a result, these private equity funds, should they vote their respective shares in concert with each other, could have significant influence over our decision to enter into any corporate transaction and may have the ability to prevent any transaction that requires the approval of shareholders, regardless of whether or not other shareholders believe that such transaction is in their own best interests. Such concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our shareholders.

24

Table of Contents

Additionally, the Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. One or more of the Sponsors may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. As long as private equity funds affiliated with the Sponsors collectively continue to own, directly or indirectly, a significant amount of the outstanding shares of our common stock, the Sponsors will collectively continue to be able to strongly influence or effectively control our decisions.

We will qualify for and avail ourself of exemptions from certain corporate governance requirements for companies whose stock is quoted on the Nasdaq Global Market (‘‘Nasdaq’’) that provide protection to shareholders of other companies.

After the completion of this offering, the private equity funds affiliated with the Sponsors collectively will own more than 50% of the total voting power of our common stock, and we intend to utilize certain ‘‘controlled company’’ exemptions under Nasdaq’s corporate governance listing standards that free us from the obligation to comply with certain Nasdaq corporate governance requirements, including the requirements:

	•	that a majority of our Board of Directors consists of independent directors;

	•	that the compensation of executive officers be determined, or recommended to our Board of Directors for determination, either by (a) a majority of the independent directors or (b) a compensation committee comprised solely of independent directors; and

	•	that director nominees be selected, or recommended for our Board of Directors’ selection, either by (a) a majority of the independent directors or (b) a nominations committee comprised solely of independent directors.

As a result of our use of these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to all of Nasdaq’s corporate governance requirements. In the event that we cease to be eligible to utilize ‘‘controlled company’’ exemptions under Nasdaq’s corporate governance listing standards, we will have a transitionary period during which we must achieve compliance with the requirements described above.

Your percentage ownership in EDMC may be diluted by future issuances of capital stock, which could reduce your influence over matters on which shareholders vote.

Following the completion of this offering, our Board of Directors has the authority, without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, shares that may be issued to satisfy our payment obligations under our LTIC Plan or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our shareholders vote, and, in the case of issuances of preferred stock, likely would result in your interest in us being subject to the prior rights of holders of that preferred stock.

The sale of a substantial number of shares of our common stock after this offering may cause the market price of shares of our common stock to decline.

Sales of our common stock by existing investors may begin shortly after the completion of this offering. Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. The shares of our common stock outstanding prior to this offering will be eligible for sale in the public market at various times in the future. We, all of our directors and executive officers, the Sponsors and other parties to our existing shareholders agreement, representing a majority of our outstanding shares of common stock immediately prior to this offering, agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the dat e of this

25

Table of Contents

prospectus, except with the prior written consent of the representatives the section of this prospectus entitled ‘‘Underwriting’’. Upon expiration of this lock-up period, up to approximately         additional shares of common stock may be eligible for sale in the public market without restriction, and up to approximately         shares of common stock held by affiliates may become eligible for sale, subject to the restrictions under Rule 144 of the Securities Act of 1933. In addition, the private equity funds affiliated with the Sponsors have the right to require us to register the public offering of their shares. For more information, see ‘‘Shares Eligible for Future Sale’’ and ‘‘Certain Relationships and Related Transactions — Registration Rights Agreement’’.

You will incur immediate and substantial dilution in the net tangible book value of your shares.

If you purchase shares in this offering, the value of your shares based on our actual book value immediately will be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our common stock. Based upon the issuance and sale of         shares of our common stock by us in this offering at an assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, you will incur immediate dilution of $         in the net tangible book value per share. Investors will incur additional dilution in the future upon the exercise of outstanding stock options. For more information, see &ls quo;‘Dilution’’.

We will incur increased costs as a result of being a public company, and the requirements of being a public company may divert management attention from our business and adversely affect our financial results.

As a public company, we will be subject to a number of additional requirements, including the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002 and the listing standards of Nasdaq. These requirements will cause us to incur increased costs and might place a strain on our systems and resources. The Securities Exchange Act of 1934 requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. As a result, our management’s attention might be diverted from other business conc erns, which could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we might not be able to retain our independent directors or attract new independent directors for our committees.

Provisions in our charter documents and the Pennsylvania Business Corporation Law could make it more difficult for a third party to acquire us and could discourage a takeover and adversely affect existing shareholders.

Provisions in our charter documents could discourage potential acquisition proposals or make it more difficult for a third party to acquire control of the Company, even if doing so might be beneficial to our shareholders. Our articles of incorporation and bylaws provide for various procedural and other requirements that could make it more difficult for shareholders to effect certain corporate actions. For example, our articles of incorporation authorize our Board of Directors to issue up to         shares of preferred stock and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions on those shares, without any further vote or action by our shareholders. The rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Additional provisions that could make it more difficult for shareholders to effect certain corporate actions include the following:

26

Table of Contents

	•	our articles of incorporation and bylaws provide that our Board of Directors will be classified into three classes, with each director serving a three-year term and standing for re-election once every three years;

	•	our articles of incorporation prohibit cumulative voting in the election of directors;

	•	once the private equity funds affiliated with the Sponsors collectively cease to own 50% or more of our outstanding common stock, our articles of incorporation and bylaws will not (i) permit shareholder action without a meeting by consent, except for unanimous written consent, and (ii) permit shareholders to call or to require the board to call a special meeting; and

	•	our bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must comply with advance notice procedures.

Under the Pennsylvania Business Corporation Law (the ‘‘PBCL’’), because our articles of incorporation and bylaws provide for a classified board of directors, our shareholders may remove directors only for cause. These and other provisions of the PBCL and our articles of incorporation and bylaws may discourage acquisition proposals, make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock or delay, prevent or deter a merger, acquisition, tender offer or proxy contest, which may negatively affect our stock price. See ‘‘Description of Capital Stock’’.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We do not expect to pay dividends on shares of our common stock in the foreseeable future. The terms of our senior secured credit facilities or indentures limit our ability to pay cash dividends in certain circumstances. Furthermore, if we are in default under our credit facilities or indentures, our ability to pay cash dividends will be limited in certain circumstances in the absence of a waiver of that default or an amendment to the facilities or indentures. In addition, because we are a holding company, our ability to pay cash dividends on shares of our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries, including the restrictions under our senior secured credit facilities and indentures. Subject to these restrictions, the payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings levels, capital re quirements, our overall financial condition and any other factors deemed relevant by our Board of Directors. Consequently, your only opportunity to achieve a return on your investment in the Company will be if the market price of our common stock appreciates.

We rely on dividends, distributions and other payments, advances and transfers of funds from our operating subsidiaries to meet our debt service and other obligations.

We conduct all of our operations through certain of our subsidiaries, and we currently have no significant assets other than cash of approximately $40 million and the capital stock of our respective subsidiaries. As a result, we will rely on dividends and other payments or distributions from our operating subsidiaries to meet any existing or future debt service and other obligations. The ability of our operating subsidiaries to pay dividends or to make distributions or other payments to their parent companies will depend on their respective operating results and may be restricted by, among other things, the laws of their respective jurisdictions of organization, regulatory requirements, agreements entered into by those operating subsidiaries and the covenants of any existing or future outstanding indebtedness that we or our subsidiaries may occur. For example, our senior secured credit agreement and the indentures governing the Notes contain certain restrictions on our subsidiaries’ ability to pay dividends and to make distributions.

27

Table of Contents

We experience seasonal fluctuations in our results of operations which may result in similar fluctuations in the trading price of our common stock.

Historically, our quarterly revenues and income have fluctuated primarily as a result of the pattern of student enrollments at our schools. The number of students enrolled at our schools typically is greatest in the second quarter of our fiscal year, when the largest number of recent high school and college graduates typically begin post-secondary education programs. Student vacations generally cause our student enrollments to be at their lowest during our first fiscal quarter. Because a significant portion of our expenses do not vary proportionately with the fluctuations in our revenue, our results in a particular fiscal quarter may not indicate accurately the results we will achieve in a subsequent quarter or for the full fiscal year. These fluctuations in our operating results may result in corresponding volatility in the market price for our common stock.

28

Table of Contents

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains ‘‘forward-looking statements’’ within the meaning of the federal securities laws, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as ‘‘believes’’, ‘‘expects’’, ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘seeks’’, ‘‘approximately’’, ‘‘intends’’, ‘‘plans’’, ‘‘estimates’’, or ‘‘anticipates’’ or similar expressions that 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, we, through our senior management, from time to time ma ke 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 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. Important factors that could cause actual results to differ materially from our expectations are disclosed under ‘‘Risk Factors’’ and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All subsequent written and oral forward-lo oking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the factors discussed in this prospectus. Some of the factors that we believe could affect our results include:

	•	compliance with extensive federal, state and accrediting agency regulations and requirements;

	•	our ability to maintain eligibility to participate in Title IV programs;

	•	government and regulatory changes including revised interpretations of regulatory requirements that affect the post-secondary education industry;

	•	regulatory and accrediting agency approval of transactions involving a change of ownership or control or a change in our corporate structure;

	•	damage to our reputation or our regulatory environment caused by actions of other for-profit institutions;

	•	availability of alternative loans for our students;

	•	difficulty in opening additional schools and expanding online academic programs;

	•	our ability to improve existing academic programs or to develop new programs on a timely basis and in a cost-effective manner;

	•	failure to effectively market and advertise to new students;

	•	decline in the overall growth of enrollment in post-secondary institutions;

	•	our ability to manage our substantial leverage;

	•	compliance with restrictions and other terms in our debt agreements, some of which are beyond our control;

	•	our ability to keep pace with changing market needs and technology;

	•	our ability to raise additional capital in the future in light of our substantial leverage;

	•	our ability to effectively manage our growth;

	•	capacity constraints or system disruptions to our online computer networks;

	•	the vulnerability of our online computer networks to security risks;

	•	failure to attract, retain and integrate qualified management personnel;

29

Table of Contents

	•	our ability to integrate acquired schools;

	•	inability to operate schools due to a natural disaster;

	•	competitors with greater resources;

	•	risks inherent in non-domestic operations; and

	•	the other factors set forth under ‘‘Risk Factors’’.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

30

Table of Contents

USE OF PROCEEDS

We estimate that our net proceeds from the sale of             shares of our common stock being offered by us pursuant to this prospectus at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and estimated offering expenses, will be approximately $        million. A $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the net proceeds to us from this offering by $        million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

We expect to use approximately (i) $             million of the net proceeds from this offering to repay a portion of our indebtedness, including accrued interest and prepayment penalties, (ii) $             million of the net proceeds from this offering to pay the termination fee under the Sponsor Management Agreement and (iii) $             million for general corporate purposes. See ‘‘Certain Relationships and Related Transactions — Sponsor Management Agreement’’.

DIVIDEND POLICY

We do not expect to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. The terms of our senior secured credit facilities and indentures limit our ability to pay cash dividends in certain circumstances. Furthermore, if we are in default under these credit facilities or indentures, our ability to pay cash dividends will be limited in the absence of a waiver of that default or an amendment to those facilities or indentures. In addition, our ability to pay cash dividends on shares of our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries, including the restrictions under our senior secured credit facilities and indentures. For more information on our senior secured credit facilities and indentures, see ‘‘Description of Certain Indebtedness’’. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our Board of Directors.

31

Table of Contents

CAPITALIZATION

The following table sets forth as of September 30, 2007 on a consolidated basis:

	•	Our actual capitalization; and

	•	Our as adjusted capitalization that gives effect to (i) the sale of              shares of common stock by us in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover page of this prospectus, and (ii) the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

You should read the following table in conjunction with the information in this prospectus under the captions ‘‘Selected Historical Consolidated Financial and Other Data’’, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Description of Certain Indebtedness’’ and with the audited annual consolidated and unaudited interim condensed consolidated financial statements and related notes included elsewhere in this prospectus.

			As of September 30, 2007
			Actual					As Adjusted
			(dollars in millions, except share and per share amounts)
Cash and cash equivalents (excludes restricted cash)				$	348.7				$
Debt:
Current portion of long-term debt(1)				$	38.1				$
Long-term debt:
Revolving credit facility					—
Senior secured term loan facility, due 2013					1,135.9
8¾% senior notes due 2014					375.0
10¼% senior subordinated notes due 2016					385.0
Capital leases					1.4
Mortgage debt of consolidated entities					1.4
Total long-term debt					1,898.7
Total debt					1,936.8
Shareholders’ equity:
Common stock, par value $0.01 per share, 40,000,000 shares authorized, 26,771,818 shares issued and outstanding actual; and          shares authorized,          shares issued and outstanding as adjusted(2)					0.3
Additional paid-in capital					1,339.2
Retained earnings					5.8
Accumulated other comprehensive loss					(12.3	)
Total shareholders’ equity				$	1,333.0				$
Total capitalization(3)				$	3,269.8				$

(1) Current portion of long-term debt consists primarily of payments due within the next 12 months on our senior secured term loan facilities, including a $22.6 million payment required to be made in October 2007 related to excess cash flow, as calculated under our senior secured term loan agreement, generated during fiscal 2007.

(2) Excludes (i) 1,693,916 shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2007, of which options to purchase 118,438 shares were exercisable as of September 30, 2007 (ii) 151,255 additional shares of our common stock authorized by the Board of Directors for future issuance under the 2006 Stock Option Plan and (iii) any shares of our common stock which may be issued to satisfy our payment obligations under the LTIC Plan.

(3) A $1.00 increase (decrease) in the assumed initial public offering price of $    per share would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by $    million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

32

Table of Contents

CORPORATE STRUCTURE

The following diagram sets forth our corporate structure. Subsidiaries of Education Management LLC own all of the operating assets of EDMC.

(1) The obligations under our senior secured credit facilities are guaranteed by Education Management Holdings LLC and all of Education Management LLC’s existing direct and indirect domestic subsidiaries, other than any subsidiary that directly owns or operates a school or any inactive subsidiary that has less than $100,000 of assets. The Notes are fully and unconditionally guaranteed by all of our existing direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets.

(2) As of September 30, 2007, we had an aggregate of $92.4 million in outstanding letters of credit, including an $87.9 million letter of credit issued to the U.S. Department of Education due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce the availability under our revolving credit facility.

(3) As adjusted to give effect to the sale of            shares of common stock by us in this offering at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus and the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

(4) Education Management Finance Corp. has only nominal assets, does not currently conduct any operations and was formed solely to act as co-issuer of the Notes.

33

Table of Contents

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the adjusted net tangible book value per share of common stock upon the consummation of this offering.

Our net tangible book deficit as of September 30, 2007 was approximately $1.7 billion, or approximately $(65.29) per share of common stock. The number of shares outstanding excludes (i) 1,693,916 shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2007, of which options to purchase 118,438 shares were exercisable as of September 30, 2007 (ii) 151,255 additional shares of our common stock authorized by the Board of Directors for future issuance under the 2006 Stock Option Plan and (iii) any shares of our common stock which may be issued to satisfy our payment obligations under the LTIC Plan. Net tangible book deficit per share is determined by dividing our tangible net worth, which is defined as total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Our net tangible book deficit at September 30, 2007 excludes the book val ue of our intangible assets totaling $3.1 billion.

After giving effect to the sale by us of the                shares of common stock in this offering, at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses and the receipt and application of the net proceeds, our adjusted net tangible book deficit as of September 30, 2007 would have been approximately $            , or approximately $            per share. This represents an immediate decrease in adjusted net tangible book deficit to existing shareholders of $         &nb sp;  per share and an immediate dilution to new investors of $                per share. The following table illustrates this per share dilution:

Assumed initial public offering price per share				$
Net tangible book deficit per share as of September 30, 2007 (excluding this offering)					(65.29	)
Decrease in net tangible book deficit per share attributable to new investors
Adjusted net tangible book deficit per share after this offering
Dilution per share to new investors				$

A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) our adjusted net tangible book deficit by $            million, the adjusted net tangible book deficit per share after this offering by $            and the dilution per share to new investors by $            , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the adjusted net tangible book deficit per share after this offering would be $            , the increase in adjusted net tangible book deficit per share to existing shareholders would be $            per share and the dilution per share to new investors would be $            .

The following table summarizes as of September 30, 2007 the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by our existing shareholders and to be paid by new investors purchasing shares of our common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

34

Table of Contents

			Shares Purchased												Total Consideration												Average Price Per Share
			Number						Percentage						Amount						Percentage
Existing shareholders												%				$								%				$
New investors												%				$								%				$
Total											100	%				$							100	%				$

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share would increase (decrease) total consideration paid by new investors and the total average price per share by $                million and $            respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and without deducting underwriting discounts and commissions and estimated expenses payable by us.

The foregoing discussion and tables assume no exercise of outstanding stock options. As of September 30, 2007, there were options outstanding to purchase a total of 1,693,916 shares of our common stock at a weighted average exercise price of $52.58 per share.

To the extent that any of these stock options are exercised, there may be further dilution to new investors. See ‘‘Capitalization’’, ‘‘Management’’, Note 13 to the notes to our audited annual consolidated financial statements and Note 4 to the notes to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our shareholders.

35

Table of Contents

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our selected consolidated financial and operating data as of the dates and for the periods indicated. The selected consolidated balance sheet data of Successor at June 30, 2006 and 2007 and the selected consolidated statement of operations data and the selected consolidated statement of cash flows data for the Predecessor fiscal years ended June 30, 2003, 2004 and 2005, the Predecessor 11-month period ended May 31, 2006, the Successor one-month period ended June 30, 2006 and the Successor fiscal year ended June 30, 2007 have been derived from our audited consolidated financial statements and related notes.

The selected combined consolidated statement of operations data and the combined selected consolidated statement of cash flows data for the 12 months ended June 30, 2006 have been derived from the audited consolidated financial statements and notes thereto of Predecessor and Successor but have not been audited on a combined basis. The selected combined consolidated statement of operations data and the combined selected consolidated statement of cash flows data do not comply with GAAP or with the rules for unaudited pro forma presentation and are not intended to represent what our operating results would have been if the Transaction had occurred at the beginning of the combined period. This information is presented because we believe that it provides a more meaningful comparison of our results of operations for the period presented to other fiscal years.

The selected consolidated statement of operations data and the selected consolidated statement of cash flows data for the Successor three month periods ended September, 30, 2006 and 2007, and the selected consolidated balance sheet data of Successor as of September 30, 2007 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements at June 30, 2006 and 2007, with the exception of our adoption of the provisions of FIN 48 on July 1, 2007, and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our financial position and operating results for the unaudited periods.

The selected consolidated financial and other data as of and for any period are not necessarily indicative of the results that may be obtained for any future date or for any future period.

The following tables also set forth selected unaudited consolidated as adjusted balance sheet data of Successor as of September 30, 2007, which give effect to (i) the sale of                        shares of common stock by us in this offering at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, and (ii) the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’. The selected unaudited consolidated as adjusted balance sheet data are presented for informational purposes only and do not purport to represent what our financial position actually would have been had these transactions occurred on the dates indicated or to project our financial position as of any future date.

You should read the following selected financial and other data in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and our consolidated financial statements and related notes included elsewhere in this prospectus.

36

Table of Contents

			Predecessor																								Successor												Successor
			Year Ended June 30,																		Period from July 1, 2005 to May 31, 2006						Period from June 1, 2006 to June 30, 2006						Combined 12 Months Ended June 30, 2006(3)						Year Ended June 30, 2007						Three Months Ended September 30, 2006						Three Months Ended September 30, 2007
			2003(1)						2004						2005(2)
			(dollars in millions)
Statement of Operations Data:
Net revenues				$	640.0					$	853.0					$	1,019.3					$	1,095.8					$	74.4					$	1,170.2					$	1,363.7					$	290.5					$	361.3
Costs and expenses:
Educational services					417.5						546.1						640.4						649.8						64.7						714.5						801.6						184.6						228.2
General and administrative					125.3						167.0						203.8						273.3						26.0						299.3						314.9						72.8						96.1
Amortization of intangible assets					4.4						6.9						6.5						4.0						1.7						5.7						19.3						5.1						5.7
Total costs and expenses					547.2						720.0						850.7						927.1						92.4						1,019.5						1,135.8						262.5						330.0
Income (loss) before interest and income taxes					92.8						133.0						168.6						168.7						(18.0	)					150.7						227.9						28.0						31.3
Interest (income) expense, net					1.3						2.5						(0.2	)					(5.3	)					14.1						8.8						168.3						44.0						40.3
Income (loss) before income taxes					91.5						130.5						168.8						174.0						(32.1	)					141.9						59.6						(16.0	)					(9.0	)
Provision for (benefit from) income taxes					35.2						53.5						67.2						73.6						(12.4	)					61.2						27.2						(6.2	)					(3.5	)
Net income (loss)				$	56.3					$	77.0					$	101.6					$	100.4					$	(19.7	)				$	80.7					$	32.4					$	(9.8	)				$	(5.5	)
Statement of Cash Flows Data:
Net cash flows provided by (used in):
Operating activities				$	79.4					$	166.3					$	192.5					$	301.7					$	(22.5	)				$	279.2					$	179.9					$	128.5					$	185.3
Investing activities					(108.4	)					(239.9	)					(98.1	)					(56.4	)					(3,534.0	)					(3,590.4	)					(110.8	)					(22.4	)					(33.7	)
Financing activities					24.3						102.0						(39.0	)					(43.2	)					3,445.5						3,402.3						(41.3	)					(163.3	)					(93.2	)
Other Data:
EBITDA(4)				$	137.7					$	188.3					$	252.7					$	231.6					$	(10.6	)				$	221.0					$	318.5					$	50.1					$	59.6
Capital expenditures(5)					80.8						82.3						74.9						57.9						7.7						65.6						96.1						22.2						32.8
Enrollment at beginning of fall quarter(6)					43,800						58,800						66,200						72,500												72,500						80,300
Campus locations (at period end)(7)					43						68						70						71						71						71						78						73						79

37

Table of Contents

			Predecessor																		Successor
			As of June 30,																		As of June 30,												As of September 30, 2007
			2003						2004						2005						2006						2007						Actual						As Adjusted(8)
			(in millions)
Balance Sheet Data:
Cash and cash equivalents (excludes restricted cash)				$	89.0					$	116.7					$	172.0					$	263.3					$	290.7					$	348.7					$
Total assets					577.6						828.0						956.0						3,945.4						3,988.7						4,075.1
Total debt, including current portion and revolving credit facility					38.5						128.6						70.4						2,110.0						2,030.0						1,936.8
Total shareholders’ equity					427.8						528.7						666.0						1,282.7						1,350.8						1,333.0

(1) Fiscal 2003 results reflect a change in accounting estimate due to our evaluation and adjustment of the useful lives for our property and equipment to more closely reflect actual usage. The useful life adjustment decreased income before interest and taxes by $3.2 million.

(2) Fiscal 2005 results include non-cash, pretax charges of approximately $4.2 million related to fixed asset impairments. Also, cumulative adjustments for lease accounting recorded in fiscal 2005 increased educational services expense by approximately $3.8 million.

(3) Our combined results for the period from July 1, 2005 through June 30, 2006 represent the sum of the Predecessor period results from July 1, 2005 through May 31, 2006 and the Successor period results from June 1, 2006 through June 30, 2006. This combination does not comply with GAAP or with the rules for unaudited pro forma presentation, but this combination is presented because we believe that it provides a more meaningful comparison of our results to other fiscal years.

(4) EBITDA, a measure used by management to measure operating performance, is defined as net income (loss) plus interest (income) expense, net, provision for income taxes and depreciation and amortization, including amortization of intangible assets. 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 activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flows available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the contro l 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. In addition, management believes that EBITDA provides more comparability between our historical results and results that reflect purchase accounting and the new capital structure. Management compensates 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 other similarly titled measures of other companies. EBITDA is calculated as follows:

			Predecessor																								Successor												Successor
			Year Ended June 30,																		Period from July 1, 2005 to May 31, 2006						Period from June 1, 2006 to June 30, 2006						Combined 12 Months Ended June 30, 2006 (b)						Year Ended June 30, 2007						Three Months Ended September 30, 2006						Three Months Ended September 30, 2007
			2003						2004						2005 (a)
			(in millions)
Net income (loss)				$	56.3					$	77.0					$	101.6					$	100.4					$	(19.7	)				$	80.7					$	32.4					$	(9.8	)				$	(5.5	)
Interest (income) expense, net					1.3						2.5						(0.2	)					(5.3	)					14.1						8.8						168.3						44.0						40.3
Provision for (benefit from) income taxes					35.2						53.5						67.2						73.6						(12.4	)					61.2						27.2						(6.2	)					(3.5	)
Depreciation and amortization					44.9						55.3						84.1						62.9						7.4						70.3						90.6						22.1						28.3
EBITDA (c)				$	137.7					$	188.3					$	252.7					$	231.6					$	(10.6	)				$	221.0					$	318.5					$	50.1					$	59.6

38

Table of Contents

(a) Includes non-cash depreciation and amortization charges related to property and equipment impairments and a $19.5 million charge related to cumulative adjustments for changes in lease accounting. This amount was substantially offset by a cumulative credit of $15.7 million related to the amortization of a deferred rent credit. Both amounts, which net to $3.8 million, are classified in educational services expense in the statement of operations.

(b) Includes $29.8 million of legal and other professional services fees and $9.9 million of employee compensation and payroll taxes incurred in connection with the Transaction, as well as $32.2 million of non-cash equity compensation expense.

(c) EBITDA, as presented above, is different from the Adjusted EBITDA calculated for the purpose of determining compliance with our senior secured credit agreement and the indentures governing our Notes. For an explanation of our Adjusted EBITDA, see ‘‘Management Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources’’.

(5) Capital expenditures represent net cash paid for property and equipment, leasehold improvements, software and other long-lived assets.

(6) Represents the number of students enrolled in our schools as of the first week in October of the preceding calendar year. Enrollment as of the first week of October 2007 was approximately 96,000 students.

(7) The Art Institute of Toronto announced in June 2007 that it will no longer accept new students and that it will close after all current students complete their respective programs. Prior to announcing this closing, approximately 250 students attended The Art Institute of Toronto.

(8) The consolidated as adjusted balance sheet data as of September 30, 2007 give effect to:

• the sale of                        shares of common stock by us in this offering at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus; and

• the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

39

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

We are among the largest providers of post-secondary education in North America, with approximately 96,000 enrolled students as of October 2007. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. We are committed to offering quality academic programs and continuously strive to improve the learning experience for our students. Our educational institutions offer students the opportunity to earn undergraduate and graduate degrees and certain specialized non-degree diplomas in a broad range of disciplines, including design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, education, legal and information technology. Each of our schools located in the United States is recognized by an accreditation agency and by the U.S. Department of Education, enabling students to access federal student loans, grants and other forms of public and private financial aid . Our academic programs are designed with an emphasis on applied, career-oriented content and are taught primarily by faculty members who, in addition to having appropriate credentials, offer practical and relevant professional experience in their respective fields. Our net revenues for fiscal 2007 were $1,363.7 million.

On June 1, 2006, we were acquired by a consortium of private equity funds affiliated with Providence Equity Partners and Goldman Sachs Capital Partners (together, the ‘‘Principal Shareholders’’). The acquisition was accomplished through the merger of an acquisition company into EDMC, with EDMC surviving the Transaction. Although we continued as the same legal entity, we contributed substantially all of our assets and liabilities to Education Management LLC, an indirect wholly-owned subsidiary, in connection with the Transaction. The Transaction was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 141, ‘‘Business Combinations’’.

Since the Transaction in June 2006, we have enhanced our senior management team and made investments to accelerate enrollment growth, while delivering strong financial performance. We have made significant investments in numerous areas of our workforce, including marketing and admissions, new campuses, online education and infrastructure in order to support future enrollment growth and enhance the student experience. Our increased focus on online education has resulted in strong enrollment growth. Students enrolled in fully online academic programs have more than doubled to approximately 13,100 students in October 2007, compared to approximately 4,600 students in July 2006. In addition, we have opened eight new locations, acquired two schools and developed 20 new academic programs and introduced 259 new or existing academic programs to locations that had not previously offered such programs. Total enrollment at our schools has grown by 19.5% between October 2006 and October 2007. During the same time period, same-school enrollment for schools owned or operated for one year or more increased 18.2%. We expect to continue to pursue a disciplined approach to opening new school locations in attractive target markets and plan to open approximately eight to 11 new campuses annually for the foreseeable future.

The largest component of our net revenues is tuition collected from our students, which is presented in our statements of operations after deducting refunds, scholarships and other adjustments. Net revenues consist of tuition and fees, student housing fees, bookstore sales, restaurant sales in connection with culinary programs, workshop fees, finance charges related to credit extended to students and sales of related study materials, reduced for student refunds and scholarships. We recognize revenue on a pro rata basis over the term of instruction or occupancy or when cash is received in the case of certain point-of-sale revenues. The amount of tuition revenue received from students varies based on the average tuition charge per credit hour, average credit hours taken per student, type of program, specific curriculum and average student population. Bookstore and housing revenues are largely a function of the average student population.

The two main determinants of our net revenues are average student population and tuition rates. Factors impacting our average student population include the number of continuing students

40

Table of Contents

attending our schools at the beginning of a period and the number of new students entering our schools during such period. We believe that the size of our student population at our campuses is influenced by the number of graduating high school students, the attractiveness of our program offerings, the quality of the student experience, the effectiveness of our marketing efforts, changes in technology, the persistence of our students, the length of the education programs, our overall educational reputation and general economic conditions. We seek to grow our average student population by offering additional programs at existing schools and by establishing new school locations, whether through new facility start-up or acquisition. With regard to tuition rates, historically we have been able to pass along cost increases through increases in tuition. Average tuition rates increased by approximately 5% and 6% in fiscal 2007 and fiscal 2006, respectively.

A majority of our students rely on funds received under various government-sponsored student financial aid programs, especially Title IV programs, to pay a substantial portion of their tuition and other education-related expenses. For the last three completed fiscal years, approximately 70% of our net revenues were indirectly derived from Title IV programs. Because of the dependence on government sponsored programs, we participate in industry groups and monitor the impact of newly proposed legislation on our business. Our students have also increasingly relied upon funds received from alternative lenders to pay a portion of their tuition and related expenses. During fiscal 2007, these loans constituted approximately 23% of our net revenues, compared to 19% of net revenues in fiscal 2006 and 15% of net revenues in fiscal 2005.

Our quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments. 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, the largest component of our operating expense, consists primarily of costs related to the development, delivery and administration of our education programs. Major cost components are faculty compensation, salaries of administrative and student services staff, costs of educational materials, facility occupancy costs, information systems costs, bad debt expense and depreciation and amortization of property and equipment. Many of these costs are relatively fixed in nature and are not subject to volatile input pricing. We anticipate that these expenses as a percentage of revenue will decrease over time due to continued leverage on our fixed cost base as our schools grow through the introduction of new programs at our existing schools and continued growth in the number of students taking classes online.

The second largest expense line item, 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. We have centralized many of these services to gain consistency in management reporting, efficiency in administrative effort and cost control. With regard to the marketing component of our expenses, we have seen a change in the way we market to and attract inquiries from prospective students as the Internet has become an increasingly important way of reaching students. Internet inquiries, which generally cost less than leads from traditional media sources such as television and print, convert to applications at a lower rate than inquiries from traditional media sources.

Certain of our historic costs and expenses will change in the future as a result of the completion of this offering. Since the Transaction, we have paid the Sponsors an annual management fee of $5.0 million and reimbursed the Sponsors for out-of-pocket expenses incurred by them or their affiliates in connection with the provision of management services. Upon completion of this offering, we will pay to the Sponsors a management termination fee of approximately $         million, and our obligation to pay the annual management fee will cease.

We have not recognized compensation expense under SFAS No. 123R, ‘‘Share-Based Payment’’, due to restrictions on the 2006 Stock Option Plan participants’ ability to receive value on their stock option grants until certain performance conditions are achieved. At September 30, 2007,

41

Table of Contents

we had $32.3 million in unrecognized SFAS No. 123R expenses and the intrinsic value of the outstanding vested and unvested options was $       and $      , respectively, based on the initial public offering price of $       per share. Upon completion of this offering, we expect to recognize $              of non-cash compensation expense related to the time-based options. No expense on the performance-based options will be recorded as the conditions requiring expense recognition will still not be met immediately following this offering.

We have also adopted the LTIC Plan pursuant to which we have granted unit awards to non-executive employees. Under the terms of the LTIC Plan, a bonus pool is created if the Principal Shareholders satisfy certain required returns on their initial investment in our stock when a realization event occurs, which is defined in the LTIC Plan as the time when the Principal Shareholders (i) cease to own in the aggregate at least 30% of our outstanding voting securities, and (ii) have, in the aggregate, disposed of at least 70% of their shares. The size of the bonus pool, if any, depends on the returns to the Principal Shareholders when they sell shares of our stock. We will recognize compensation expense for units issued under the LTIC Plan pursuant to SFAS No. 123R when a realization event occurs.

Also upon completion of this offering, we expect to use $              million of proceeds to repay a portion of our indebtedness, including accrued interest and penalties. As a result, we will accelerate a portion of the amortization on the related deferred debt costs of approximately $             .

Results of Operations

The following table sets forth for the periods indicated the percentage relationship of certain statements of operations items to net revenues.

			Predecessor												Successor												Successor
			Year Ended June 30, 2005						Period from July 1, 2005 to May 31, 2006						Period from June 1, 2006 to June 30, 2006						Combined 12 Months Ended June 30, 2006(1)						Year Ended June 30, 2007						Three Months Ended September 30, 2006						Three Months Ended September 30, 2007
Net revenues					100.0	%					100.0	%					100.0	%					100.0	%					100.0	%					100.0	%					100.0	%
Costs and expenses:
Educational services					62.8	%					59.3	%					86.9	%					61.0	%					58.8	%					63.6	%					63.1	%
General and administrative					20.0	%					25.0	%					35.0	%					25.6	%					23.1	%					25.1	%					26.6	%
Amortization of intangible assets					0.6	%					0.3	%					2.3	%					0.5	%					1.4	%					1.7	%					1.6	%
Total costs and expenses					83.4	%					84.6	%					124.2	%					87.1	%					83.3	%					90.4	%					91.3	%
Income (loss) before interest and income taxes					16.6	%					15.4	%					(24.2	%)					12.9	%					16.7	%					9.6	%					8.7	%
Interest (income) expense, net					0.0	%					(0.5	%)					18.9	%					0.8	%					12.3	%					15.1	%					11.2	%
Income (loss) before income taxes					16.6	%					15.9	%					(43.1	%)					12.1	%					4.4	%					(5.5	%)					(2.5	%)
Provision for (benefit from) income taxes					6.6	%					6.7	%					(16.7	%)					5.2	%					2.0	%					(2.1	%)					(1.0	%)
Net income (loss)					10.0	%					9.2	%					(26.4	%)					6.9	%					2.4	%					(3.4	%)					(1.5	%)

(1) Our combined results for the period from July 1, 2005 through June 30, 2006 represent the sum of the Predecessor period results from July 1, 2005 through May 31, 2006 and the Successor period results from June 1, 2006 through June 30, 2006. This combination does not comply with GAAP or with the rules for unaudited pro forma presentation, but this combination is presented because we believe that it provides a more meaningful comparison of our results of operations for the period presented to other fiscal years.

42

Table of Contents

Three Months Ended September 30, 2007 Compared with Three Months Ended September 30, 2006

Net Revenues

Net revenues for the three months ended September 30, 2007 increased 24.4% to $361.3 million, compared to $290.5 million for the same period a year ago, primarily resulting from a 19.6% increase in total student enrollment and an approximately 6% increase in tuition rates, slightly offset by a lower average credit load taken by students. The decrease in credit load was primarily the result of growth in students enrolled in our fully online programs, in which students typically take a lesser credit load. Total enrollment at the beginning of the quarter ended September 30, 2007 was approximately 78,700 students, compared to approximately 65,800 students for the same period a year ago.

Educational Services Expenses

Educational services expenses increased compared to the prior year quarter by $43.6 million, or 23.6%, to $228.2 million for the quarter ended September 30, 2007 due primarily to the incremental costs incurred to support higher student enrollment. As a percentage of net revenues, educational services expenses decreased 45 basis points compared to the prior year quarter. We experienced a reduction in personnel and facility expenses, excluding rent, of 113 basis points as a percentage of net revenues in the current quarter compared with the prior year quarter despite continued investment in new campuses and online education. Rent expense associated with schools, which decreased as a percentage of net revenues for the current quarter by seven basis points compared with the prior year quarter, was $29.9 million, or 8.3% of net revenues, as compared to $24.3 million, or 8.3% of net revenues in the prior year quarter. These decreases were partially offset by an increase in depreciation and amortization of 38 basis points as a percentage of net revenues compared to the prior year quarter, which primarily resulted from a non-cash impairment charge of $3.8 million that was recorded at one of our schools. This impairment charge was recorded because anticipated future cash flows at one of our schools could not support the carrying value of its property and equipment. As a result, we adjusted the property and equipment values to their respective estimated fair values, as calculated using a traditional discounted cash flow model. Bad debt expense increased by 27 basis points as a percentage of net revenues in the current quarter compared with the prior year quarter, primarily related to an increase in out-of-school students. The remaining 10 basis point increase as a percentage of net revenues in the current quarter compared with the prior year quarter was the result of higher non-facilities related professional fees and services.

General and Administrative Expenses

General and administrative expenses were $96.1 million for the current quarter, an increase of 32.0% from $72.8 million in the prior year quarter. As a percentage of net revenues, general and administrative expenses increased 154 basis points compared with the prior year quarter. Continued investment in marketing and admissions personnel resulted in an increase in personnel expenses included in general and administrative expenses of 86 basis points as a percentage of net revenues in the current quarter as compared to the prior year quarter. Additionally, higher investment in advertising at our new campuses and in our fully online programs drove an increase of 115 basis points as a percentage of net revenues compared to the prior year quarter. These increases as a percentage of net revenues were partially offset by a decrease in consulting expenses of 59 basis points as a percentage of net revenues compared with the prior year quarter. The remaining 12 basis point net increase as a percentage of net revenues in the current quarter compared with the prior year quarter was driven by other costs, none of which were individually significant.

Amortization of Intangible Assets

Amortization of intangible assets increased to $5.7 million in the current quarter, compared to $5.1 million in the prior year quarter, primarily resulting from a non-cash impairment charge of

43

Table of Contents

$1.0 million that was recorded at one of our schools. This impairment charge was recorded because anticipated future cash flows at one of our schools could not support the carrying value of its intangible assets. As a result, we adjusted the intangible asset values to their respective estimated fair values, as calculated using a traditional discounted cash flow model.

Income Before Interest and Taxes

Income before interest and taxes (operating income) increased by $3.3 million, or 11.8%, to $31.3 million for the current quarter compared with the prior year quarter. The corresponding margin decreased to 8.7% in the current quarter from 9.6% in the prior year quarter due to the factors described above.

Interest Expense, Net

Net interest expense was $40.3 million in the current quarter, a decrease of $3.7 million from $44.0 million in the prior year quarter. The decrease in net interest expense is related to the decrease in the average interest rate of our term loan for the current quarter compared with the prior year quarter, coupled with the incremental payments made on the term loan principal period to period.

Income Tax Benefit

The income tax benefit for the quarter ended September 30, 2007 was $3.5 million as compared to $6.2 million for the prior year quarter. Our effective tax rate was 38.6% in the current year quarter and 38.7% in the prior year quarter. The effective rates differed from the combined federal and state statutory rates primarily due to valuation allowances and expenses that are non-deductible for tax purposes.

Net Loss

We had a net loss of $5.5 million in the current quarter compared to a net loss of $9.8 million in the prior year quarter due to the factors described above.

Year Ended June 30, 2007 Compared with Combined 12-Month Period from July 1, 2005 through June 30, 2006 (Fiscal 2006)

Net Revenues

Net revenues for fiscal 2007 increased 16.5% to $1,363.7 million, compared to $1,170.2 million for fiscal 2006, primarily resulting from a 12.7% growth in average total student enrollment and an approximately 5% increase in tuition rates. Average student enrollment for fiscal 2007 increased to approximately 77,200 students, compared to approximately 68,500 students for the same period last year. We derived 91.2% of our net revenues from tuition and fees paid by, or on behalf of, our students in both fiscal 2007 and fiscal 2006.

Bookstore and housing revenue is largely a function of the average student population. Net housing revenues increased by 19.3% to $59.8 million in fiscal 2007, compared to $50.1 million in fiscal 2006, and revenues from bookstore sales (which include supplies and other items) in fiscal 2007 grew by 14.7% to $46.1 million, compared to $40.2 million in fiscal 2006.

Educational Services

Educational services expense increased by $87.1 million, or 12.2%, to $801.6 million in fiscal 2007 from $714.5 million in fiscal 2006, due primarily to the incremental costs incurred to support higher student enrollment. As a percentage of net revenues, educational services expense decreased 224 basis points over fiscal 2006. During fiscal 2006, we incurred non-cash equity based compensation expense associated with SFAS No. 123R, which is a component of personnel costs, of $13.1 million, compared to no expense in fiscal 2007. After adjusting for the effect of non-cash equity

44

Table of Contents

based compensation expense incurred in fiscal 2006, educational services expenses decreased 112 basis points as a percentage of net revenues in fiscal 2007. We experienced a reduction in personnel and facility expenses, including rent, of 62 basis points as a percentage of net revenues compared to fiscal 2006 despite continued investment in new campuses and online programs. Depreciation and amortization included in educational services expense decreased 22 basis points as a percentage of net revenues in fiscal 2007 compared with the prior year. Rent expense associated with schools during fiscal 2007 totaled $105.0 million, or 7.7% of net revenues, as compared to $90.3 million, or 7.7% of net revenues, in fiscal 2006. Bad debt expense remained flat in fiscal 2007 compared to the prior year at 2.0% of net revenues. The remaining decrease of 28 basis points as a percentage of net revenues in fiscal 2007 compared to the same period a year ago was primarily driven by continued operating leverage on othe r costs, including non-facilities related professional fees and services as well as supplies.

General and Administrative

General and administrative expense was $314.9 million for fiscal 2007, an increase of 5.2% from $299.3 million in fiscal 2006. As a percentage of net revenues, general and administrative expense decreased 249 basis points as compared to fiscal 2006. During fiscal 2006, we incurred non-cash equity based compensation expense associated with SFAS No. 123R, which is a component of personnel costs, of $19.1 million, compared to no expense in fiscal 2007. We also incurred legal and professional fees related to the Transaction of $29.8 million. After adjusting for the effect of non-cash equity based compensation expense associated with SFAS No. 123R incurred in fiscal 2006, as well as transaction-related costs, general and administrative expense increased 171 basis points as a percentage of net revenues compared to fiscal 2006. Continued investment in marketing and admissions personnel resulted in an increase of 114 basis points in personnel expense s as a percentage of net revenues as compared to the prior year. Additionally, higher investment in advertising drove an 81 basis point increase as compared to the prior year. Consulting and advisory expenses resulted in an increase of 47 basis points as a percentage of net revenues compared to the prior year primarily due to the impact of incurring a full year of the $5.0 million in advisory fees payable to the Sponsors, which commenced on June 1, 2006. These increases were offset partially by continued operating leverage on administrative personnel expenses, which contributed to a 59 basis point decrease as a percentage of net revenues compared to the prior year. The remaining decrease of 12 basis points as a percentage of net revenues compared to the prior year was primarily driven by continued operating leverage on other costs, including employee relations and other general and administrative expenses.

Amortization of Intangible Assets

Amortization of intangible assets increased to $19.3 million in fiscal 2007, compared to $5.7 million in fiscal 2006. This increase resulted from the effects of the increases in the book basis of intangible assets in connection with the Transaction.

Income before Interest and Income Taxes

Income before interest and taxes (operating income) increased by $77.2 million to $227.9 million in fiscal 2007 from $150.7 million in the prior year. The corresponding margin increased to 16.7% for fiscal 2007, as compared to 12.9% for the prior year, due to the factors described above.

Interest Expense, Net

We incurred net interest expense for fiscal 2007 of $168.3 million, compared to net interest expense of $8.8 million in fiscal 2006, which included interest income of $7.8 million. The increase in net interest expense is due primarily to the debt incurred in connection with the Transaction and related amortization of financing costs.

Provision for Income Taxes

Income tax expense for fiscal 2007 was $27.2 million, as compared to $61.2 million for the same period a year ago. Our effective tax rate was 45.7% for fiscal 2007, as compared to 43.1% for fiscal

45

Table of Contents

2006. The increase in the effective rate for fiscal 2007 as compared to the prior year was primarily due to the impact of valuation allowances established against state deferred tax assets and deferred tax expense resulting from the elimination of a portion of the valuation allowance previously established against deferred tax assets associated with Canadian net operating loss carry forwards that were utilized during the year. The effective rates differed from the combined federal and state statutory rates primarily due to increases in valuation allowances against state deferred tax assets and expenses that are non-deductible for tax purposes.

Net Income

Net income decreased by $48.3 million to $32.4 million in fiscal 2007 from $80.7 million in fiscal 2006 due to the factors described above.

Combined 12-Month Period from July 1, 2005 through June 30, 2006 (Fiscal 2006) Compared with Year Ended June 30, 2005

Net Revenues

Net revenues for fiscal 2006 increased 14.8% to $1,170.2 million, compared to $1,019.3 million for the same period the year before, primarily resulting from a 9.8% growth in average total student enrollment and an approximate 6.0% increase in tuition rates. Average student enrollment for fiscal 2006 increased to 68,474 students, compared to 62,384 students for fiscal 2005. We derived 91.2% and 90.6% of our net revenues from tuition and fees paid by, or on behalf of, our students in fiscal 2006 and fiscal 2005, respectively.

Bookstore and housing revenue is largely a function of the average student population. Net housing revenues increased by 14.2% to $50.1 million in fiscal 2006, compared to $43.9 million in fiscal 2005, and revenues from bookstore sales (which include supplies and other items) in fiscal 2006 grew by 9.0% to $40.2 million.

Educational Services

Educational services expense increased by $74.1 million, or 11.6%, to $714.5 million in fiscal 2006 from $640.4 million in fiscal 2005, due primarily to the incremental costs incurred to support higher student enrollment. Educational services expense includes faculty and certain administrative compensation, rent and other facility operating costs, cost of sales and bad debt. Educational services expense as a percentage of net revenues decreased approximately 177 basis points to 61.0% in fiscal 2006 from 62.8% in fiscal 2005. A cumulative lease accounting adjustment of $3.8 million that was recorded in March 2005 accounted for 30 basis points of this decrease, and a reduction in fixed asset impairments and write-offs of $1.8 million from $2.7 million in fiscal 2005 to $0.9 million in fiscal 2006 contributed a 19 basis point reduction as a percentage of net revenues. Further, continued leverage on administrative personnel an d facilities drove a 100 basis point improvement as a percentage of net revenues, and supply store margins grew from 34.0% in fiscal 2005 to 37.5% in fiscal 2006, which drove improvement in supply store costs of 24 basis points as a percentage of net revenues. Bad debt expense decreased 79 basis points as a percentage of net revenues compared to the prior year due to a continued strength in accounts receivable collections, as well as increases in alternative loans received by our students which are used to pay tuition. These private loans are made to our students by financial institutions and are non-recourse to us. These decreases were partially offset by the effect of non-cash share based compensation, which increased by $13.1 million, or 110 basis points as a percentage of net revenues. Other components of educational services decreased collectively as a percentage of net revenues by 35 basis points, including supplies, travel and other operating expenses, as a result of cost control efforts.

General and Administrative

General and administrative expense was $299.3 million for fiscal 2006, an increase of 46.9% from $203.8 million in fiscal 2005. The increase was primarily due to Transaction costs,

46

Table of Contents

compensation (including SFAS No. 123R expense) and higher advertising expenses. As a percentage of net revenues, general and administrative expense increased 558 basis points over fiscal 2005. The primary drivers of this increase were Transaction-related costs for legal and professional fees and severance payments of $37.9 million in fiscal 2006, or 320 basis points as a percentage of net revenues, and non-cash share-based compensation expense, which was $19.1 million in fiscal 2006 compared to $1.2 million in fiscal 2005, an increase of 150 basis points as a percentage of net revenues. Additionally, we increased our investment in advertising by $27.6 million, an increase of 157 basis points as a percentage of net revenues. These increases were partially offset by a reduction in fixed asset impairments and write-offs from $1.4 million in fiscal 2005 to zero in fiscal 2006, which contributed to a 15 basis points reduction as a perc entage of net revenues and a 32 basis point reduction in audit expenses. The remaining decreases of 22 basis points were driven by operating leverage on telecommunications, travel and supplies costs.

Amortization of Intangible Assets

Amortization of intangible assets decreased to $5.7 million in fiscal 2006, compared to $6.5 million in fiscal 2005. This decrease was due to certain assets becoming fully amortized in the first half of fiscal 2006, partially offset by higher amortization in June 2006 relating to the increase in the fair market value of intangible assets as a result of the Transaction.

Income before Interest and Income Taxes

Income before interest and taxes (operating income) decreased by $17.9 million to $150.7 million in fiscal 2006 from $168.6 million in fiscal 2005. The corresponding margin decreased to 12.9% for fiscal 2006 as compared to 16.5% for the prior year due to the factors described above.

Interest Expense, Net

Interest expense for fiscal 2006 was $16.6 million, partially offset by interest income of $7.8 million, resulting in $8.8 million of net interest expense compared to net interest income of $0.2 million in fiscal 2005. The increase in net interest expense was due primarily to the new debt incurred and amortization of financing costs related to the Transaction.

Provision for Income Taxes

Our effective tax rate was 43.1% for fiscal 2006, as compared to 39.8% for fiscal 2005. The change in the tax rate as compared to the prior year was primarily due to an increase in permanent items (specifically nondeductible costs incurred with respect to the Transaction) and valuation allowances that were recorded against deferred tax assets associated with state net operating loss carry forwards. It was determined that it is no longer ‘‘more likely than not’’ that these deferred tax assets will be realized as a result of anticipated state tax net operating losses arising from interest expense on acquisition-related debt.

The effective tax rate differed from the combined federal and state statutory rates due primarily to the valuation allowance related to the deferred tax assets arising from operating losses, expenses that are non-deductible for tax purposes and the tax impact of the expensing of equity compensation pursuant to SFAS No. 123R.

Net Income

Net income decreased by $20.9 million to $80.7 million in fiscal 2006 from $101.6 million in fiscal 2005 due to the factors described above.

Liquidity and Capital Resources

Our primary source of cash is tuition collected from our students. We finance our operating activities primarily from cash generated from operations. Acquisitions historically have been financed through cash generated from operations, as well as through borrowing under our revolving credit

47

Table of Contents

facility. We believe that our cash flows from operations, supplemented from time to time with borrowings under our revolving credit facility, will provide adequate funds for ongoing operations, planned expansion to new locations, planned capital expenditures and debt service during the next 12 months.

Net working capital is calculated based on total current assets less total current liabilities. Advanced payments and amounts outstanding under our revolving credit facility are directly offset in cash and cash equivalents and do not contribute to the change in net working capital. At September 30, 2007, our working capital deficit was approximately $3.5 million, as compared with a working capital deficit of $45.8 million at September 30, 2006, which was primarily due to higher cash on hand resulting from the $39.5 million in equity investments after September 30, 2006.

Operating cash flows

Net cash flows provided by operating activities for the three months ended September 30, 2007 was $185.3 million, an increase of $56.8 million compared to the prior year quarter. Increased operating cash flows as compared to the prior year period was driven by a net inflow of $65.0 million in advanced payments compared with the same period in the prior year due to the timing of the start of our fall academic quarter. This increase in operating cash flows compared to the prior year quarter was partially offset by a net reduction in cash flows from other working capital accounts of $8.2 million. Cash provided by operating activities for fiscal 2007 was $179.9 million, a decrease of $99.3 million compared to fiscal 2006. Increased operating cash flows generated from increased profitability at a school level as compared to the prior year were more than offset by an increase in net interest expense of $159.5 million relate d to the debt incurred in connection with the Transaction.

Days sales outstanding (‘‘DSO’’) in receivables were 17.9 days and 19.5 days at September 30, 2007 and June 30, 2007, respectively, compared to 21.3 days and 18.1 days at September 30, 2006 and June 30, 2006, respectively. We calculate DSO by dividing net accounts receivable by average daily net revenues for the preceding quarter. Quarterly average daily revenue is determined by taking the total net revenues for a quarter and dividing by the number of days in that quarter. In an effort to provide our students with financing for the cost of tuition, we have established relationships with alternative loan providers. Alternative loans, which are non-recourse to us, help bridge the funding gap created by tuition rates that have risen more quickly than federally-guaranteed student loans.

The level of our accounts receivable typically 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.

We adopted the provisions of FIN 48 on July 1, 2007. Upon adoption, we accrued an additional liability for uncertain tax benefits of $18.5 million. Our total liability for uncertain tax benefits as of July 1, 2007 was $29.0 million, excluding the indirect benefits associated with state taxes and interest. Future cash payments relating to the amount accrued may result 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.

Investing cash flows

Capital expenditures were $32.8 million, or 9.1% of net revenues, for the quarter ended September 30, 2007, compared to $22.2 million, or 7.6% of net revenues, in the prior year quarter. The increase of capital expenditures as a percentage of net revenues in the quarter ended September 30, 2007 compared to the prior year quarter was primarily due to our investment in new facilities and expansion of existing facilities. Capital expenditures were $96.1 million, or 7.0% of net revenues for fiscal 2007, compared to $65.6 million, or 5.6% of net revenues for fiscal 2006. The increase of capital expenditures as a percentage of net revenues was primarily due to the fact that we invested both in new facilities and in the expansion of existing facilities during the year. Reimbursements for tenant improvements represent cash received from lessors based on the terms of lease agreements to be used for leasehold improvements. We typica lly conduct a significant portion of our capital purchases in the months leading up to the start of an academic quarter.

48

Table of Contents

We lease most of our facilities under operating lease agreements. We anticipate that future commitments on existing leases will be paid from cash provided from operating activities. We also expect to extend the terms of leases that will expire or enter into similar long-term commitments for comparable space.

Financing cash flows

Borrowings under our revolving credit facility are available, among other things, to satisfy certain year-end regulatory financial ratios, finance acquisitions and fund working capital needs resulting from the seasonal pattern of cash receipts throughout the year. We borrowed $90.0 million under our revolving credit facility on June 28, 2007 to satisfy certain year-end regulatory financial ratios. On July 2, 2007, we repaid $90.0 million of the outstanding borrowings under the revolving credit facility at June 30, 2007. The source of the cash used for the repayment of the revolver was cash on hand at June 30, 2007. We did not have any other activity related to the revolving credit facility during the three months ended September 30, 2007.

We have issued letters of credit totaling $92.0 million and $92.4 million at June 30, 2007 and September 30, 2007, respectively, which reduced our availability to borrow funds under the revolving credit facility. Letters of credit issued to the U.S. Department of Education totaled $89.4 million at September 30, 2007, including an $87.9 million letter of credit issued due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction.

As a result of the Transaction, we are highly leveraged, and our debt service requirements are significant. At June 30, 2007 and September 30, 2007, we had $2,030.0 million and $1,936.8 million, respectively, in aggregate indebtedness outstanding, with additional borrowing capacity of $118.0 million and $207.6 million, respectively, under our revolving credit facility, after giving effect to outstanding letters of credit. We expect that our cash flows from operations, combined with availability under our revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for a period that includes the next 12 months.

Contractual obligations

The following table describes our commitments at June 30, 2007 under various contracts and agreements (in thousands):

			Total Amounts Committed						Payments Due by Fiscal Year
									2008						2009-2010						2011-2012						Thereafter
Revolving credit facility(1)				$	90,000					$	90,000					$	—					$	—					$	—
Senior secured term loan facility(2)					1,176,113						37,094						23,700						20,738						1,094,581
8¾% senior notes due 2014					375,000						—						—						—						375,000
10¼% senior subordinated notes due 2016					385,000						—						—						—						385,000
Mortgage debt of consolidated entities(3)					1,622						194						436						508						484
Capital leases					2,244						833						1,337						74						—
Total short-term and long-term debt					2,029,979						128,121						25,473						21,320						1,855,065
Interest payments(4)					1,111,962						182,294						317,837						293,529						318,302
Operating leases					673,787						110,007						171,996						134,375						257,409
Unconditional purchase obligations(5)					13,539						13,539						—						—						—
Total commitments				$	3,829,267					$	433,961					$	515,306					$	449,224					$	2,430,776

49

Table of Contents

(1) Borrowings under our revolving credit facility, if any, mature on June 1, 2012. As the $90.0 million of borrowings outstanding under our revolving credit facility at June 30, 2007 was repaid on July 2, 2007, we have included these borrowings in the table above as a fiscal 2008 repayment.

(2) Our term loan under our senior credit facilities matures on June 1, 2013.

(3)	The mortgage debt of our consolidated entities matures on January 2, 2014.

(4) Interest payments are based on either the fixed rate or the variable rate as of June 30, 2007 and assume that repayments are in accordance with the loan agreements, without giving effect to mandatory prepayments.

(5)	We have various other contractual obligations that extend through 2014.

Contingencies

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 investigation concerning NEIA’s participation in Massachusetts state financial aid programs and student lending and marketing practices engaged in by the school and its students’ lenders. NEIA responded to the request for information in August 2007. NEIA received a second civil investigative demand letter from the Massachusetts State Attorney General in November 2007 requesting information in addition to what NEIA previously provided, along with information related to NEIA’s relationships with student loan providers. We intend to fully cooperate with the Attorney General’s office in connection with its investigation.

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

In addition to the matters described above, we are a defendant in certain legal proceedings arising out of the conduct of our 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, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Indebtedness

As of September 30, 2007, we had $1,936.8 million in aggregate indebtedness outstanding, with $38.1 million included in short-term liabilities. We also had an additional $207.6 million of borrowing capacity available under our revolving credit facility as of September 30, 2007, after giving effect to outstanding letters of credit. Our liquidity requirements are significant and include debt service and capital expenditures as further described in the sections below.

Senior Secured Credit Facilities

Overview.    In connection with the Transaction, our subsidiary, Education Management LLC, entered into senior secured credit facilities consisting of a $1,185.0 million term loan facility and a $300.0 million revolving credit facility. The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

Interest Rate and Fees.    Borrowings under the senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin or, at our option, an applicable margin plus an alternative base rate determined by reference to the higher of (x) the prime rate as published in The Wall Street Journal or (y) the federal funds rate plus ½ of 1.0%. The initial applicable margin for

50

Table of Contents

borrowings under the revolving credit facility was 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings and, under the term loan facility, 1.50% with respect to base rate borrowings and 2.50% with respect to LIBOR borrowings. The applicable margin for borrowings under the senior secured credit facilities has been reduced subject to our attainment of certain leverage ratios as discussed below.

On February 13, 2007, we amended and restated our term loan facility to decrease the interest rate on the outstanding indebtedness to LIBOR plus an applicable margin spread of 2.0% from LIBOR plus an applicable margin spread of 2.5%. The amended and restated loan facility also includes a provision that requires us to pay a premium equal to 1% of the outstanding loan balance in connection with any future amendment that results in an additional margin reduction prior to February 13, 2008. The amendment and restatement of the term loan facility was accounted for under Emerging Issues Task Force 96-19 ‘‘Debtor’s Accounting for a Modification or Exchange of Debt Instruments’’, under which the old and new debt agreements were not considered ‘‘substantially different’’.

The applicable margin spread was further reduced to 1.75% on May 18, 2007 as a result of our leverage ratio falling below 5.5x as of March 31, 2007. The interest rate, including applicable margin, on the term loan facility was 7.125% at September 30, 2007.

We utilize interest rate swap agreements, which are contractual agreements to exchange payments based on underlying interest rates, to manage the variable rate portion of our term debt. On June 6, 2006, we entered into two five-year interest rate swap agreements for a total notional amount of $750.0 million in order to hedge a portion of our exposure to variable interest payments associated with the senior secured credit facilities. The interest rate swaps are for $375.0 million effective July 1, 2006 and $375.0 million effective July 3, 2006. Under the terms of the interest rate swaps, we receive payments based on variable interest rates based on the three month LIBOR and make payments based on a fixed rate of 5.397%.

In addition to paying interest on outstanding principal under the senior secured credit facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate may be reduced to 0.375% subject to our attaining certain leverage ratios. We must also pay customary letter of credit fees.

Payments.    We are required to pay installments on the loans under the term loan facility in quarterly principal amounts equal to 0.25% of their initial total funded principal amount calculated as of the closing date through April 1, 2013, with the remaining amount payable on June 1, 2013.

We are required to make additional principal payments beginning in the first fiscal quarter of 2008 based on excess cash flow generated for the preceding fiscal year, as defined in the senior secured term loan agreement. This mandatory prepayment of $22.6 million with respect to cash generated during fiscal 2007 was paid in the second quarter of fiscal 2008 and was included in current liabilities on our June 30, 2007 and September 30, 2007 balance sheets. We cannot estimate the additional principal amounts, if any, that we may be required to pay after fiscal 2008.

Principal amounts outstanding under the revolving credit facility are due and payable in full on June 1, 2012.

Certain Covenants and Events of Default.    The credit agreement governing our senior secured credit facilities contains a number of covenants that, among other things, restrict, subject to certain exceptions, our subsidiaries’ ability to:

	•	incur additional indebtedness;

	•	create liens on assets;

	•	engage in mergers or consolidations;

	•	sell assets;

	•	pay dividends and distributions or repurchase the capital stock of Education Management LLC;

51

Table of Contents

	•	make investments, loans or advances;

	•	make capital expenditures;

	•	repay subordinated indebtedness (including our senior subordinated notes);

	•	make certain acquisitions;

	•	engage in certain transactions with affiliates;

	•	enter into certain restrictive agreements;

	•	amend agreements governing our subordinated indebtedness (including our senior subordinated notes) or certain of our organizational documents;

	•	change the nature of our business; and

	•	change the status of Education Management Holdings LLC as a passive holding company.

In addition, the credit agreement governing our senior secured credit facilities requires Education Management LLC to maintain a maximum total leverage ratio and a minimum interest coverage ratio within specified ranges.

The credit agreement governing our senior secured credit facilities also contains certain customary affirmative covenants and events of default. The credit agreement has a cross-default provision to debt with a principal amount of greater than $50 million, which would cause the term loan to be prepaid or redeemed in the event of a default with respect to such debt.

Senior Notes and Senior Subordinated Notes

In connection with the Transaction, our subsidiaries, Education Management LLC and Education Management Finance Corp., co-issued $375.0 million aggregate principal amount of 8¾% senior notes due 2014 and $385.0 million aggregate principal amount of 10¼% senior subordinated notes due 2016. The indentures governing the Notes limit our subsidiaries’ ability to:

	•	incur additional indebtedness;

	•	pay dividends on or make other distributions or repurchase the capital stock of Education Management LLC;

	•	make certain investments, including capital expenditures;

	•	use assets as security in other transactions; and

	•	sell certain assets or merge with or into other companies.

Subject to meeting certain qualifications, the indentures governing the Notes permit us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness. The indenture governing the senior notes includes a cross-default provision to debt with a principal amount of greater than $50.0 million, which would cause the senior notes to be prepaid or redeemed.

Covenant Compliance

Under our senior secured credit facilities, our subsidiary, Education Management LLC, is required to satisfy a maximum total leverage ratio, a minimum interest coverage ratio and other financial conditions tests. As of September 30, 2007, we were in compliance with the financial and non-financial covenants. Our continued ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests in the future.

Adjusted earnings before interest, taxes, depreciation and amortization (‘‘EBITDA’’) is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the Notes and in the credit agreement governing 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 our senior secured credit facilities

52

Table of Contents

and the indentures governing the Notes. 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 the credit agreement governing 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 borrowed amounts immediately due and payable. Any such acceleration also would result in a default under our indentures governing the Notes. Additionally, under the credit agreement governing our senior secured credit facilities and the indentures governing the Notes, our subsidiaries’ ability to engage in activities, such as incurring additional indebtedness, making investments and paying dividends or other distributions, 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. While Adjusted EBITDA and similar measures frequently are 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 our senior credit facilities and the indentures governing the Notes allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income. However, 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 affected disproportionately by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent 12-month period or any complete fiscal year.

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

			Combined 12 Months Ended June 30, 2006						Year Ended June 30, 2007						For the 12 Months Ended September 30,												For the 12 Months Ended September 30, 2007 as adjusted(1)
															2006						2007
Net income				$	80.7					$	32.2					$	57.0					$	36.1					$
Interest expense, net					8.8						169.1						53.4						165.8
Provision for income taxes					61.2						27.1						47.6						29.6
Depreciation and amortization(2)					70.3						90.5						74.8						96.8
EBITDA					221.0						318.9						232.8						328.3
Reversal of impact of unfavorable lease liabilities(3)					(0.2	)					(1.7	)					(0.7	)					(1.6	)
Advisory and transaction costs(4)					40.1						5.5						41.0						5.4
Non-cash equity compensation expense(5)					32.2						—						25.9						—
Severance and relocation					2.6						3.9						2.5						4.3
Capital taxes					—						0.5						0.1						0.5
Adjusted EBITDA – Covenant Compliance				$	295.7					$	327.1						301.6					$	336.9					$

(1) As adjusted to give effect to the sale of                shares of common stock by us in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on

53

Table of Contents

the cover page of this prospectus and the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

(2) Depreciation and amortization includes non-cash charges related to fixed asset impairments.

(3) Represents non-cash reduction to rent expense in the 12 months ended September 30, 2007 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.

(4) Represents $5.0 million of advisory fees per annum beginning June 1, 2006 under the Sponsor Management Agreement, along with costs incurred as a direct result of the Transaction. These Transaction costs include $29.8 million, $0.5 million, $29.9 million, and $0.4 million related to legal and other professional service fees in the combined 12-month period ended June 30, 2006, the year ended June 30, 2007, the combined 12-month period ended September 30, 2006, and the 12-month period ended September 30, 2007, respectively, as well as compensation and payroll taxes directly attributed to the Transaction of $9.9 million in each of the combined 12-month periods ended June 30, 2006 and September 30, 2006.

(5) Represents non-cash equity compensation expense recognized in accordance with SFAS No. 123R.

Our covenant requirements and actual and as adjusted ratios for the 12-month period ended September 30, 2007 are as follows:

Covenant Requirements

Actual Ratios

As Adjusted Ratios(1)

Senior secured credit facilities

Adjusted EBITDA to consolidated interest expense ratio

Minimum of 1.40x

2.04x

x

Consolidated total debt to Adjusted EBITDA ratio

Maximum of 7.75x

4.83x

x

(1) As adjusted to give effect to the sale of          shares of common stock by us in this offering at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus and the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

Under the Indentures governing the Notes, our subsidiaries’ ability to incur additional debt, subject to specified exceptions, is tied to improving Education Management LLC’s Adjusted EBITDA to fixed charges ratio or having a ratio of at least 2.00:1, on an as adjusted basis after giving effect to such incurrence. Additionally, Education Management LLC’s ability to make certain restricted payments is also tied to having an Adjusted EBITDA to fixed charge ratio of at least 2.00:1 on an as adjusted basis. Our ratio of Adjusted EBITDA to fixed charges for the four-quarter period ended September 30, 2007, as adjusted to give effect to the sale of shares of common stock by us in this offering at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus and the application of the net proceeds of thi s offering as described under ‘‘Use of Proceeds’’, our ratio of fixed charges to Adjusted EBITDA would have been     x. Notwithstanding these limitations, the terms of the indentures governing the Notes permit Education Management LLC and its subsidiaries to incur certain debt and make certain restricted payments and certain permitted investments without regard to the ratio. Fixed charges is defined in the indenture governing the Notes as consolidated interest expense plus all cash dividends or other distributions paid on any series of preferred stock and all dividends or other distributions accrued on any series of disqualified stock.

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. We typically do not utilize forward or option contracts on foreign currencies or

54

Table of Contents

commodities. We are subject to fluctuations in the value of the Canadian dollar relative to the U.S. dollar. We do not believe we are subject to material risks from reasonably possible near-term change in exchange rates.

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximated carrying values because of the short-term nature of these instruments. The derivative financial instruments are carried at fair value, which is based on the amount we would pay to terminate the agreements. We do not use derivative instruments for trading or speculative purposes. The fair value and carrying amounts of our long-term debt are approximately equivalent.

At September 30, 2007, we had total debt obligations of $1,936.8 million, including $1,173.2 million in variable rate debt. At September 30, 2007, our weighted average interest rate was 8.07% on total outstanding debt. A hypothetical change of 1.25% in interest rates from September 30, 2007 levels would have increased or decreased interest expense by approximately $1.3 million for the variable-rate debt in the three-month period ended September 30, 2007.

On June 6, 2006, we entered into two five-year interest rate swap agreements which fixed the interest rate for $750.0 million of our variable rate debt starting in July 2006. The interest rate swaps are for $375.0 million effective July 1, 2006 and $375.0 million effective July 3, 2006. The swap agreements expire on July 1, 2011. In fiscal 2007, we had variable rate debt of $426.1 million that was subject to market rate risk, as our interest payments fluctuated as the underlying interest rates changed as a result of market changes. Under the terms of the interest rate swaps, we receive payments based on variable interest rates based on the three month LIBOR and make payments based on a fixed rate of 5.397%.

Regulations

U.S. Department of Education regulations require Title IV program funds received by our schools in excess of the tuition and fees owed by the relevant students at that time to be, with these students’ permission, maintained and classified as restricted funds until they are returned to the students or billed for the portion of their education program related to those funds. Funds transferred through electronic funds transfer programs are held in a separate cash account and released when certain conditions are satisfied. These restrictions have not significantly affected our ability to fund daily operations.

Education institutions participating in Title IV programs must satisfy a series of specific standards of financial responsibility on an institution-by-institution basis, as well as on a consolidated basis. The U.S. Department of Education has adopted standards to determine an institution’s financial responsibility to participate in Title IV programs. The regulations establish three ratios: (i) the equity ratio, intended to measure an institution’s capital resources, ability to borrow and financial viability; (ii) the primary reserve ratio, intended to measure an institution’s ability to support current operations from expendable resources; and (iii) the net income ratio, intended to measure an institution’s profitability. Each ratio is calculated separately, based on the figures in the institution’s most recent annual audited financial statements, and then weighted and combined to arrive at a single composite score. The co mposite score must be at least 1.5 in order for the institution to be deemed financially responsible without conditions or additional oversight. If an institution fails to meet any of these requirements, the U.S. Department of Education may set restrictions on the institution’s eligibility to participate in Title IV programs. We have posted an $87.9 million letter of credit with the U.S. Department of Education and are subject to heightened cash monitoring restrictions due to our failure to satisfy the composite score requirement on a consolidated basis after the Transaction.

Regulations promulgated under the HEA also require all for-profit education institutions to comply with the 90/10 Rule, which prohibits participating schools from deriving 90% or more of total revenue from Title IV programs in any year. An institution that violates the 90/10 Rule becomes immediately ineligible to participate in Title IV programs and may not reapply for eligibility until the following fiscal year.

55

Table of Contents

Use of Estimates and Critical Accounting Policies

General

In preparing our financial statements in conformity with accounting principles generally accepted in the United States, judgments and estimates are made about the amounts reflected in the consolidated financial statements that affect the reported amounts of assets, liabilities, net revenues and expenses during the reporting period. As part of the financial reporting process, our management collaborates to determine the necessary information on which to base judgments and develop estimates used to prepare the consolidated financial statements. Historical experience and available information are used to make these judgments and estimates. However, different amounts could be reported using different assumptions and in light of changes in facts and circumstances. Therefore, actual amounts could differ from the estimates reflected in the consolidated financial statements appearing elsewhere in this prospectus.

On an ongoing basis, our management makes judgments and estimates that include, but are not limited to, revenue recognition, allowance for doubtful accounts, valuations of goodwill and indefinite-lived intangible assets, valuations of acquired finite-lived intangible assets and loss contingencies. Further description of how these estimates are developed is provided below.

We believe that the following critical accounting policies comprise the more significant judgments and estimates used in the preparation of the consolidated financial statements.

Business Combinations

In accordance with accounting for business combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired, if any, is recorded as goodwill. We adjust the purchase price allocation, as necessary, up to 12 months immediately following an acquisition closing date as we obtain more information regarding asset valuations and the liabilities assumed.

The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can significantly impact net income. Consequently, to the extent an indefinite-lived or a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, there may be less amortization recorded in a given period. Finite-lived identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives.

Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions. Two areas in particular that require significant judgment are estimating the fair value and related useful lives of identifiable intangible assets. While there are a number of different methods used in estimating the value of acquired intangible assets, there are three approaches primarily used: the market approach, cost approach, and a variation of the income approach, specifically the ‘‘relief from royalty’’ approach. Some of the more significant estimates and assumptions inherent in the three approaches include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the future cash flows; perpetual growth rate; student persistance and terminal value; determination of appropriate market comparables; and the determination of whether a prem ium or a discount should be applied to comparables. Most of the above assumptions are made based on available historical information.

Revenue Recognition and Receivables

We bill tuition and housing revenues at the beginning of an academic term and recognize the revenue on a pro rata basis over the term of instruction or occupancy. For most of our programs, the academic and fiscal quarters are the same; therefore, unearned revenue is not significant at the end of a fiscal quarter. However, Argosy University and the Brown Mackie Colleges, and to a lesser degree South University and certain Art Institutes, have educational programs with starting and

56

Table of Contents

ending dates that differ from our fiscal quarters. Therefore, at the end of each fiscal quarter, we have revenue from these programs that has not yet been earned in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, ‘‘Revenue Recognition in Financial Statements’’. Accordingly, this has been recorded as unearned tuition in the accompanying consolidated balance sheets. Advance payments represent that portion of payments received but not earned and are also recorded as a current liability in the accompanying consolidated balance sheets. These payments are typically related to future academic periods and are for the most part refundable.

If a student withdraws prior to the end of an academic term, we will refund tuition already paid that we are not entitled to retain, pursuant to the respective institution’s refund policy and applicable federal and state law and accrediting agency standards.

The trade receivable balances are comprised of individually insignificant amounts due primarily from students throughout the United States and Canada. Our accounts receivable balances at each balance sheet date consist of amounts related to revenue from current or former students for classes that have been completed, prior periods of occupancy in our housing facilities for which payment has not been received or obligations of current students for tuition, housing or other items related to academic terms in progress for which payment has not been received.

We determine our allowance for doubtful accounts for most locations primarily by categorizing gross receivables based upon the enrollment status (in-school vs. out-of-school) of the student and establishing a reserve based on the likelihood of collection in consideration of our historical experience. Student accounts are monitored through an aging process whereby past due accounts are pursued. When certain criteria are met (primarily aging past the due date by more than four months) and internal collection measures have been taken without success, the accounts of former students are placed with an outside collection agency. Student accounts in collection are fully reserved and evaluated on a case-by-case basis before being written off. If current collection trends differ significantly from historical collections, an adjustment would be required to our allowance. Historically, however, the allowance for doubtful accounts has been within our estimate of uncollecti ble accounts.

Leases

We lease most of our administrative and educational facilities under operating lease agreements. Before entering into a lease, an analysis is performed to determine whether a lease should be classified as a capital or an operating lease according to SFAS No. 13, ‘‘Accounting for Leases’’, as amended. Our lease agreements typically contain tenant improvement allowances and rent holidays. Tenant improvement allowances are recorded as a leasehold improvement asset (which is included in Property and Equipment, net) when the leasehold asset is placed in service, and both the tenant improvement asset and related deferred rent liability are amortized on a straight-line basis over the shorter of the term of the lease or useful life of the asset as additional depreciation expense and a reduction to rent expense, respectively. For leases that contain a rent holiday, total rent payments are recognized straight-line over the entire lease term. Lease agreements sometimes contain rent escalation clauses, which are accounted for on a straight-line basis over the life of the lease. Our lease terms generally range from one to ten years, with one or more renewal options. For leases with renewal options, we record rent expense on a straight-line basis over the original lease term, exclusive of the renewal period. When a renewal occurs, we record rent expense over the new term. Rent is expensed as we gain ‘‘possession and/or control’’ over the new space, regardless of whether the facility is substantially complete or whether a build out occurs. We also lease space from time to time on a short-term basis in order to provide specific courses or programs.

Impairment of Property, Equipment and Finite-Lived Intangible Assets

We record impairment losses on property and equipment and finite-lived assets when events and circumstances indicate the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, as described in SFAS No. 144,

57

Table of Contents

‘‘Accounting or Disposal of Long-Lived Assets’’. Events and circumstances that trigger an impairment review include deteriorating economic conditions or poor operating performance at individual locations or groups of locations. The impairment loss is measured by comparing the fair value of the assets to their carrying amounts using a traditional discounted cash flow model, and it is recorded as an operating expense in the statement of operations in the period in which carrying value exceeds fair value.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

We test our goodwill and indefinite-lived intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of the goodwill allocated to a reporting unit may not be fully recoverable in accordance with SFAS No. 142, ‘‘Goodwill and Other Intangible Assets’’. The goodwill test compares the carrying value of the goodwill of each of our reporting units to its implied fair value. We estimate the fair value of each of our reporting units using a traditional discounted cash flow approach. This evaluation requires use of internal business plans that are based on our judgments and estimates regarding future economic conditions, product demand and pricing, costs and inflation rates, and discount rates among others. These judgments and estimates involve inherent uncertainties and the measurement of the fair values of the reporting units is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to our future operating performance. Any impairment is recorded as an operating expense in the statement of operations in the period in which carrying value exceeds fair value.

The impairment test for indefinite-lived assets, which consist of The Art Institutes tradename and accreditation of all education systems, requires a new determination of the fair value of the intangible assets using the same approach used upon the original valuation as of the acquisition date of an entity. An impairment must be recognized for an amount equal to the difference between the carrying value and fair value as an operating expense in the statement of operations in the period in which carrying value exceeds fair value.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, ‘‘Accounting for Income Taxes’’, which requires the use of 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. SFAS No. 109 also requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized.

We adopted the provisions of FASB Interpretation No. (‘‘FIN’’) 48, ‘‘Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,’’ on July 1, 2007. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is at least more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The amount of the tax benefit so recognized is measured as the largest amount of benefit that is more-likely-than-not to be realized upon effective settlement. We classify interest expense and penalties accrued in connection with unrecognized tax benefits as income tax expense in our consolidated statement of operations. This classification is consistent with our past accounting policy for interest and penalties related to tax liabilities.

Self-insured Medical Liabilities

We are self-insured up to certain limits for employee medical benefits. We have purchased stop-loss coverage to limit our exposure to significant individual employee medical claims. Self-insured losses are accrued for known and anticipated claims based upon certain assumptions and historical claim payment patterns as well as estimates of claims incurred but not yet reported

58

Table of Contents

based on our historical trends. These assumptions take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, and general economic factors. Our self-insurance accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more frequent review is warranted.

Projections of future loss are inherently uncertain because of the random nature of insurance claim occurrences and could be significantly affected if future occurrences and claims differ from historical trends.

Derivative Instruments and Hedging Activities

We account for derivative instruments in accordance with SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value and establishes criteria for both the designation and effectiveness of hedging activities.

In order to reduce interest rate risk, we have entered into interest rate swap agreements, whereby we receive floating rate payments in exchange for fixed rate payments, effectively converting a floating rate borrowing to a fixed rate. We intend to mitigate only the risk related to changes in the benchmark interest rate (LIBOR). We do not enter into derivative financial instruments for trading or speculative purposes.

Share-Based Payment

In August 2006, our Board of Directors approved the 2006 Stock Option Plan for executive management and key personnel. During fiscal 2007, approximately 1.8 million options were granted under this plan. Under SFAS No. 123R, compensation expense related to our grants is not recognized until one of the conditions entitling participants to fair value for their shares becomes probable. Accordingly, we have not recognized compensation expense related to any of the grants during fiscal 2007.

We use the Black-Scholes option pricing model to determine the fair value of time-based stock options at the grant date. In order to value performance- and market-based options, we use a Monte Carlo simulation model based on the assumptions used in the time-based options’ Black-Scholes model. Such assumptions can significantly impact the fair values of stock options and associated compensation expense recognized over the requisite service periods. See Note 13 to the accompanying audited consolidated financial statements for a further discussion on share-based compensation.

Long-Term Incentive Compensation Plan

We also adopted the LTIC Plan during fiscal 2007. Pursuant to the terms of the plan, a bonus pool will be created based on returns to the Principal Shareholders after the occurrence of a ‘‘realization event’’ under the terms of the plan. Employees of the Company were granted approximately 760,000 units, of a total of 1,000,000 authorized, under the plan during fiscal 2007, which represent 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 not probable to occur at September 30, 2007, we did not recognize compensation expense during fiscal 2007 or the three months ended September 30, 2007 related to these units. The plan is currently being accounted for as a liability-plan as the units must be settled in cash if a realization event were to occur prior to an initial public offering. After the completion of an initial public offering, the units may be settled in shares of common stock or cash at our discretion.

New Accounting Standards

On September 15, 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal 2008. We are in the process of evaluating the potential impact of SFAS No. 157, if any.

59

Table of Contents

In December 2007, the FASB issued SFAS No. 141R, ‘‘Business Combinations’’ (‘‘SFAS No. 141R’’), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The requirements of SFAS No. 141R are effective for us beginning July 1, 2009. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS No. 141R will have on our financial position or results of operations upon adoption.

In December 2007, the FASB issued SFAS No. 160, ‘‘Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51’’ (‘‘SFAS No. 160’’), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. The requirements of SFAS No. 160 are effective for us beginning July 1, 2009. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS No. 160 will have on our financial position or results of operations upon adoption.

60

Table of Contents

BUSINESS

Business Overview

We are among the largest providers of post-secondary education in North America, with approximately 96,000 enrolled students as of October 2007. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. We are committed to offering quality academic programs and continuously strive to improve the learning experience for our students. Our educational institutions offer students the opportunity to earn undergraduate and graduate degrees and certain specialized non-degree diplomas in a broad range of disciplines, including design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, education, legal and information technology. Each of our schools located in the United States is recognized by an accreditation agency and by the U.S. Department of Education, enabling students to access federal student loans, grants and other forms of public and private financial aid . Our academic programs are designed with an emphasis on applied, career-oriented content and are taught primarily by faculty members who, in addition to having appropriate credentials, offer practical and relevant professional experience in their respective fields. Our net revenues for fiscal 2007 were $1,363.7 million.

During our more than 35-year operating history, we have expanded the reach of our education systems and currently operate 81 primary locations across 26 U.S. states and in Canada. In addition, we have offered online programs since 2000, enabling our students to pursue degrees fully online or through a flexible combination of both online and campus-based education. Since October 1997, we have experienced a compounded annual enrollment growth rate of 18.0%. During the same time period, the schools that we have owned or operated for one year or more experienced a compounded annual enrollment growth rate of 12.0%.

Since the Transaction in June 2006, we have enhanced our senior management team and made investments to accelerate enrollment growth, while delivering strong financial performance. We have made significant investments in numerous areas of our workforce, including marketing and admissions, new and expanded campuses, online education, and infrastructure in order to support future enrollment growth and enhance the student experience. Our increased focus on online education has resulted in strong enrollment growth. Students enrolled in fully online academic programs have more than doubled to approximately 13,100 students in October 2007, compared to approximately 4,600 students in July 2006. In addition, we have opened eight new locations, acquired two schools, developed 20 new academic programs and introduced 259 new or existing academic programs to locations that had not previously offered such programs. Total enrollment at our schools has grown by 19.5% between O ctober 2006 and October 2007. During the same time period, same-school enrollment for schools owned or operated for one year or more increased 18.2%.

Each of our 81 schools provides student-centered, career-focused education. Our portfolio of schools is organized and managed to capitalize on recognized brands and align them with specific targeted markets based on field of study, employment opportunity, type of degree offering and student demographics:

	•	The Art Institutes.    The Art Institutes focus on applied arts in creative professions such as graphic design, interior design, web design and interactive media, digital filmmaking, media arts and animation, game art and design, fashion design and marketing and culinary arts. The Art Institutes offer Associate’s, Bachelor’s and Master’s degree programs, as well as certain non-degree diploma programs. Students pursue their degrees through local campuses, fully online programs through The Art Institute of Pittsburgh, Online Division and blended formats, which combine on campus and online education. There are 39 Art Institutes campuses in 22 U.S. states and in Canada.

	•	Argosy University.    Argosy University offers academic programs in psychology and behavioral sciences, education, business and health sciences disciplines. Argosy students can obtain Doctoral, Master’s and undergraduate degrees. Argosy’s academic programs

61

Table of Contents

		focus on graduate students seeking advanced credentials as a prerequisite to initial licensing, career advancement and/or structured pay increases. Students pursue their degrees through local campuses, fully online programs and blended formats. There are 18 Argosy University campuses in 12 U.S. states.

	•	Brown Mackie Colleges.    Brown Mackie Colleges offer flexible Associate’s and non-degree diploma programs that enable students to develop skills for entry-level positions in high demand vocational specialties and Bachelor’s degree programs that assist students to advance within the workplace. Brown Mackie Colleges offer programs in growing fields such as nursing, medical assisting, business, criminal justice, legal support and information technology. There are 18 Brown Mackie College campuses in eight U.S. states.

	•	South University.    South University offers programs in health sciences and business disciplines, including business administration, health services management, nursing, pharmacy, medical assistant, criminal justice and information technology. South University offers Doctoral, Master’s, Bachelor’s and Associate’s degrees through local campuses, fully online programs and blended formats. There are five South University campuses in four U.S. states.

Our business model has a number of favorable financial characteristics, including consistent historical revenue growth, the opportunity for profit margin expansion and strong operating cash flow generation.

	•	History of consistent revenue growth.    We believe that we benefit from a business model with good insight into future revenue and earnings, given the length of our academic programs and relatively consistent persistence rates. Over 63% of our students as of October 2007 were enrolled in Doctorate, Master’s and Bachelor’s degree programs, which are typically multi-year programs that contribute to the overall stability of our student population. The significant investments we have made since the Transaction in numerous areas of our workforce, including marketing and admissions, new campuses and online education and infrastructure, are designed to support future enrollment growth.

	•	Opportunity for profit margin expansion.    Our business model benefits from scale and permits us to continue to leverage fixed costs across our delivery platforms. We expect to continue to leverage fixed costs as we add new locations and expand our existing locations. With respect to our online programs, we have built sufficient presence to enable us to utilize shared technology and infrastructure. We believe that our continued focus on information systems, operating processes and key performance indicators will permit us to enhance our educational quality, growth and profitability over time.

	•	Strong operating cash flow generation.    We historically have generated strong cash flows. We benefit from investments with attractive returns on capital and favorable working capital balances due to advance payment of tuition and fees. In fiscal 2007, we generated cash flows from operations of $179.9 million. Since the Transaction, most of our investments have been made to support the growth as well as the infrastructure required to leverage our delivery platforms.

All of these characteristics complement the successful outcomes that we deliver to our students, as reflected in our student persistence and graduate employment rates and in student satisfaction survey data. Approximately 90% of undergraduate students who graduated from our institutions during the calendar year ended December 31, 2006 and were available for employment obtained a position in their field of study or a related field within six months of graduation.

Industry Overview

The U.S. Department of Education estimates that the U.S. public and private post-secondary education market for degree-granting institutions was a $364 billion industry in 2005, representing approximately 17.5 million students enrolled at over 4,300 institutions. According to the National Center of Education Statistics, traditional students, who typically are recent high school graduates

62

Table of Contents

under 25 years of age and are pursuing their first higher education degree, represent approximately 61% of the national student population. The remaining 39% of the student population is comprised of non-traditional students, who are largely working adults pursuing further education in their current field or are preparing for a new career.

We believe that there are a number of factors contributing to the long-term growth of the post-secondary education industry. First, the shift toward a services-based economy increases the demand for higher levels of education. According to the U.S. Department of Labor — Bureau of Labor Statistics, the projected growth rate for total job openings from 2006 to 2016 for occupations that require post-secondary education is over 15%, nearly double the growth rate for occupations that do not require post-secondary education. Second, economic incentives are favorable for post-secondary graduates. According to the U.S. Census Bureau, in 2005, the median income for individuals aged 25 years and older with a Bachelor’s degree was approximately 63% higher than for high school graduates of the same age with no college experience, and the average unemployment rate in 2006 for persons aged 25 years and older with a Bachelor’s degree was nearly half that of t hose without college experience. Third, government and private financial aid in various forms, including loan guarantees, grants and tax benefits for post-secondary students, has continued to increase. We believe that this support will continue as the U.S. government emphasizes the development of a highly skilled, educated workforce to maintain global competitiveness. Finally, the strong demand for post-secondary education has enabled educational institutions to consistently increase tuition and fees. According to the College Board, public four-year colleges have increased tuition and fees by 7.1% annually on average over the last ten years.

We believe that for-profit providers will capture an increasing share of the growing demand for post-secondary education, which has not been fully addressed by traditional public and private universities. Non-profit public and private institutions can face limited financial capability to expand their offerings in response to the growing demand for education, due to a combination of state funding challenges, significant expenditures required for research and the professor tenure system. Certain private institutions also may control enrollments to preserve the perceived prestige and exclusivity of their degree offerings.

As a result, we believe that for-profit, post-secondary education providers continue to have significant opportunities for growth. According to the National Center of Education Statistics, the number of students at for-profit, degree-granting institutions grew at an average annual rate of 15.4% from 1995 to 2005, compared to 2.1% growth for all degree-granting institutions over the same period. For-profit providers have continued their strong growth, primarily due to the higher flexibility of their programmatic offerings and learning structure, their emphasis on applied, career-oriented content and their ability consistently to introduce new campuses and academic programs. Despite rapid growth, the market share of the post-secondary education market that has been captured by for-profit providers remains relatively small. In 2005, according to the National Center for Education Statistics, for-profit institutions accounted for 5.8% of all post-secondary enrollment s, up from 1.7% in 1995.

We believe that growth in online education has been supported by favorable student outcomes, the flexibility and convenience associated with the instructional format and the higher penetration of broadband Internet access. According to Eduventures Inc., a leading information services company for the education market, online education programs generated an estimated $8.6 billion of revenues in 2006. Eduventures estimates that online enrollment grew by 36% annually from 2002 to 2005 and projects growth of 20% in 2007 and 17% in 2008.

The post-secondary education industry is highly fragmented, with no one provider controlling a significant share of the market. Students choose among providers based on programs and degrees offered, program flexibility and convenience, quality of instruction, graduate employment rates, reputation and recruiting effectiveness. This multi-faceted market fragmentation results in significant differentiation among various education providers, limited direct competition and minimal overlap between for-profit providers. The main competitors of for-profit, post-secondary education providers

63

Table of Contents

are local public and private two-year junior and community colleges, traditional public and private undergraduate and graduate colleges and, to a lesser degree, other for-profit, career-oriented schools.

Our Competitive Strengths

We believe that the combination of the following strengths differentiates our business:

	•	Recognized brands aligned with specific fields of study and degree offerings

We offer academic programs primarily through four education systems. We have devoted significant resources to establishing, and continue to invest in developing, the brand identity for each education system. Through The Art Institutes, Argosy University, Brown Mackie Colleges and South University education systems, we have the ability to align our academic program offerings to address the unique needs of specific student groups. Our marketing strategy is designed to develop brand awareness among practitioners and likely prospects in particular fields of study. We believe that this comprehensive brand building approach in each specific market also enables us to gain economies of scale with respect to student acquisition and retention costs, assists in the recruitment and retention of quality faculty and staff members and accelerates our ability to expand online course offerings.

	•	Diverse program offerings and broad degree capabilities

Our breadth of programmatic and degree offerings enables us to appeal to a diverse range of potential students. We currently offer academic programs in the following areas: design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, education, legal and information technology. Students seeking Bachelor’s or more advanced degrees represent over 63% of our student population, which provides us with a stable student population and consistent revenues.

	•	National portfolio of schools and integrated online learning platform

The combination of our national portfolio of schools and integrated online learning platform provides students at three of our education systems with flexible curriculum delivery options and academic programs taught on campus, online and in blended formats. This flexibility enables our academic programs to appeal to both traditional students and working adults who may seek convenience due to scheduling, geographical or other constraints.

We have 81 primary locations across 26 U.S. states and in Canada. Our campuses are located primarily in large metropolitan areas, and we focus our marketing efforts on generating demand primarily within a 100-mile radius of the campus. Throughout our history, we have invested in our campuses in order to provide attractive and efficient learning environments. Our schools offer many amenities found in traditional colleges, including libraries, bookstores and laboratories, as well as the industry-specific equipment necessary for the various programs that we offer.

Our online presence offers a practical and flexible solution for our students. We have made a significant investment in online education by strengthening our online presence within The Art Institutes, Argosy University and South University education systems. We have introduced new online academic programs, strengthened our technology infrastructure, hired additional faculty and staff and increased our spending on marketing and admissions. We intend to continue to invest in the expansion of our online program offering and our marketing efforts to capitalize on our well-known branded schools in order to expand our online presence.

	•	Commitment to offering quality academic programs and student and graduate success

We are committed to offering quality academic programs, and we continuously strive to improve the learning experience for our students. We are dedicated to recruiting and

64

Table of Contents

retaining quality faculty and instructors with relevant industry experience and appropriate academic credentials. Our advisory boards help us to reassess and update our educational offerings on a regular basis in order to ensure the relevance of our curriculum and to design new academic programs. We do this with the goal of enabling students to either enter or advance in their chosen field. Our staff of trained, dedicated career services specialists maintains strong relationships with employers in order to improve our student graduate employment rates in their chosen fields. We measure the quality of our academic programs through metrics such as student persistence, graduate employment and graduate starting salary.

	•	Strong management team with a focus on long-term performance

Since the Transaction, we have enhanced our senior management team and made investments to accelerate enrollment growth and build infrastructure to establish a platform for sustainable growth, while delivering strong financial performance. Our school presidents and senior operating executives also have substantial experience in the sector and have contributed to our history of success. We plan to continue to build our strong management team as we execute on our growth strategy.

Our Growth Strategy

We intend to pursue the following key elements of our current growth strategy:

	•	Introduce new and existing academic programs across our national portfolio of schools

We seek to identify emerging industry trends in order to understand the evolving educational needs of our students and graduates. With the assistance of over 1,500 industry experts and employers who actively participate on curriculum advisory teams, we are able to rapidly develop new academic programs that address specific market opportunities. We are also able to tailor our existing proprietary content for courses across our degree programs. New academic programs that we have introduced since the Transaction include Master’s degree programs in Interior Design, Management, Principal Preparation and Health Services Management, Bachelor’s degree programs in Entertainment Design, Hotel and Restaurant Management and Hospitality Management, and Associate’s degree programs in Accessory Design, Early Childhood Education, Restaurant and Catering Operations, Registered Nursing and Veterinary Technician.

In addition to developing new academic programs, we frequently introduce existing academic programs to additional schools in our national portfolio of schools, allowing us to drive incremental enrollment growth, utilize our existing curriculum development in multiple locations and capitalize on identified market needs.

	•	Increase enrollments in online distance learning and blended-format programs

Our investments in online education have enabled us to increase the number of students enrolled in fully online academic programs from approximately 4,600 students as of July 2006 to approximately 13,100 students as of October 2007. We believe that the fully online programs offered by The Art Institute of Pittsburgh, Online Division, Argosy University and South University allow us to offer academic programs that meet the needs of a wide range of distance learning students. In addition, our 81 schools operate under brands that are well-known within various fields, and we believe that our online programs benefit from our strong campus presence and related marketing expenditures. Online offerings are also a cost effective means for us to utilize many of our existing education curricula and generate attractive returns on capital. We intend to continue to invest in the expansion of our online program offerings and enhance our marketing efforts to capitalize on our we ll-known branded schools and further expand our online presence.

65

Table of Contents

	•	Develop new school locations in attractive markets

We believe that many attractive locations are available to open additional campuses across the United States. We have identified target locations in new geographic markets, as well as opportunities to open additional campuses within existing large metropolitan areas. Because of the relatively large number of potential markets available for opening new campuses, we focus our efforts on markets that we believe offer the most attractive projected growth and return on capital. We rigorously analyze employment statistics and demographic data in order to align our new schools with the specific educational needs of a targeted market. This focus enables high penetration and presence for new schools. After entering a market, we drive incremental growth through the introduction of new academic programs and degrees, which enhance return on investment in new markets. We pursue additional efficiencies through our centralized and standardized infrastructure, systems and proce sses.

Student Recruitment and Marketing

We use marketing tools such as the Internet, radio, local newspaper, television and print media advertising, telephone campaigns and direct mail campaigns to attract new students to our schools. In addition, the general reputation of our schools and referrals from current students, alumni and employers is an important source of new students. We also employ approximately 160 representatives who make presentations at high schools. These representatives also participate in college fairs and other inquiry-generating activities. In fiscal 2007, representatives conducted over 22,000 high school visits and attended approximately 2,700 career events.

In fiscal 2007, our marketing efforts generated inquiries from approximately 1.6 million prospective students as compared to approximately 1.2 million inquiries in fiscal 2006. Our inquiry-to-application conversion ratio for these students decreased from 7.3% in fiscal 2006 to 7.0% in fiscal 2007 due primarily to an increase in the number of inquiries from the Internet in fiscal 2007. The applicant-to-new-student ratio for our students was 57% in both fiscal 2006 and fiscal 2007.

Our internal advertising agency creates publications, television and radio commercials, videos and other promotional materials for our schools. The agency is also responsible for inquiry generation, media planning and placement, online marketing, website development and branding.

Student Admissions and Retention

The admissions and entrance standards of each school are designed to identify those students who are best equipped to meet the requirements of their chosen fields of study and successfully complete their programs. In evaluating prospective students, we seek individuals with, among other things, a strong desire to learn, passion for their area of interest and initiative. We believe that a success-oriented student body results in higher retention and placement rates, increased student and employer satisfaction and lower student default rates on government loans. To be qualified for admission to one of our schools, each applicant must have received a high school diploma or a General Education Development certificate. Applicants to our graduate and Doctorate programs are required to have received an undergraduate degree as a condition to admission. Most of our schools interview prospective students to assess their qualifications, their interest in the programs offer ed by the school and their commitment to their education. In addition, the curricula, student services, education costs, available financial resources and student housing options, if applicable, are reviewed during interviews.

Due to our broad program offerings, our students come from a wide variety of backgrounds. The estimated average age of a new student at all of our schools during fiscal 2007 was 27 years old.

Our students may fail to finish their programs for a variety of personal, academic or financial reasons. To reduce the risk of student withdrawals, each of our schools devotes staff resources to advising students regarding academic and financial matters, part-time employment and, if applicable, housing. Remedial courses are mandated for our undergraduate and graduate students with lower academic skill levels, and tutoring is encouraged for students experiencing academic difficulties. Our

66

Table of Contents

net annual persistence rate, which measures the number of students who are enrolled during a fiscal year and either graduate or advance to the next fiscal year, for all of our students was approximately 72.0% in fiscal 2007 as compared to 72.3% in fiscal 2006. We adopted the calculation of persistence prescribed by the Accrediting Counsel of Independent Colleges and Schools in fiscal 2007, which is different from our prior computation of persistence. Under our prior computation, our net annual persistence rate for fiscal 2006 was 67.5%.

Education Programs

The relationship of each of our schools with potential employers for our students plays a significant role in the development and adaptation of the school curriculum. Most of our schools have one or more program advisory boards composed of members of the local and regional communities or employers in the fields which we serve. These boards provide valuable input to the school’s education department, which allows the school to keep programs current and provide students with the training and skills that employers seek.

Our wide range of academic programs culminate in the awarding of diploma certificates and a variety of degrees. In the fall of 2007 and 2006, the enrollment by degree for all our schools was as follows:

			2007						2006
Bachelor’s degrees					48.8	%					47.5	%
Associate’s degrees					26.2	%					27.4	%
Diploma and Certificates					10.3	%					10.0	%
Doctorate degrees					8.4	%					9.2	%
Master’s degrees					6.3	%					5.9	%

The type of degrees and programs we offer vary by each of our schools. The following summarizes the programs offered at each of our education systems. Not all programs are offered at each school location within an education system.

The Art Institutes.    The Art Institutes offer the following degree programs. For internal purposes, we classify the degree programs at The Art Institutes according to four schools or areas of study.

The School of Design			The School of Media Arts
Associate’s Degree			Associate’s Degree
Advertising			Animation
Graphic Design			Animation Art & Design
Industrial Design Technology			Art & Design Technology
Interior Design			Audio Production
Interior Planning with AutoCAD			Broadcasting
Home Furnishings Merchandising			Digital Arts
Kitchen & Bath Design			Digital Filmmaking & Video Production
Web Design			Drafting Technology with AutoCAD
Web Design & Interactive Media			Interactive Media Design
			Interactive Media Design Production
Bachelor’s Degree			Photography
Advertising			Photographic Imaging
Advertising Design			Video Production
Design Management
Entertainment Design			Bachelor’s Degree
Design Studies			Audio Production
Design Visualization			Audio & Media Technology

67

Table of Contents

The School of Design			The School of Media Arts
Graphic Design			Computer Animation
Illustration			Digital Filmmaking & Video Production
Illustration & Design			Digital Media Production
Industrial Design			Digital Photography
Industrial Design & Technology			Film & Digital Production
Interior Design			Game Art & Design
Set & Exhibit Design			Interactive Media Design
Visual Communications			Media Arts & Animation
Web Design & Interactive Media			Photography
			Photographic Imaging
Master’s Degree			Simulation & Virtual Environments
Graphic Design			Visual Effects & Motion Graphics
Interior Design			Visual & Game Programming
			Visual & Entertainment Arts

The School of Fashion
Associate’s Degree			Master’s Degree
Accessory Design			Computer Animation
Apparel Design			Film
Apparel Accessory Design			Visual Arts
Fashion Design			The School of Culinary Arts
Fashion Marketing			Associate’s Degree
Fashion Merchandising			Baking and Pastry
Fashion Production			Culinary Arts
Visual Merchandising			Culinary Arts & Restaurant Management
			Restaurant & Catering Management
Bachelor’s Degree			Restaurant & Catering Operations
Apparel Design			Wine, Spirits & Beverage Management
Fashion Design
Fashion Marketing & Management			Bachelor’s Degree
Fashion Marketing			Culinary Management
Fashion Merchandising			Culinary Arts Management
Fashion & Retail Management			Culinary Arts
			Food & Beverage Management
			Hotel & Restaurant Management
			Hospitality Management

68

Table of Contents

Argosy University.    The following degree programs are offered by Argosy University.

Psychology and Behavioral Sciences			Education
Associate of Applied Science			Educational Specialist
Criminal Justice			Instructional Leadership
Paralegal			Educational Leadership
Bachelor of Arts			Master of Arts in Education
Psychology			Instructional Leadership
			Educational Leadership
Education Specialist Degree
School Counseling			Doctor of Education
			Instructional Leadership
Master of Arts			Educational Leadership
Clinical Psychology			Community College Executive Leadership
Clinical Psychology/Marriage & Family Therapy
Counseling Psychology			Business
Counseling Psychology/Marriage & Family Therapy			Associate of Applied Science
Community Counseling			Accounting Technology
School Counseling			Business Management
Forensic Psychology			Computer Programming and Applications
Guidance Counseling			Computer Software Technology
Marriage and Family Therapy
Mental Health Counseling			Bachelor of Science
Professional Counseling			Business Administration
Sport-Exercise Psychology
School Psychology			Master of Science
			Health Services Management
Doctor of Education			Management
Counselor Education and Supervision
Counseling Psychology			Master of Business Administration
Organizational Leadership
Pastoral Community Counseling			Doctor of Business Administration
Doctor of Psychology
Clinical Psychology
School Psychology
Health Sciences
Associate of Applied Science
Diagnostic Medical Sonography
Histotechnology
Medical Assisting
Radiologic Technology
Veterinary Technology
Associate of Science
Dental Hygiene
Medical Laboratory Technician
Radiation Therapy

69

Table of Contents

Brown Mackie Colleges.    Brown Mackie College schools offer the following primary degree programs.

Health Sciences			Business
Associate’s Degrees			Associate’s Degrees
Administration in Gerontology			Accounting Technology
Healthcare Administration			Business Management
Gerontology			Sales & Marketing
Medical Assisting
Medical Office Management			Bachelor’s Degrees
Nursing			Business Administration
Occupational Therapy Assistant
Optical Science			Information Technology
Pharmacy Technology			Associate’s Degrees
Physical Therapist Assistant			Electronics
Surgical Technology			Computer Networking and Applications
			Computer Programming and Applications
Legal Studies			Computer Software Technology
Associate’s Degrees			Database Technology
Criminal Justice			Information Technology
Paralegal
			Design Technologies
Bachelor’s Degrees			Associate’s Degrees
Criminal Justice			Audio/Video Production
Legal Studies			Computer Aided Design and Drafting Technology
			Graphic Design

South University.    South University offers the following degree programs.

School of Health Professions			School of Business
Associate’s Degrees			Associate’s Degrees
Allied Health Science			Accounting
Medical Assisting			Business Administration
Physical Therapist Assisting			Graphic Design
			Information Technology
Bachelor’s Degrees			Paralegal Studies
Health Science
Nursing			Bachelor’s Degrees
Nursing RN to BSN (degree completion)			Business Administration
Physician Assistant Studies			Criminal Justice
Psychology			Graphic Design
			Healthcare Management
Master’s Degrees			Legal Studies
Anesthesiologist Assistant			Information Technology
Nursing
Physician Assistant Studies			Master’s Degrees
Professional Counseling			Healthcare Administration
			Criminal Justice
School of Pharmacy			Business Administration
Doctorate Degrees
Doctor of Pharmacy

70

Table of Contents

In addition to the programs listed above, we own Western State University College of Law, which offers Juris Doctor degrees, and the Ventura Group, which provides courses and materials for post-graduate licensure examinations in the human services fields and continuing education courses for K-12 educators.

Graduate Employment

We measure our success as an educator of students to a significant extent by the ability of our students to find jobs in their chosen field of employment upon graduation from our schools. Most of our schools provide career development instruction to our students in order to assist the students in developing essential job-search skills. In addition to individualized training in interviewing, networking techniques and resume-writing, most of our schools require students to take a career development course. Additionally, we provide ongoing placement resources to our students and recent graduates. Career services departments also assist current students in finding part-time employment while attending school. Students in certain of our Doctorate programs spend up to a year in a paid internship in their chosen field.

Each school’s career services department plays a role in marketing the school’s curriculum to the community in order to produce job leads for graduates. Career services advisors educate employers about the caliber of our graduates. These advisors participate in professional organizations, trade shows and community events to keep apprised of industry trends and maintain relationships with key employers. Career services staff visit employer sites to learn more about their operations and better understand their employment needs. As of September 30, 2007, the career services departments of our schools had approximately 260 employees. We estimate that our career services departments maintain contact with approximately 65,000 employers nationwide.

Based on information collected by us from graduating students and employers, we believe that, of the approximately 13,500 undergraduate students who graduated from our schools during the calendar year ended December 31, 2006, approximately 90% of the available graduates obtained employment in their fields of study, or in related fields of study, within six months of graduation. The graduate employment rates presented in this prospectus exclude students who are pursuing further education, who are deceased, who are in active military service, who have medical conditions that prevent them from working, who are continuing in a career unrelated to their program of study because they currently earn salaries which exceed those paid to entry-level employees in their field of study or who are international students no longer residing in the United States. The average salary paid to our available graduating undergraduate students from The Art Institutes, the Bro wn Mackie Colleges and South University for calendar year 2006 who obtained employment in their fields of study, or in related fields of study, was approximately $29,500.

Accreditation

In the United States, accreditation is a process through which an institution submits itself to qualitative review by an organization of peer institutions. Accrediting agencies primarily examine the academic quality of the instructional programs of an institution, and a grant of accreditation is generally viewed as reliable authority that an institution’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the institutions they accredit to ensure that each institution has the resources to perform its educational mission.

Pursuant to provisions of the HEA, the U.S. Department of Education relies on accrediting agencies to determine whether the academic quality of an institution’s educational programs is sufficient to qualify the institution to participate in federal financial aid programs under Title IV of the HEA. The HEA and its implementing regulations specify certain standards that all recognized accrediting agencies must adopt in connection with their review of post-secondary institutions. All of our U.S. schools are accredited by an institutional accrediting agency recognized by the U.S. Department of Education.

In addition to the institutional accreditations described above, a number of our institutions have specialized programmatic accreditation for particular educational programs. For example, ten Art

71

Table of Contents

Institutes offer interior design programs that have programmatic accreditation by the Council for Interior Design Accreditation and 14 Art Institutes offer culinary programs accredited by the American Culinary Federation. Ten Argosy University locations have received accreditation by the American Psychological Association for their Doctor of Psychology programs and one Argosy University location is accredited by the Council for Accreditation of Counseling and Related Educational Programs. While these programmatic accreditations cannot be relied upon for our schools to obtain and maintain certification to participate in Title IV programs, they are commonly relied upon in the relevant professions as indicators of the quality of the academic program.

The following table shows the location of each of our campuses at November 30, 2007, the name under which it operates, the year of its establishment, the date we opened or acquired it and the institutional accrediting agency (for schools accredited by more than one recognized accrediting agency, the primary accrediting agency is listed first). No accreditation is shown for The Art Institute of Toronto as the Province of Ontario has no accreditation process for post-secondary schools. The Art Institute of Toronto is registered with the Ontario Ministry of Training, Colleges and Universities.

School

Location

Calendar Year Established

Fiscal Year Acquired or Opened

Accrediting Agency

The Art Institutes

The Art Institute of Atlanta

Atlanta, GA

1949

1971

Commission on Colleges of the Southern Association of Colleges and Schools (‘‘SACS’’)

The Art Institute of Atlanta      — Decatur

Decatur, GA

2007

2008

SACS (as an additional location of The Art Institute of Atlanta)

The Art Institute of California — Los Angeles

Los Angeles, CA

1997

1998

Accrediting Council of Independent Colleges and Schools (‘‘ACICS’’)

The Art Institute of California — Orange County

Orange County, CA

2000

2001

ACICS (as a branch of The Art Institute of California — Los Angeles)

The Art Institute of California — Sacramento

Sacramento, CA

2007

2007

ACICS (as a branch of The Art Institute of California — Los Angeles)

The Art Institute of California — San Diego

San Diego, CA

1981

2001

Accrediting Commission of Career Schools and Colleges of Technology (‘‘ACCSCT’’)

The Art Institute of California — Inland Empire

San Bernardino, CA

2006

2006

ACCSCT (as a branch of The Art Institute of California — San Diego)

The Art Institute of California — San Francisco

San Francisco, CA

1939

1998

ACICS (as a branch of The Art Institute of California — Los Angeles)

The Art Institute of Charlotte

Charlotte, NC

1973

2000

ACICS

The Art Institute of Charleston

Charleston, SC

2007

2007

SACS (as a branch of The Art Institute of Atlanta)

The Art Institute of Colorado

Denver, CO

1952

1976

ACICS

72

Table of Contents

School

Location

Calendar Year Established

Fiscal Year Acquired or Opened

Accrediting Agency

The Art Institute of Dallas

Dallas, TX

1964

1985

SACS

The Art Institute of Fort Lauderdale

Fort Lauderdale, FL

1968

1974

ACICS

The Art Institute of Houston

Houston, TX

1974

1979

SACS

The Art Institute of Indianapolis

Indianapolis, IN

2006

2006

ACCSCT (as a branch of The Art Institute of Las Vegas)

The Art Institute of Jacksonville

Jacksonville, FL

2007

2007

SACS (as a branch of Miami International University of Art & Design)

The Art Institute of Las Vegas

Las Vegas, NV

1983

2001

ACCSCT

The Art Institute of Michigan

Detroit, MI

2007

2008

HLC and ACCSCT (as a branch of The Illinois Institute of Art — Chicago)

The Art Institute of Tennessee — Nashville

Nashville, TN

2006

2007

SACS (as a branch of The Art Institute of Atlanta)

The Art Institute of New York City

New York, NY

1980

1971

ACICS

The Art Institute of Ohio — Cincinnati

Cincinnati, OH

2004

2004

ACICS (as a branch of Brown Mackie College — Findlay)

The Art Institute of Philadelphia

Philadelphia, PA

1971

1980

ACICS

The Art Institute of Phoenix

Phoenix, AZ

1995

1996

ACICS

The Art Institute of Pittsburgh

Pittsburgh, PA

1921

1970

ACICS; candidate with Middle States Association of Colleges & Schools of the Commission on Higher Education

The Art Institute of Portland

Portland, OR

1963

1998

Northwest Commission on Colleges and Schools Universities (‘‘NWCCU’’)

The Art Institute of Salt Lake City

Salt Lake City, UT

2007

2007

ACCSCT (as a branch of The Art Institute of Las Vegas)

The Art Institute of Seattle

Seattle, WA

1946

1982

NWCCU

The Art Institute of Tampa

Tampa, FL

2004

2004

SACS (as a branch of the Miami International University of Art & Design)

The Art Institute of Toronto

Toronto, Ontario

1997

2002

None

The Art Institute of Tucson

Tucson, AZ

2002

2007

ACICS

The Art Institute of Vancouver

Vancouver, BC

1979

2003

Private Career Training Institutions Agency of British Columbia

73

Table of Contents

School			Location			Calendar Year Established			Fiscal Year Acquired or Opened			Accrediting Agency
The Art Institute of Washington			Arlington, VA			2000			2001			SACS (as a branch of The Art Institute of Atlanta)
The Art Institute of York — Pennsylvania			York, PA			1952			2004			ACCSCT
The Art Institutes International Minnesota			Minneapolis, MN			1964			1997			ACICS
California Design College			Los Angeles, CA			1991			2003			ACICS
The Illinois Institute of Art — Chicago			Chicago, IL			1916			1996			ACCSCT; Higher Learning Commission (‘‘HLC’’) of the North Central Association (Chicago and Detroit locations only)
The Illinois Institute of Art — Schaumburg			Schaumburg, IL			1983			1996			ACCSCT (as a branch of The Illinois Institute of Art — Chicago)
Miami International University of Art & Design			Miami, FL			1965			2002			SACS
The New England Institute of Art			Boston, MA			1988			2000			New England Association of Schools and Colleges
Argosy University												HLC (all locations)
Argosy University, Atlanta			Atlanta, GA			1990			2002
Argosy University, Chicago			Chicago, IL			1976			2002
Argosy University, Dallas			Dallas, TX			2002			2002
Argosy University, Denver			Denver, CO			2006			2006
Argosy University, Honolulu			Honolulu, HI			1979			2002
Argosy University, Inland Empire			San Bernadino, CA			2006			2006
Argosy University, Nashville			Nashville, TN			2001			2001
Argosy University, Orange County			Orange, CA			1999			2002
Argosy University, Phoenix			Phoenix, AZ			1997			2002
Argosy University, San Diego			San Diego, CA			2006			2006
Argosy University, San Francisco			Point Richmond, CA			1998			2002
Argosy University, Santa Monica			Santa Monica, CA			2006			2006
Argosy University, Sarasota			Sarasota, FL			1969			2002
Argosy University, Schaumburg			Schaumburg, IL			1979			2002
Argosy University, Seattle			Seattle, WA			1997			2002
Argosy University, Tampa			Tampa, FL			1997			2002
Argosy University, Twin Cities			Eagan, MN			1961			2002

74

Table of Contents

School

Location

Calendar Year Established

Fiscal Year Acquired or Opened

Accrediting Agency

Argosy University, Washington D.C.

Arlington, VA

1994

2002

South University

SACS (all locations)

South University/Savannah

Savannah, GA

1899

2004

South University/Montgomery

Montgomery, AL

1997

2004

South University/West Palm Beach

West Palm Beach, FL

1974

2004

South University/Columbia

Columbia, SC

1935

2004

South University/Tampa

Tampa, FL

2006

2006

The Brown Mackie Colleges

Brown Mackie College — Akron

Akron, OH

1980

2004

ACICS (as a branch of Brown Mackie College — Cincinnati)

Brown Mackie College — Cincinnati

Cincinnati, OH

1927

2004

ACICS

Brown Mackie College — Findlay

Findlay, OH

1986

2004

ACICS

Brown Mackie College — Northern Kentucky

Ft. Mitchell, KY

1927

2004

ACICS (as a branch of Brown Mackie College — Cincinnati)

Brown Mackie College — North Canton

North Canton, OH

1984

2004

ACICS

Brown Mackie College — Atlanta

Norcross, GA

1969

2004

ACICS (as a branch of The Art Institute of Charlotte

Brown Mackie College — Lenexa

Lenexa, KS

1984

2004

HLC (as a branch of Brown Mackie College — Salina)

Brown Mackie College — Salina

Salina, KS

1892

2004

HLC

Brown Mackie College — Merrillville

Merrillville, IN

1984

2004

ACICS

Brown Mackie College — Michigan City

Michigan City, IN

1890

2004

ACICS (as a branch of Brown Mackie College — Merrillville)

Brown Mackie College — Moline

Moline, IL

1985

2004

ACICS (as a branch of Brown Mackie College — Merrillville)

Brown Mackie College — Fort Wayne

Fort Wayne, IN

1991

2004

ACICS (as a branch of Brown Mackie College — South Bend)

Brown Mackie College — South Bend

South Bend, IN

1882

2004

ACICS

75

Table of Contents

School

Location

Calendar Year Established

Fiscal Year Acquired or Opened

Accrediting Agency

Brown Mackie College — Louisville

Louisville, KY

1935

2004

ACICS

Brown Mackie College— Hopkinsville

Hopkinsville, KY

1995

2004

ACICS (as a branch of Brown Mackie College — Louisville)

Brown Mackie College — Miami

Miami, FL

2004

2005

ACICS (as a branch of Brown Mackie College — Cincinnati)

Brown Mackie College — Tucson

Tucson, AZ

1972

2007

ACICS

Brown Mackie College — Indianapolis

Indianapolis, IN

2007

2008

ACICS (as a branch of Brown Mackie College — Findlay)

Western State University College of Law

Fullerton, CA

1966

2002

Commission on Colleges of the Western Association of Schools and Colleges; provisionally accredited by American Bar Association

Accrediting agencies monitor each educational institution’s performance across a broad range of areas. Monitoring is generally performed through annual self-reporting and through the conduct of periodic site visits by representatives of the accrediting agency and qualified persons from peer institutions. In the event an accrediting agency determines that such school’s performance in one or more areas falls below certain parameters, the accrediting agency may require the school to supply it with supplemental reports on the accrediting agency’s specific areas of concern until that school meets the accrediting agency’s performance guideline or standard. As of September 30, 2007, nine of our schools were required to provide such supplemental reports. Of these nine schools on supplement reporting status, four schools are required to request and receive permission from their accrediting agency prior to filing an application for a new location or program offering. An accrediting agency also may order an institution to show cause why its accreditation should not be revoked or conditioned if it receives information leading it to question whether the institution satisfies the requirements of continued accreditation. An institution found not to be in compliance with required standards may have its accreditation revoked or withdrawn, or it may be placed on probation to more closely monitor its compliance with accrediting requirements.

Student Financial Assistance

Many students at our U.S. schools rely, at least in part, on financial assistance to pay for the cost of their education. In the United States, the largest sources of such support are the federal student aid programs under Title IV of the HEA. Additional sources of funds include other federal grant programs, state grant and loan programs, private loan programs and institutional grants and scholarships. To provide students access to financial assistance resources available through Title IV programs, a school must be (i) authorized to offer its programs of instruction by the relevant agency of the states in which it is located, (ii) institutionally accredited by an agency recognized by the U.S. Department of Education, and (iii) certified as an eligible institution by the U.S. Department of Education. In addition, the school must ensure that Title IV program funds are properly accounted for and disbursed in the correct amounts to eligible students and remain in compliance generally with the Title IV program regulations. During fiscal 2005, 2006 and 2007, approximately 70% of our net revenues were indirectly derived from Title IV programs.

As in the United States, there are certain risks associated with operating post-secondary institutions in Canada, including, among other risks:

76

Table of Contents

	•	if our schools fail to comply with extensive regulations, we could be subject to financial penalties, restrictions on our operations or loss of external financial aid funding for our students;

	•	the provinces or national government may change the law or reduce funding for student financial aid programs, which could harm our student population and revenue;

	•	if our schools do not maintain their approvals, they may not operate or participate in federal student financial aid programs; and

	•	government and regulatory agencies may conduct compliance reviews, bring claims or initiate litigation against us.

During fiscal 2007, approximately 2.0% of our net revenues were from our schools located in Canada.

Nature of U.S. Federal Support for Post-Secondary Education

While the U.S. states support public colleges and universities primarily through direct state subsidies, the U.S. federal government provides a substantial part of its support for post-secondary education in the form of grants and loans to students who can use this support at any institution that has been certified as eligible by the U.S. Department of Education. Students at our U.S. schools receive loans, grants and work-study funding to fund their education under several Title IV programs, of which the three largest are the FFEL program, the William D. Ford Federal Direct Loan (‘‘Direct Loan’’) program and the Federal Pell Grant (‘‘Pell’’) program. Most of our U.S. schools also participate in the Federal Supplemental Educational Opportunity Grant (‘‘FSEOG’’) program, the Federal Perkins Loan (‘‘Perkins’’) program, and the Federal Work-Study program.

FFEL and Direct Loans.    The FFEL and Direct Loan programs consist of two types of loans: Stafford loans, which are made available to students regardless of financial need, and Parent Loan for Undergraduate Students (‘‘PLUS’’) loans, which are made available to parents of undergraduate students classified as dependents and, as of July 1, 2006, graduate students. The primary difference between the FFEL and the Direct Loan programs is that the FFEL program is administered and funded by private sources while the U.S. Department of Education provides the administration and funds for the Direct Loan program. While all of our schools are eligible to participate in the Direct Loan program, only Brown Mackie College — Tucson and The Art Institute of Tucson currently participate in the program.

Effective July 1, 2007, under the Stafford loan program, an undergraduate student may borrow up to $3,500 for the first academic year, $4,500 for the second academic year and, in certain educational programs, $5,500 for each of the third and fourth academic years. Students who are classified as independent can obtain up to an additional $4,000 for each of the first and second academic years and, depending upon the educational program, an additional $5,000 for each of the third and fourth academic years. Students enrolled in programs higher than a bachelor-level program can borrow up to $20,500 per academic year. Students enrolled in certain graduate-level health professions can receive an additional $12,500 per academic year. Prior to July 1, 2007, undergraduate students only were permitted to borrow up to $2,625 for the first academic year and $3,500 for the second academic year under the Stafford loan program. Students enrolled in programs highe r than a bachelor-level were limited to borrowing up to $18,500 per academic year prior to July 1, 2007. Amounts received by students in our U.S. schools under the Stafford loan program equaled approximately 48% of our net revenues in fiscal 2007. Currently, PLUS loans may be obtained by parents of a dependent student in an amount not to exceed the difference between the total cost of that student’s education (including allowable educational expenses) and other aid to which that student is entitled. Amounts received by parents of students in our U.S. schools under the PLUS loan program in fiscal 2007 equaled approximately 12% of our net revenues in fiscal 2007.

Pell.    Pell grants are the primary component of Title IV programs under which the U.S. Department of Education makes grants to undergraduate students who demonstrate financial need. Every eligible student is entitled to receive a Pell grant; there is no institutional allocation or limit.

77

Table of Contents

During fiscal 2007, Pell grants ranged up to $4,310 per year, depending on student need and other factors. Amounts received by students enrolled in our U.S. schools in fiscal 2007 under the Pell program represented approximately 8% of our net revenues in fiscal 2007.

FSEOG.    FSEOG awards are designed to supplement Pell grants for the neediest undergraduate students. FSEOG grants at our schools generally range in amount from $300 to $1,200 per year. However, the availability of FSEOG awards is limited by the amount of those funds allocated to an institution under a formula that takes into account the size of the institution, its costs and the income levels of its students. We are required to make a 25% matching contribution for all FSEOG program funds disbursed. Resources for this institutional contribution may include institutional grants and scholarships and, in certain U.S. states, portions of state grants and scholarships. Amounts received by students in our U.S. schools under the FSEOG program in fiscal 2007 represented less than 1% of our net revenues.

Perkins.    Eligible undergraduate students may borrow up to $4,000 under the Perkins program during each academic year, with an aggregate maximum of $20,000. Eligible graduate students may borrow up to $6,000 in Perkins loans each academic year, with an aggregate maximum of $40,000. Perkins loans have a 5% interest rate and repayment is delayed until nine months after a student ceases enrollment as at least a half-time student. Perkins loans are made available to those students who demonstrate the greatest financial need. Perkins loans are made from a revolving account, with 75% of new funding contributed by the U.S. Department of Education and the remainder by the applicable school. Subsequent federal capital contributions, which must be matched by school funds, may be received if an institution meets certain requirements. Each school collects paym ents on Perkins loans from its former students and re-lends those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. During fiscal 2007, we collected approximately $7.5 million from our former students. We were not required to make any matching contributions in fiscal 2007. The Perkins loans disbursed to students in our U.S. schools in fiscal 2007 represented less than 1% of our net revenues.

Federal Work-Study.    Under the Federal Work-Study program, federal funds are made available to pay up to 75% of the cost of part-time employment of eligible students, based on their financial need, to perform work for the institution or for off-campus public or non-profit organizations. Most of our schools participate in the Federal Work-Study program. In order to participate in the program, each year a school must have at least 7% of the school’s Federal Work-Study program allocation paid to students performing community service work and at least one student in a literacy job. In fiscal 2007, Argosy University and two Brown Mackie Colleges did not meet this requirement. The U.S. Department of Education has announced that institutions that do not meet this requirement in fiscal 2008 will be subject to fines and/or other administrative action. In fiscal 2007, Federal Work-Study funds represented less than 1% of our net revenues.

New Title IV Programs.    Effective July 1, 2006, Congress enacted two new Title IV federal aid programs, the Academic Competitive Grant (‘‘ACG’’) and the National SMART (Science and Mathematics Access to Retain Talent) Grant. Both of these new programs require students to be eligible for a Pell grant and to attend school on a full-time basis. The ACG is designed for students in degree programs who recently have graduated from a high school at which they were enrolled in a rigorous curriculum. Students may receive a maximum of $750 under ACG during their first academic year and $1,300 during their second academic year. The National SMART Grant is designed for students in their third or fourth academic year with a cumulative grade point average of 3.0 or greater in certain designated bachelor’s degree or higher programs, primarily focused on science and math programs. Eligible students may receive up to $4,000 in each of their third and fourth academic year. In fiscal 2007, net revenues from the ACG and National SMART Grant programs in the aggregate represented less than 1% of our net revenues.

Legislative Action.    Political and budgetary concerns can significantly affect Title IV programs. Congress generally reauthorizes the HEA approximately every six years. The last reauthorization of the HEA occurred in 1998. The U.S. Senate passed its version of the latest renewal of the HEA in August 2007, and the U.S. House of Representatives is expected to vote on a renewal bill in early

78

Table of Contents

2008. The final reauthorization of the HEA may result in numerous legislative changes. In addition, Congress determines federal appropriations for Title IV programs on an annual basis. Congress also can make changes in the laws affecting Title IV programs in those annual appropriations bills and in other laws it enacts between HEA reauthorizations. In September 2007, President Bush signed into law legislation which, among other things, decreases private lender and guaranty agency yields for participation in the FFEL program, decreases student interest rates on Stafford loans and limits repayment obligations for students who receive loans pursuant to Title IV programs. Congress also is considering legislation to address alternative, non-Title IV program loans as well as lender and educational institution relationships. Since a significant percentage of our revenue is derived from Title IV programs, any action by Congress that significantly reduces Title IV program funding or the ability of our schools or students to participate in Title IV programs would have a material adverse effect on our business, results of operations or financial condition. Legislative action also could increase our administrative costs and require us to adjust our practices in order for our schools to comply fully with Title IV program requirements.

            Other Financial Assistance Sources

Students at several of our U.S. schools participate in state aid programs. In fiscal 2007, approximately 3% of our net revenues were derived indirectly from state aid programs. In addition, certain students at some of our U.S. schools receive financial aid provided by the U.S. Department of Veterans Affairs, the U.S. Department of the Interior (Bureau of Indian Affairs) and the Rehabilitative Services Administration of the U.S. Department of Education (vocational rehabilitation funding). In fiscal 2007, financial assistance from such federal programs equaled less than 1% of our net revenues. Our schools also provide institutional grants and scholarships to qualified students. In fiscal 2007, institutional scholarships had a value equal to approximately 2% of our net revenues.

There are alternative supplemental loan programs available to our students, and those programs allow students to repay a portion of their loans after graduation and make loans available to students with lower than average credit ratings. The primary objective of these loan programs is to facilitate funding which students can use to pay a portion of their tuition and fees that they are unable to pay through personal resources or government-backed loan programs. Such loans are without recourse to us or our schools. In fiscal 2007, alternative loans represented approximately 23% of our net revenues, as compared to approximately 19% of net revenues in fiscal 2006 and 15% of net revenues in fiscal 2005.

We and a provider of student loans have developed a loan program for students with low credit scores who otherwise may not qualify for loans and pursue a post-secondary education. This loan program requires that we pay the loan provider a discount fee based on the principal balance of each private loan. The loans are non-recourse to us and include a waiting period between the date of the loan origination and the first disbursement to the student.

            Availability of Lenders

Students attending our schools primarily use a limited number of lending institutions to obtain their federally guaranteed loans to help pay their direct costs of attendance. While we believe that other lenders or the Federal Direct Loan program would be willing to make federally guaranteed student loans to our students if federally guaranteed loans were no longer available from our current lenders, there can be no assurances in this regard. In addition, the HEA requires the establishment of lenders of last resort in every state to ensure that loans are available to students at any school that cannot otherwise identify lenders willing to make federally guaranteed loans to its students.

We estimate that three student loan guaranty agencies guaranteed over 90% of all federally guaranteed student loans made to students enrolled at our U.S. schools during fiscal 2007. We believe that other guaranty agencies would be willing to guarantee federal loans to our students if any of the current agencies ceased guaranteeing those loans or reduced the volume of loans they guarantee, although there can be no assurances in this regard.

79

Table of Contents

            Federal Oversight of Title IV Programs

Our U.S. schools are subject to audits or program compliance reviews by various external agencies, including the U.S. Department of Education, its Office of Inspector General and state, guaranty and accrediting agencies. The HEA and its implementing regulations also require that an institution’s administration of Title IV program funds be audited annually by an independent accounting firm. If the U.S. Department of Education or another regulatory agency determines that an institution has improperly disbursed Title IV or state program funds or violated a provision of the HEA or state law or their implementing regulations, the affected institution may be required to repay such funds to the U.S. Department of Education or the appropriate state agency or lender and may be assessed an administrative fine. Although we endeavor to comply with the all federal and state laws and implementing regulations, we cannot guarantee that our interpretation of the relevant r ules will be upheld by the U.S. Department of Education or other agencies, or upon judicial review.

If the U.S. Department of Education is dissatisfied with an institution’s administration of Title IV programs, it can transfer, without prior notice or judicial review, the institution from the advance system of receiving Title IV program funds to the cash monitoring or reimbursement method of payment, under which a school may have to advance its own funds to students and provide documentation to the U.S. Department of Education that the funds were properly disbursed prior to receiving reimbursement from Title IV programs.

Violations or alleged violations of Title IV program requirements also could subject us to other civil and criminal sanctions, suits under the federal False Claims Act or administrative proceedings to impose fines or limit, suspend or terminate our eligibility for participation in Title IV programs. The U.S. Department of Education also may initiate an emergency action to temporarily suspend an institution’s participation in Title IV programs without advance notice if it determines that a regulatory violation creates an imminent risk of material loss of public funds.

The HEA requires each accrediting agency recognized by the U.S. Department of Education to undergo comprehensive periodic review by the U.S. Department of Education to ascertain whether such accrediting agency is adhering to required standards. We are not aware of any reason why any of the agencies that accredit our institutions would not be approved as a result of such review. In any event, if an accreditation agency is not approved by the U.S. Department of Education, the HEA grants affected institutions reasonable opportunity to apply for accreditation from a different agency.

Cohort Default Rates.    If, at any given point, an institution’s FFEL cohort default rate equals or exceeds 25% for each of the three most recent federal fiscal years, it no longer will be eligible to participate in Title IV programs for the remainder of the federal fiscal year in which the U.S. Department of Education determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If, at any given point, an institution’s Perkins cohort default rate equals or exceeds 50% for each of the three most recent federal fiscal years it no longer will be eligible to participate in the Perkins programs for the remainder of the federal fiscal year, in which the U.S. Department of Education determines that such institution has lost its eligibility and for the two subsequent federal fiscal years.

None of our schools has had an FFEL cohort default rate of 25% or greater for any of the last three consecutive federal fiscal years. The most recent year for which FFEL cohort default rates have been calculated is federal fiscal year 2005. The official combined FFEL cohort default rate for borrowers at our schools for federal fiscal year 2005 was 5.1%, and our individual schools’ rates ranged from zero to 13.8%.

If an institution’s FFEL cohort default rate equals or exceeds 25% in any of the three most recent federal fiscal years, or if its cohort default rate for loans under the Perkins program exceeds 15% for the most recent federal award year (July 1 through June 30), that institution may be placed on provisional certification status for up to three years. Provisional certification by itself does not limit an institution’s access to Title IV program funds but does subject that institution to closer review by the U.S. Department of Education and possible summary adverse action if that institution commits a material violation of Title IV program requirements.

80

Table of Contents

To our knowledge, the U.S. Department of Education considers provisional certification based on an institution’s exceeding the cohort default rate thresholds described in the previous paragraph only when that institution is otherwise subject to a U.S. Department of Education renewal of certification review. As of June 30, 2007, ten of our schools had Perkins cohort default rates in excess of 15% for students who were to begin repayment during the federal award year ending June 30, 2006, the most recent year for which such rates have been calculated. Funds from the Perkins program did not exceed 4% of these schools’ respective net revenues in fiscal 2007. None of these schools has been placed on provisional certification solely for this reason.

Each of our schools whose students participate in the FFEL program maintains a student loan default management plan if its default rate equals or exceeds 5%. Those plans provide for extensive loan counseling, methods to increase student persistence and completion rates and graduate employment rates, strategies to increase graduate salaries and, for most schools, the use of external agencies to assist the school with loan counseling and loan servicing after a student ceases to attend that school. These activities are in addition to the loan servicing and collection activities of FFEL lenders and guaranty agencies. The historical default rates experienced by Argosy University and Western State University College of Law have been relatively low, and therefore these schools have engaged in significantly fewer default management activities.

Regulatory Oversight.    The U.S. Department of Education is required to conduct periodic reviews to determine whether to renew the eligibility and certification of every institution participating in Title IV programs. Generally such reviews occur every six years, although it typically occurs after three years for an institution on provisional certification. A denial of renewal of certification precludes a school from continuing to participate in Title IV programs. Currently all but two of our schools are operating under a Provisional Program Participation Agreement with the U.S. Department of Education due to the change of control of the Company which occurred in connection with the Transaction. The Art Institute of Tucson and Brown Mackie College — Tucson currently operate under Temporary Provisional Program Participation Agreements due to ou r acquisition of these institutions in June 2007.

Financial Responsibility Standards.    Education institutions participating in Title IV programs must satisfy a series of specific standards of financial responsibility. The U.S. Department of Education has adopted standards to determine an institution’s financial responsibility to participate in Title IV programs. The regulations establish three ratios: (i) the equity ratio, intended to measure an institution’s capital resources, ability to borrow and financial viability; (ii) the primary reserve ratio, intended to measure an institution’s ability to support current operations from expendable resources; and (iii) the net income ratio, intended to measure an institution’s profitability. Each ratio is calculated separately, based on the figures in the institution’s most recent annual audited financial statements , and then weighted and combined to arrive at a single composite score. The composite score must be at least 1.5 in order for the institution to be deemed financially responsible without conditions or additional oversight. If an institution fails to meet any of these requirements, the U.S. Department of Education may set restrictions on the institution’s eligibility to participate in Title IV programs. Institutions are evaluated for compliance with these requirements as part of the U.S. Department of Education’s renewal of certification process and also annually as each institution submits its audited financial statements to the U.S. Department of Education. For fiscal 2007, we believe that, on an individual institution basis, each of our schools then participating in Title IV programs satisfied the financial responsibility standards. At our consolidated level, our financial statements will not satisfy the financial responsibility standards for fiscal 2007 and for the foreseeable future. Followin g the Transaction, the U.S. Department of Education separately considered our and our schools’ compliance with the financial responsibility requirements at our consolidated level. We were required by the U.S. Department of Education to post an $87.9 million letter of credit on October 12, 2006 and are subject to provisional certification and additional financial and cash monitoring with respect to our disbursement of Title IV funds due to our failure on a consolidated basis to satisfy the financial responsibility standards after the completion of the Transaction. The letter of credit, provisional certification and financial and heightened cash monitoring will be in effect until at least March 2008

81

Table of Contents

and is likely to continue beyond that date. The implementation of heightened cash monitoring level one has not materially impacted our cash flows from operations.

Return of Title IV Funds.    Institutions that receive Title IV funds must follow requirements that ensure the return to the federal student financial aid programs of all unearned funds of a student who withdraws from a program. If refunds are not properly calculated and timely paid, institutions are subject to adverse actions by the U.S. Department of Education. We have posted letters of credit for nine of our schools because independent audits indicated that they had exceeded federal thresholds for allowable number of late refunds during at least one of their two most recent fiscal years. Our 2007 annual financial aid compliance audits have not been completed, and therefore the number of schools requiring a letter of credit may increase. We have instituted practices and procedures at recently acquired schools to expedite refunds of FFEL program fun ds, including payment of refunds by electronic fund transfers.

Administrative Capability Requirements.    Regulations of the U.S. Department of Education specify extensive criteria an institution must satisfy to establish that it has the requisite ‘‘administrative capability’’ to participate in Title IV programs. These criteria require, among other things, that the institution comply with all applicable federal student financial aid regulations, have capable and sufficient personnel to administer Title IV programs, have acceptable methods of defining and measuring the satisfactory academic progress of its students, provide financial aid counseling to its students and submit all reports and financial statements required by the regulations. If an institution fails to satisfy any of these criteria, the U.S. Department of Education may require the repayment of federal student financial aid fu nds, transfer the institution from the advance system of payment of Title IV program funds to the cash monitoring or reimbursement method of payment, place the institution on provisional certification status or commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs.

Restrictions on Operating Additional Schools.    The HEA generally requires that certain educational institutions be in full operation for two years before applying to participate in Title IV programs. However, under the HEA and applicable regulations, an institution that is certified to participate in Title IV programs may establish an additional location and apply to participate in Title IV programs at that location without reference to the two-year requirement if such additional location satisfies all other applicable requirements. In addition, a school that undergoes a change of ownership resulting in a change of control (as defined under the HEA) must be reviewed and recertified for participation in Title IV programs under its new ownership. All of our schools are currently provisionally certified due to the Transaction. During the time when a s chool is provisionally certified, it may be subject to summary adverse action for a material violation of Title IV program requirements and may not establish additional locations without prior approval from the U.S. Department of Education. However, provisional certification does not otherwise limit an institution’s access to Title IV program funds. Our expansion plans are based, in part, on our ability to add additional locations and acquire schools that can be recertified. The U.S. Department of Education has informed us that it will not seek to impose growth restrictions on any of our schools as a result of the Transaction.

The ‘‘90/10 Rule’’.    Under a provision of the HEA commonly referred to as the ‘‘90/10 Rule’’, an institution will cease to be eligible to participate in Title IV programs if, on a cash accounting basis, more than 90% of its revenues for the prior fiscal year were derived from Title IV programs. Any school that violates the 90/10 Rule immediately becomes ineligible to participate in Title IV programs and is unable to apply to regain eligibility until the following fiscal year. For our schools that disbursed federal financial aid during fiscal 2007, the percentage of revenues derived from Title IV programs ranged from approximately 40% to 83%, with a weighted average of approximately 61%.

Restrictions on Payment of Bonuses, Commissions or Other Incentives.    An institution participating in the Title IV programs may not provide any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV program funds. Effective July 2003, the U.S. Department of Education

82

Table of Contents

published regulations to attempt to clarify this so-called ‘‘incentive compensation’’ law. The regulations identify 12 compensation arrangements that the U.S. Department of Education has determined are not in violation of the incentive compensation law, including the payment and adjustment of salaries, bonuses and commissions in certain circumstances. The regulations do not establish clear criteria for compliance in all circumstances, and the U.S. Department of Education has announced that it no longer will review and approve individual schools’ compensation plans prior to their implementation. Although we cannot provide any assurances that the U.S. Department of Education will not find deficiencies in our compensation plans, we believe that our current compensation plans are in compliance with the HEA and the new regulations promulgated by the U.S. Department of Education.

State Authorization and Accreditation Agencies

Each of our U.S. campuses, including our campuses that provide online programs, is authorized to offer education programs and grant degrees or diplomas by the state in which such school is physically located. The level of regulatory oversight varies substantially from state to state. In some U.S. states, the schools are subject to licensure by the state education agency and also by a separate higher education agency. Some states have sought to assert jurisdiction over online educational institutions that offer educational services to residents in the state or that advertise or recruit in the state, notwithstanding the lack of a physical location in the state. State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. State laws and regulations may limit our ability to obtain authorization to operate in certain states or to award degrees or diplomas or offer new degree programs. Certain states prescribe standards of financial responsibility that are different from those prescribed by the U.S. Department of Education. If we are found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit or enroll students in that state and may have to cease providing services and advertising in that state, which could have a material adverse effect on our student enrollment and revenues.

Each of our U.S. schools is accredited by a national or regional accreditation agency recognized by the U.S. Department of Education, and some educational programs are also programmatically accredited. The level of regulatory oversight and standards can vary based on the agency. Certain accreditation agencies prescribe standards that are different from those prescribed by the U.S. Department of Education.

If a school does not meet its accreditation or state requirements, its accreditation and/or state licensing could be limited, modified, suspended or terminated. Failure to maintain licensure or institutional accreditation makes a school ineligible to participate in Title IV programs.

Certain of the state authorizing agencies and accrediting agencies with jurisdiction over our schools also have requirements that may, in certain instances, limit our ability to open a new school, acquire an existing school, establish an additional location of an existing school or add new educational programs.

Canadian Regulation and Financial Aid

Our Canadian schools are subject to regulation in the provinces in which they operate and in the provinces in which they recruit students. Depending on their province of residence, our Canadian students may receive loans under the federally funded Canada Student Loan Program and/or provincial funding from their province of residence. Canadian schools must meet eligibility standards to administer these programs and must comply with all relevant statutes, rules, regulations and requirements. We believe that our Canadian schools currently hold all necessary registrations, approvals and permits and meet all eligibility requirements to administer these governmental financial aid programs. If our Canadian schools cannot meet these and other eligibility standards or fail to comply with applicable requirements, it could have a material adverse effect on our business, results of operations, cash flows or financial condition.

83

Table of Contents

The British Columbia government, through its Ministry of Advanced Education, regulates private career colleges through an arms length accreditation and registration body called the Private Career Training Institutions Agency of British Columbia (‘‘PCTIA’’) and provides financial assistance to eligible students through the British Columbia Student Assistance Program (‘‘BCSAP’’). In Ontario, the government regulates private career colleges through the Ministry of Training Colleges and Universities and provides student assistance through the Ontario Student Assistance Program (‘‘OSAP’’). In both provinces, the student aid programs are substantially the same and include a federal component under the Canada Student Loan Program and a provincial portion administered through the respective provincial OSAP or the BCSAP programs. In order to maintain the right to administer student assistance, our sc hools must abide by the rules, regulations and administrative manuals and Memorandum of Agreements with the Canada Student Loan Program and the respective OSAP/BCSAP Student Loans Plans.

Institutions cannot automatically acquire student aid designation through the acquisition of other student aid eligible institutions. In the event of a change of ownership, including a change in controlling interest, the respective ministries as well as OSAP or BCSAP, as applicable, require evidence that the institution has continued capacity and a formal undertaking to comply with registration and student aid eligibility requirements. Given that the provincial governments and PCTIA (in the case of British Columbia) periodically revise their respective regulations and other requirements and change their respective interpretations of existing laws and regulations, we cannot assure you that the provincial governments and/or PCTIA will agree with our interpretation of each requirement.

Canadian schools are required to audit their administration of student aid programs annually or as otherwise directed by OSAP or BCSAP, as the case may be. We believe that we have complied with these requirements.

Employees

At September 30, 2007, we employed approximately 8,400 full time employees, of whom approximately 2,200 were faculty members, and approximately 1,700 part-time employees, of whom approximately 1,500 were faculty members. In addition, we also employed approximately 4,300 adjunct faculty members at September 30, 2007. Adjunct faculty members are employed on a term-to-term basis, while part-time faculty members work a regular part-time schedule.

Competition

The post-secondary education market is highly fragmented and competitive. Our schools compete for students with traditional public and private two-year and four-year colleges and universities and other for-profit schools, including those that offer distance learning programs. Many public and private colleges and universities, as well as other private career-oriented schools, offer programs similar to those we offer. Public institutions receive substantial government subsidies, and both public and private institutions have access to government and foundation grants, tax-deductible contributions and other financial resources generally not available to for-profit schools. Accordingly, public and private institutions may have facilities and equipment superior to those in the for-profit sector and often can offer lower effective tuition prices. Some of our competitors in both the public and private sectors also have substantially greater financial and other resources than we do.

Seasonality in Results of Operations

Our quarterly revenues and 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. Our first quarter is typically our lowest revenue recognition quarter due to student vacations.

84

Table of Contents

MANAGEMENT

In connection with this offering, we intend to amend and restate our articles of incorporation and by-laws. The following summary contains references to provisions of our articles of incorporation and by-laws, including the composition of the Board of Directors and its committees, the classification of the Board of Directors, the election and term of service of directors and compensation committee interlocks that will be in effect upon the completion of this offering or within the time period prescribed by the Nasdaq listing rules.

Directors and Executive Officers

The following table sets forth information regarding our directors, nominees for director and executive officers, including their ages as of December 10, 2007. We intend to add one or more independent directors prior to or upon completion of this offering. All of our directors hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until their successors are duly elected and qualified. Executive officers serve at the request of the Board of Directors. The Board of Directors has determined that Leo F. Mullin is independent according to the listing standards for companies with securities listed on The Nasdaq Global Market.

Name			Age						Position
John R. McKernan, Jr.					59				Executive Chairman and Chairman of the Board of Directors
Todd S. Nelson					48				Chief Executive Officer, President and Director
Robert A. Carroll					42				Senior Vice President — Chief Information Officer
Joseph A. Charlson					37				Senior Vice President — Chief Marketing Officer
John M. Mazzoni					44				President, The Art Institutes
Stacey R. Sauchuk					48				Senior Vice President — Academic Programs and Student Affairs
John T. South, III					60				Senior Vice President, Chancellor, South University and Chairman of the Board of Directors of Argosy University
Roberta L. Troike					42				Senior Vice President — Human Resources
Stephen J. Weiss					44				President, EDMC Online Higher Education
Edward H. West					41				Executive Vice President and Chief Financial Officer
Adrian M. Jones					43				Director
Jeffrey T. Leeds					51				Director
Leo F. Mullin					64				Director
Paul J. Salem					44				Director
Peter O. Wilde					39				Director

John R. McKernan, Jr. is our Executive Chairman and Chairman of the Board of Directors. Mr. McKernan served as our Chief Executive Officer from September 2003 until February 2007. Mr. McKernan joined us as our Vice Chairman and a member of the Board of Directors in June 1999. In March 2003, he became our President and served in that office until September 2003. Mr. McKernan served as Governor of the State of Maine from 1987 to 1995.

Todd S. Nelson has served as our Chief Executive Officer and President and a director since February 2007. Mr. Nelson worked as an independent consultant from January 2006 through January 2007 and for Apollo Group, Inc. from 1987 through January 2006. Mr. Nelson served in various roles with Apollo Group, Inc. and was appointed President in February 1998, Chief Executive Officer in August 2001 and Chairman of the Board in June 2004. Mr. Nelson was a member of the faculty at the University of Nevada at Las Vegas from 1983 to 1984. Mr. Nelson serves on the Board of Directors of Voyager Learning Company, a leading publisher of K-12 education solutions.

Robert A. Carroll has served as our Senior Vice President — Chief Information Officer since June 2007. Mr. Carroll was an independent consultant from January 2006 through June 2007, serving as the Interim Chief Information Officer for Western Governors University from January 2007 to June 2007. From July 1998 to January 2006, Mr. Carroll served as the Chief Information Officer for Apollo Group, Inc.

85

Table of Contents

Joseph A. Charlson was hired as Senior Vice President — Strategic Marketing in February 2005, was appointed Chief Marketing Officer in August 2005. Prior to joining us, Mr. Charlson was a Strategy Lead and then Senior Manager — Pharmacy at Target Corporation from July 2003 through February 2005, a management consultant with McKinsey & Company from August 2001 through July 2003 and President of United States Building Technology Inc. from January 1997 through January 2001.

John M. Mazzoni has been the President of The Art Institutes since October 2005. From March 2005 to October 2005, he served as our Senior Vice President of Group Operations. From August 2004 to March 2005, he served as Group Vice President for EDMC. From July 2001 through August 2004, he served as Group Vice President for The Art Institutes. From August 1987 through July 2001, he held several senior management level positions in the areas of Operations, Finance and Information Systems.

Stacey R. Sauchuk has been our Senior Vice President — Academic Programs and Student Affairs since July 2003. Ms. Sauchuk was our Group Vice President from August 2001 through July 2003 and President of The Art Institute of Philadelphia from January 1997 through July 2000. From August 2000 through July 2001, Ms. Sauchuk was an executive search consultant with Witt/Kieffer.

John T. South, III, joined us in July 2003 when we acquired South University, which was owned by Mr. South. Mr. South has served as Chancellor of South University since October 2001 and was appointed the Chairman of the Board of Trustees of Argosy University in February 2006. In his current role with us, Mr. South also oversees the Brown Mackie Colleges. Prior to our acquisition of South University, Mr. South was shareholder and CEO of various affiliated private colleges and had been Chief Executive Officer of South University since 1975. Mr. South also served as President of South University prior to being appointed Chancellor in October 2001. Mr. South currently is on the advisory board of Sun Trust Bank of Savannah.

Roberta L. Troike has been our Senior Vice President — Human Resources since April 2007. Prior to joining us, from May 2005 through March 2007, Ms. Troike was the Vice President of Human Resources at Glimcher Realty Trust, a New York Stock Exchange traded real estate investment trust that owns, develops and manages regional and super-regional shopping malls. From December 2000 to April 2005, Ms. Troike was the Director of Human Resources for Bath and Body Works. Ms. Troike also served as Vice President for First USA Bank from June 1996 to November 2000.

Stephen J. Weiss joined us as President, EDMC Online Higher Education in October 2003. Prior to joining us, Mr. Weiss served as President and Chief Operating Officer of Capella Education Company from October 1998 to June 2003 and Director, Education Business Unit of Honeywell Corporation from July 1997 to October 1998. Mr. Weiss also serves on the board of directors of AWS Convergence Technologies, Inc.

Edward H. West became our Executive Vice President and Chief Financial Officer upon the consummation of the Transaction in June 2006. Mr. West is the former Chairman and Chief Executive Officer of ICG Commerce, a position he held from 2002 until 2006. Prior to joining ICG Commerce, Mr. West served as President and Chief Operating Officer from 2001 to 2002 and Chief Financial Officer from 2000 to 2001 of Internet Capital Group, Inc. Prior to joining Internet Capital Group, Inc., Mr. West was an employee of Delta Air Lines, Inc. from 1994 to 2000 and most recently served as its Executive Vice President and Chief Financial Officer. Mr. West currently serves on the board of directors of Entercom Communications Corp.

Adrian M. Jones joined Goldman, Sachs & Co. in 1994 and has been a Managing Director within the Principal Investment Area of its Merchant Banking Division since 2002. He serves on the boards of directors of Biomet, Inc., Burger King Holdings, Inc., Dollar General Corporation, HealthMarkets, Inc. and Signature Hospital Holding, LLC.

Jeffrey T. Leeds is President and Co-Founder of Leeds Equity Partners, which he co-founded in 1993 and which invests in private equity transactions in the education, information services and training industries. Prior to co-founding Leeds Equity Partners, Mr. Leeds spent seven years

86

Table of Contents

specializing in mergers and acquisitions and corporate finance at Lazard Freres & Co. Prior to joining Lazard Freres & Co., Mr. Leeds served as a law clerk to the Hon. William J. Brennan, Jr. of the Supreme Court of the United States during the 1985 October Term. Mr. Leeds also worked in the corporate department of the law firm of Cravath, Swaine & Moore in New York after graduating from law school. Mr. Leeds currently serves as a director of SeatonCorp., Miller Heiman, Inc., and RealPage, Inc. and as a Trustee on the United Federation of Teacher’s Charter School Board in New York City. Mr. Leeds has previously served as a director of Ross University, Argosy University and Datamark, Inc., among others.

Leo F. Mullin retired as Chief Executive Officer of Delta Air Lines, Inc. in December 2003 and Chairman in April 2004, after having served as Chief Executive Officer of Delta Air Lines, Inc. since 1997 and Chairman since 1999. Mr. Mullin currently serves in a consultative capacity as a Senior Advisor, on a part-time basis, to Goldman Sachs Capital Partners. Mr. Mullin was Vice Chairman of Unicom Corporation and its principal subsidiary, Commonwealth Edison Company, from 1995 to 1997. He was an executive of First Chicago Corporation from 1981 to 1995, serving as that company’s President and Chief Operating Officer from 1993 to 1995, and as Chairman and Chief Executive Officer of American National Bank, a subsidiary of First Chicago Corporation, from 1991 to 1993. Mr. Mullin is also a Director of Johnson & Johnson and ACE Limited, a provider of insurance and reinsurance services. He is a member of The Business Council.

Paul J. Salem is a Senior Managing Director and a co-founder of Providence Equity Partners. Prior to joining Providence Equity Partners in 1992, Mr. Salem worked for Morgan Stanley & Co. in corporate finance and mergers and acquisitions. Prior to that time, Mr. Salem spent four years with Prudential Investment Corporation, an affiliate of Prudential Insurance, where his responsibilities included leveraged buyout transactions and helping to establish Prudential’s European investment office. Mr. Salem is also a director of Asurion Corp.

Peter O. Wilde is a Managing Director of Providence Equity Partners. Prior to joining Providence Equity Partners in 2002, Mr. Wilde was a General Partner at BCI Partners, where he began his career in private equity investing in 1992. Mr. Wilde is also a director of Asurion Corp., Decision Resources, Inc., Jones and Bartlett Publishers, Kerasotes Theatres, Inc., Medical Media Holdings, Inc., Pluris Inc. and Survey Sampling International LLC and is chairman of Study Island and The Vendome Group, LLC.

Providence Equity Partners and Goldman Sachs Capital Partners each will have the right to appoint two representatives and Leeds Equity Partners will have the right to appoint one representative to our Board of Directors under the terms of our Shareholders Agreement.

Todd S. Nelson, our Chief Executive Officer and President, as well as a director, served in various roles with Apollo Group, Inc. from 1987 through January 2006. Certain current and former officers and directors of Apollo Group, Inc., including Mr. Nelson, have been named as defendants in various litigation matters relating to alleged stock option grant practices and unrelated incentive compensation practices.

Leo F. Mullin, a director, served as Chief Executive Officer of Delta Air Lines, Inc. from 1997 through December 2003 and as Chairman of Delta Air Lines, Inc. from 1999 through April 2004. Delta Air Lines, Inc. filed a petition under federal bankruptcy laws in September 2005.

Board Structure

Our Board of Directors currently consists of seven persons including one independent director, Mr. Mullin. Effective upon consummation of this offering,                      will be nominated and elected as an additional independent director. Upon completion of this offering, our Board of Directors will be divided into three classes, denominated as Class I, Class II and Class III. Members of each class will hold office for staggered three-year terms, except that Class I directors will have an initial term expiring in 2009, Class II directors will have an initial term expiring in 2010 and Class III directors will have an initial term expiring in 2011. At each annual meeting of our shareholders beginning in 2009, the successors to the directors whose term expires at that meeting will be elected to serve until the

87

Table of Contents

third annual meeting after their election or until their successor has been elected and qualified. To the extent required, additional directors will be added to our Board of Directors to satisfy applicable audit committee composition requirements.

After the completion of this offering, private equity funds affiliated with the Sponsors collectively will own more than 50% of the total voting power of our common stock, and we intend to utilize certain ‘‘controlled company’’ exemptions under Nasdaq’s corporate governance listing standards that free us from the obligation to comply with certain Nasdaq corporate governance requirements, including the requirements:

	•	that a majority of our Board of Directors consists of independent directors;

	•	that the compensation of executive officers be determined, or recommended to our Board of Directors for determination, either by (a) a majority of the independent directors or (b) a compensation committee comprised solely of independent directors; and

	•	that director nominees be selected, or recommended for our Board of Directors’ selection, either by (a) a majority of the independent directors or (b) a nominations committee comprised solely of independent directors.

These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the requirements of the Sarbanes-Oxley Act and the Nasdaq Global Market rules, which require that our audit committee be composed of three independent directors within one year from the date of this prospectus.

Board Committees

Prior to completion of this offering, our Board of Directors will establish an audit committee, a compensation committee and a nominating and governance committee. The members of each committee will be appointed by our Board of Directors and serve one-year terms.

Audit Committee

Our audit committee will be comprised solely of independent directors and will assist our Board of Directors in its oversight of the integrity of our financial statements, our independent registered public accounting firm’s qualifications and independence and the performance of our independent registered public accounting firm.

The audit committee will:

	•	review the audit plans and findings of our independent registered public accounting firm and our internal audit and risk review staff, as well as the results of regulatory examinations, and track management’s corrective action plans where necessary;

	•	review our financial statements, including any significant financial items and/or changes in accounting policies, with our senior management and independent registered public accounting firm;

	•	review our financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and

	•	have the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.

Our audit committee will also be responsible for the review, approval or ratification of ‘‘related-person transactions’’ between us or our subsidiaries and related persons. ‘‘Related person’’ refers to a person or entity who is, or at any point since the beginning of the last fiscal year was, a director, officer, nominee for director, or 5% shareholder of us and their immediate family members. The audit committee will not have a written policy regarding the approval of related person transactions. The audit committee will apply its review procedures as a part of its standard operating procedures. In the course of its review and approval or ratification of a related person transaction, the audit committee will consider:

88

Table of Contents

	•	the nature of the related person’s interest in the transaction;

	•	the material terms of the transaction, including the amount involved and type of transaction;

	•	the importance of the transaction to the related person and to us;

	•	whether the transaction would impair the judgment of a director or executive officer to act in our best interest and the best interest of our shareholders; and

	•	any other matters the audit committee deems appropriate.

Any member of the audit committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the audit committee at which the transaction is considered.

The transactions described in the section of this prospectus entitled ‘‘Certain Relationships and Related Transactions’’ were entered into, or will be entered into, prior to the formation of our audit committee, and therefore have been, or will be, reviewed by our Board of Directors and not our audit committee.

Nominating and Governance Committee

The principal duties of the nominating and governance committee will be to recommend to the Board of Directors proposed nominees for election to the Board of Directors by the shareholders at annual meetings and to develop and make recommendations to the Board of Directors regarding corporate governance matters and practices.

Compensation Committee

Our compensation committee will oversee our compensation and benefits policies, oversee and set the compensation and benefits arrangements of our Chief Executive Officer and certain other executive officers, provide a general review of, and make recommendations to our Board of Directors and/or to the Company’s shareholders with respect to our equity-based compensation plans; review and approve all of our equity-based compensation plans that are not otherwise subject to the approval of our shareholders; implement, administer, operate and interpret all equity-based and similar compensation plans to the extent provided under the terms of such plans, including the power to amend such plans; and review and approve awards of shares or options to officers and employees pursuant to our equity-based plans.

Compensation Committee Interlocks and Insider Participation

Prior to the completion of this offering, we have not had a compensation committee because our equity has not been publicly traded. Our Board currently is composed of seven directors, two of whom were officers of the Company during the past fiscal year, all of whom, except for Mr. Nelson, who joined the Board of Directors in February 2007, participated in deliberations concerning executive officer compensation during fiscal 2007. There are no interlocking relationships requiring disclosure under the applicable rules promulgated under the U.S. federal securities laws.

89

Table of Contents

Compensation Discussion and Analysis

Overview

Representatives from our Principal Shareholders negotiated compensation arrangements with our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers, whom we collectively refer to as our named executive officers (‘‘Named Executive Officers’’), and the overall amounts and composition of compensation paid to these executive officers reflects negotiations between these executive officers and the Principal Shareholders.

Compensation Objectives

Our executive compensation program is intended to meet three principal objectives:

	•	to provide competitive compensation packages to attract and retain superior executive talent;

	•	to reward successful performance by the executive and the Company by linking a significant portion of compensation to our financial and business results; and

	•	to further align the interests of executive officers with those of our shareholders by providing long-term equity compensation and meaningful equity ownership.

To meet these objectives, our compensation program balances short-term and long-term performance goals and mixes fixed and at-risk compensation that is directly related to shareholder value and overall performance.

Our compensation program for senior executives, including the Named Executive Officers, is designed to reward Company performance. The compensation program is intended to reinforce the importance of performance and accountability at various operational levels, and therefore a significant portion of total compensation is in both cash and stock-based compensation incentives that reward performance as measured against established goals, i.e., ‘‘pay for performance.’’ Each element of our compensation program is reviewed individually and considered collectively with the other elements of our compensation program to ensure that it is consistent with the goals and objectives of both that particular element of compensation and our overall compensation program. For each Named Executive Officer, we look at each individual’s contributions to our overall results, and our operating and financial performance compared with the targeted goals.

Discussion of Specific Compensation Elements

Our executive compensation during fiscal 2007 consisted of base salary, cash bonuses, grants under long-term incentive plans, benefits and perquisites. We do not have any formal or informal policy or target for allocating compensation between long-term and short term compensation, between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, we have determined subjectively on a case-by-case basis the appropriate level and mix of the various compensation components.

Role of Outside Compensation Consultant

In anticipation of the initial public offering of the Company’s common stock, the Board of Directors retained Frederic W. Cook & Co., Inc. (‘‘F.W. Cook’’) in December 2007 as its independent compensation consultant to conduct a review of the Company’s compensation programs for executive officers and non-employee directors. F.W. Cook’s analysis will include competitive data on the compensation levels and practices for a group of industry-relevant and size-relevant peer companies, as well as alternatives to consider regarding changes in the design of the Company’s executive and director compensation programs for 2008 and future years. F.W. Cook was not involved in the design of the Company’s executive or director compensation programs that are described in this document. Once our compensation committee is formed, which will occur prior to the completion of this offering, the committee may ask F.W. Cook to provide other services relating to the Company’s executive and director compensation that may arise in 2008 and future years. F.W. Cook has not and will not, without prior approval of the compensation committee provide any other services for the Company’s management or directors.

90

Table of Contents

F.W. Cook does not provide any services to our management, and does not provide any services to us, other than with respect to its role as the Board’s executive compensation consultant. The Board of Directors retained F.W. Cook based on their experience and expertise.

Base Salary

We determine base salaries for all of our Named Executive Officers by reviewing the Company’s and individual performance, the value each Named Executive Officer brings to us and general labor market conditions. While base salary provides a base level of compensation intended to be competitive with the external market, the base salary for each Named Executive Officer is determined on a subjective basis after consideration of these factors and is not based on target percentiles or other formal criteria. The base salaries of Named Executive Officers are reviewed on an annual basis, and any annual increase is the result of an evaluation of the Company and of the individual Named Executive Officer’s performance for the period. An increase or decrease in base pay may also result from a promotion or other significant change in a Named Executive Officer’s responsibilities during the year. Our Board of Directors reviews the relative internal compensatio n relationships among the named executive officers, based principally on each executive’s level of responsibilities, individual performance and future potential. While the Board monitors these pay relationships, it does not target any specific pay ratios.

Cash Bonuses

We provide annual incentives to our executive officers and other key employees in the form of cash bonuses to align executive officer pay with overall company financial performance and to promote achievement of both corporate and individual performance goals. These bonuses are granted pursuant to our Management Incentive Compensation Plan (‘‘MICP’’), which provides that bonuses are to be paid based on the attainment of corporate and individual goals and objectives. At the beginning of each fiscal year, the Board of Directors establishes target bonuses as a percentage of each eligible employee’s annual salary. For our executive officers, these target bonus percentages are based on their respective employment agreements. The Board of Directors establishes annual performance ‘‘triggers’’ which must be satisfied in order for employees who participate in the MICP to receive bonus payments. In fiscal 2007, the perf ormance triggers were as follows:

	•	For education systems other than Argosy University, achievement of a specified undergraduate student placement rate and average starting salary for placed students; and

	•	For Argosy University employees, each campus must have submitted a satisfactory draft of its HLC self-study report and received a passing rating from an internal peer review visiting team.

Corporate officers (including our executive officers) receive 85% of their target bonus based on satisfaction of the non-Argosy University payment trigger and 15% of their target bonus based on satisfaction of the Argosy University payment trigger. Both performance triggers were satisfied during fiscal 2007.

If the performance triggers are satisfied, the amount of bonuses paid under the MICP is determined based on our performance against specific financial targets established by the Board of Directors at the beginning of each year. For fiscal 2007, these financial targets were (i) earnings before interest, depreciation, taxes and amortization (‘‘EBITDA’’) less capital expenditures, and (ii) gross revenue. Corporate officers, including Messrs. McKernan, Nelson, Charlson and West and Ms. Sauchuk, generally received 75% percent of their bonus based on the EBITDA less capital expenditures target and 25% based on the gross revenue target. Eligible employees who work for a specific school system are paid bonuses based on the results of their respective school system. The bonuses payable to Messrs. Mazzoni and South under the MICP are based partially on our overall financial results and partially based on the results of their respective educati on systems. Mr. Weiss’s bonus under the MICP is based partially on our overall financial results and partially based on the results of the fully online programs offered by The Art Institute of Pittsburgh, Online Division, Argosy University and South University. Members of executive committees at individual schools receive bonuses based on the financial results of their school and in certain circumstances the achievement

91

Table of Contents

of non-financial performance goals. The MICP provides for minimum and maximum attainments of each financial target and additional payments based on greater than 100% satisfaction of the EBITDA, capital expenditures and gross revenue financial targets. We believe that the minimum level of performance for meeting the financial targets in any given year should not be easily achievable and typically would not be achieved in every case. As for the maximum level or greater payout, we believe that this level of performance would typically be achieved less often than the minimum target level of performance. This uncertainty ensures that any payments under the MICP are truly performance-based, consistent with the plan’s objectives. However, we recognize that the likelihood of achieving either level of performance for any given year may be different, and we believe that the bonus amount paid should be appropriate for the performance level achieved.

The Board of Directors has the discretion to increase or decrease a bonus computed under the terms of the MICP by up to 20% of amount otherwise payable under the plan, provided that no bonus under the MICP may exceed 150% of an employee’s annual salary. In fiscal 2007, each of our Named Executive Officers received a 20% discretionary increase to their bonuses payable under the MICP due to our strong financial performance.

Long-Term Incentive Plans

Our Board of Directors believes that equity-based compensation awards foster and promote our long-term financial success by linking the interests of our executive management team with our shareholders. The Board also believes that increasing the personal equity stake of our executive officers in our continued success and growth can potentially materially increase shareholder value. Equity-based compensation awards also enable us to attract and retain the services of an outstanding management team, upon which the success of our operations are largely dependent. Options to purchase our common stock are the primary equity compensation vehicle we utilize, as the Board of Directors believes the award of options align the interests of these individuals with the interests of our shareholders and our growth in real value over the long-term, as the benefits of these awards are enhanced with an appreciation of the price of our common stock.

2006 Stock Option Plan.    Under the 2006 Stock Option Plan, certain management and key employees of the Company are granted a combination of time-based options and performance-based options to purchase common stock issued by us. Time-based options generally vest ratably over a five-year period on the anniversary of the date of the grant. Time-based options generally vest upon a change of control, subject to certain conditions, and both time-based and performance-based options expire ten years from the date of grant. A change of control would occur upon any transaction or occurrence immediately following which certain private equity funds affiliated with the Principal Shareholders, in the aggregate, cease to beneficially own securities of EDMC representing a majority of the outstanding voting power entitled generally to vote for the election of direc tors.

Performance-based options vest upon the attainment of specified returns on invested capital in EDMC by the private equity funds affiliated with the Principal Shareholders that invested in EDMC in connection with the Transaction. More specifically, performance-based options generally vest in 20% increments upon the Principal Shareholders’ realizing, through one or more ‘‘Realization Events,’’ certain multiples of their invested capital. A minimum realized return multiple of two is required for any of the options to vest and all options vest if a return multiple of four is realized. For these purposes a ‘‘Realization Event’’ is any event or transaction (i) in which the Principal Shareholders receive cash or marketable securities in respect of their interest in shares of our common stock, including by means of a sale, exchange or other disposition of their interests in shares of our common stock (other than tran sfers by members of the Principal Shareholders to or among their respective affiliates) or dividends or other distributions from the Company to its shareholders or (ii) the first day after (a) the Principal Shareholders cease to own in the aggregate at least 30% of our outstanding voting securities, measured by voting power, and (b) the Principal Shareholders have, in the aggregate, disposed of at least 70% of their shares and have received cash or marketable securities for such shares. We granted these performance-based options to align even more closely the interests of our employees with those of our shareholders by tying the vesting of those options to the realization of target equity values by the Principal Shareholders.

92

Table of Contents

Both the time-based and performance-based grants are subject to conditions under SFAS No. 123R that define certain events that must occur in order for the participants to receive fair market value for their options. As discussed below, prior to the consummation of this offering we will adopt an Omnibus Plan (as defined below) under which all future awards of stock options will be made. Accordingly, no further awards will be made under the 2006 Stock Option Plan. Awards that are outstanding under the 2006 Stock Option Plan as of the effective date of the Omnibus Plan will not be terminated, but instead will remain outstanding and will be administered under the terms of the 2006 Stock Option Plan.

LTIC Plan.    We adopted a LTIC Plan in December 2006. We implemented the LTIC Plan principally to serve as another tool to align the interests of our employees with the interests of our shareholders by motivating them to increase share value by giving them the opportunity to benefit if our stock price rises, which increased share value is also the primary interest of our shareholders. Pursuant to the terms of the LTIC Plan, a bonus pool will be created after the occurrence of a ‘‘Realization Event’’ based on returns to the Principal Shareholders in excess of their initial investment. The size of the bonus pool can generally range from $2 million to $21 million, based on the Principal Shareholders realizing from two times their initial investment to four times their initial investment, provided that if the return rea lized by the Principal Shareholders exceeds four times their initial investment, the bonus pool will equal the product of 0.0075 and the aggregate proceeds in excess of the total capital invested in shares of our common stock by all EDMC shareholders. The amount of the bonus pool that an employee will be entitled to receive will be determined by multiplying the amount of the bonus pool by a fraction, the numerator of which is the total number of units held by the employee and the denominator of which is 1,000,000. Payments by us to the LTIC Plan will be in cash or, at the election of our Board of Directors, shares of our common stock. For purposes of the LTIC Plan, a ‘‘Realization Event’’ is the first day after (a) certain private equity funds affiliated with the Principal Shareholders cease to own in the aggregate at least 30% of our outstanding voting securities, measured by voting power, and (b) the Principal Shareholders have, in the aggregate, disposed of at least 70% of their sh ares and have received cash or marketable securities for such shares. None of our executive officers participated in the LTIC Plan during fiscal 2007.

Omnibus Long-Term Incentive Plan.    We intend to adopt the Education Management Corporation Omnibus Long-Term Incentive Plan, which we refer to as the Omnibus Plan, prior to consummation of this offering. The Board believes that our current plans have been effective in attracting and retaining key talent and in aligning the long-term interests of plan participants with those of our shareholders. The Board also believes that administering all future stock and other equity-based awards under a single plan will increase the efficiency and effectiveness of our long-term incentive programs, reduce administrative and regulatory costs, and allow greater transparency with respect to our equity compensation practices. As a result of our adoption of the Omnibus Plan, the 2006 Stock Option Plan will be frozen such that no further awards will be made under such plan. Awards that are outstanding under the 2006 Stock Option Plan as of the effective date of the Omnibus Plan will not be terminated, but instead will remain outstanding and will be administered under the terms of the existing 2006 Stock Option Plan. In connection with this offering, we intend to grant          exercisable for          shares in the aggregate under the Omnibus Plan. For more information about the terms of the Omnibus Plan, see ‘‘Omnibus Long-Term Incentive Plan’’ below.

Benefits and Perquisites

We offer a variety of health and welfare programs to all eligible employees, including the Named Executive Officers. The Named Executive Officers generally are eligible for the same benefit programs on the same basis as the rest of the Company’s employees, including medical and dental care coverage, life insurance coverage, short-and long-term disability and a 401(k) plan. In addition, we maintain a nonqualified deferred compensation plan that is available to all key executives, officers and certain other employees. For a description of the terms of this plan, as well as information about the account balances held by each of the Named Executive Officers, see ‘‘Nonqualified Deferred Compensation’’ below.

93

Table of Contents

We also offer to certain executives limited perquisites as a method of compensation and provide executive officers with only those perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The perquisites provided to the Named Executive Officers include reimbursement of relocation expenses, reimbursement for personal airplane usage and related tax gross-ups and are quantified in the Summary Compensation Table below.

Executive Compensation

The following table sets forth information regarding the compensation paid to John R. McKernan, Jr., our Executive Chairman, Todd S. Nelson, our President and Chief Executive Officer, Edward H. West, our Chief Financial Officer, and our other three most highly compensated executive officers during fiscal 2007. These six persons are collectively referred to as our ‘‘named executive officers’’ in this prospectus.

SUMMARY COMPENSATION TABLE

			Fiscal Year						Salary						Bonus						Stock Award						Option Award (s)(1)						Non-Equity Incentive Plan Payments						Change in Pension Value and Non-Qualified Deferred Compensation Earnings						All Other Compensation					Total
John R. McKernan, Jr.(2)					2007					$	553,466						—						—						—					$	942,356						—					$	60,254(3	)			$	1,556,076
Executive Chairman
Todd S. Nelson(4)					2007						177,692						—						—						—						392,649						—						31,839(5	)				602,180
President and Chief Executive Officer
Edward H. West					2007						450,000						—						—						—						771,019						—						56,970(6	)				1,277,989
Chief Financial Officer
John M. Mazzoni					2007						297,061						—						—						—						363,042						—						25,173(7	)				685,276
President, The Art Institutes
John T. South, III					2007						296,885						—						—						—						369,309						—						180,890(8	)				847,084
Chancellor, South University and Chairman of the Board of Directors, Argosy University
Stephen J. Weiss					2007						294,185						—						—						—						450,000						—						20,201(9	)				764,386
President, EDMC Online Higher Education

(1) The Company did not record any expense for options under SFAS No. 123R during fiscal 2007, due to restrictions on option holders’ ability to receive value on their stock option grants until certain performance conditions are achieved. If we had recorded option expense under SFAS No. 123R, we would have recorded expense for the time-vested options of $762,249 for Mr. McKernan, $611,540 for Mr. Nelson, $314,916 for Mr. West, $108,064 for Mr. Mazzoni, $72,805 for Mr. South and $144,140 for Mr. Weiss. A description of the Company’s analysis of SFAS No. 123R expense is set forth in Note 13 to the accompanying audited consolidated financial statements.

(2) Mr. McKernan also served as our Chief Executive Officer until February 2007, when Mr. Nelson was hired as Chief Executive Officer and President.

(3) Includes the Company’s match to Mr. McKernan’s 401(k) contribution ($10,137), the amount paid to the Company’s Deferred Compensation Plan on Mr. McKernan’s behalf due to a limitation on

94

Table of Contents

the Company’s match to the 401(k) plan under Internal Revenue Code limitations ($47,795), and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. McKernan.

(4) Mr. Nelson became the Company’s Chief Executive Officer in February 2007. The amounts included in this table for Mr. Nelson reflect compensation paid from February to June 2007.

(5) Includes the reimbursement for housing in Pittsburgh, Pennsylvania, reimbursement for travel to and from Pittsburgh, Pennsylvania, a tax gross-up payment for the housing and travel reimbursements ($10,806) and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. Nelson.

(6) Includes the reimbursement for housing in Pittsburgh, Pennsylvania, reimbursement for travel to and from Pittsburgh, Pennsylvania, a tax gross-up payment for the housing and travel reimbursements ($15,533) and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. West. A description of our purchase of Mr. West’s house pursuant to our employee relocation policy is included in ‘‘Certain Relationships and Related Transactions and Director Independence’’ below.

(7) Includes the Company’s match to Mr. Mazzoni’s 401(k) contribution, the amount paid to the Company’s Deferred Compensation Plan on Mr. Mazzoni’s behalf due to a limitation on the Company’s match to the 401(k) plan under Internal Revenue Code limitations ($16,305), and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. Mazzoni.

(8) Includes the Company’s match to Mr. South’s 401(k) contribution ($10,881), the amount paid to the Company’s Deferred Compensation Plan on Mr. South’s behalf due to a limitation on the Company’s match to the 401(k) plan under Internal Revenue Code limitations ($16,311), reimbursement for use of Mr. South’s personal plane for business travel ($142,999), reimbursement for membership of several social clubs and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. South.

(9) Includes the Company’s match to Mr. Weiss’ 401(k) contribution, the amount paid to the Company’s Deferred Compensation Plan on Mr. Weiss’s behalf due to a limitation on the Company’s match to the 401(k) plan under Internal Revenue Code limitations ($13,115), and the dollar value of life insurance premiums we paid with respect to term life insurance for the benefit of Mr. Weiss.

95

Table of Contents

Grants of Plan-Based Awards

The following table provides information regarding plan-based awards granted to the Named Executive Officers during fiscal 2007.

			Grant Date			Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(7)																		Estimated Future Payouts Under Equity Incentive Plan Awards																		All Other Stock Awards: Number of Shares of Stock or Units (#)						All Other Option Awards: Number of Shares of Stock or Underlying Options						Exercise Price ($/share)						Grant Date Fair Value of Option Awards(6)
						Threshold ($)						Target ($)						Maximum ($)						Threshold (#)						Target (#)						Maximum (#)
John R. McKernan, Jr.			8/01/2006					—						—						—						—						—						—						—						171,052	(1)				$	50.00					$	4,195,906
			8/01/2006					—						—						—						—						171,053	(2)					—						—						—					$	50.00					$	1,613,030
								—					$	942,356						—						—						—						—						—						—						—						—
Todd S. Nelson			3/9/2007					—						—						—						—						—						—						—						282,101	(3)				$	55.00					$	8,426,357
			3/9/2007					—						—						—						—						282,102	(4)					—						—						—					$	55.00					$	2,959,250
			3/30/2007					—						—						—						—						—						—						—						25,000	(3)				$	55.00					$	746,750
								—					$	392,649						—						—						—						—						—						—						—						—
Edward H. West			8/1/2006					—						—						—						—						—						—						—						68,421	(5)				$	50.00					$	1,678,367
			8/1/2006					—						—						—						—						68,421	(4)					—						—						—					$	50.00					$	645,210
			6/28/2007					—						—						—						—						—						—						—						10,263	(3)				$	60.00					$	432,893
			6/28/2007					—						—						—						—						10,263	(4)					—						—						—					$	60.00					$	168,621
								—					$	771,019						—						—						—						—						—						—						—						—
John M. Mazzoni			12/5/2006					—						—						—						—						—						—						—						33,100	(5)				$	50.00					$	896,348
			12/5/2006					—						—						—						—						33,100	(4)					—						—						—					$	50.00					$	322,394
			6/28/2007					—						—						—						—						—						—						—						4,965	(3)				$	60.00					$	209,424
			6/28/2007					—						—						—						—						4,965	(4)					—						—						—					$	60.00					$	81,575
								—					$	363,042						—						—						—						—						—						—						—						—
John T. South, III			12/5/2006					—						—						—						—						—						—						—						22,300	(5)				$	50.00					$	603,884
			12/5/2006					—						—						—						—						22,300	(4)					—						—						—					$	50.00					$	217,202
			6/28/2007					—						—						—						—						—						—						—						3,345	(3)				$	60.00					$	141,092
			6/28/2007					—						—						—						—						3,345	(4)					—						—						—					$	60.00					$	54,958
								—					$	$369,309						—						—						—						—						—						—						—						—
Stephen J. Weiss			12/5/2006					—						—						—						—						—						—						—						44,150	(5)				$	50.00					$	1,195,582
			12/5/2006					—						—						—						—						44,150	(4)					—						—						—					$	50.00					$	430,021
			6/28/2007					—						—						—						—						—						—						—						6,622	(3)				$	60.00					$	279,316
			6/28/2007					—						—						—						—						6,623	(4)					—						—						—					$	60.00					$	108,816
								—					$	450,000						—						—						—						—						—						—						—						—

(1) Represents time vested stock options that vest on a monthly basis over a five-year term. Mr. McKernan will forfeit 46,750 of his time vested stock options on December 31, 2007, the effective date of the ‘‘transition event’’ under his employment agreement.

(2) Represents performance vested stock options that vest based on investment returns to the private equity funds affiliated with the Principal Shareholders which invested in EDMC in connection with the Transaction. The material terms of these performance vested stock options are described in the ‘‘Compensation Discussion and Analysis’’ above. Mr. McKernan will forfeit 46,755 of his performance vested stock options on December 31, 2007, the effective date of the ‘‘transition event’’ under his employment agreement.

(3) Represents time vested stock options, twenty percent of which vest on the first five anniversaries of the date of grant.

(4) Represents performance vested stock options that vest based on investment returns to the private equity funds affiliated with the Principal Shareholders which invested in EDMC in connection with the Transaction. The material terms of these performance vested stock options are described in the ‘‘Compensation Discussion and Analysis’’ above.

(5) Represents time vested stock options, twenty percent of which vested on June 1, 2007 and twenty percent of which vests on June 1 of the next four years.

(6) Computed based on SFAS No. 123R fair value of option grant.

96

Table of Contents

(7) Each of the ‘‘Non-Equity Incentive Plan Awards’’ reported in this column were granted under the Company’s Management Incentive Compensation Plan. The material terms of these incentive awards are described in the ‘‘Compensation Discussion and Analysis’’ above.

Employment Agreements

We have entered into employment agreements with all our executive officers and certain other senior managers. The agreements were designed to retain executives and provide continuity of management in the event of an actual or threatened change of control. In addition, under the terms of the option awards made to executives, acceleration of vesting of options occurs if a change of control takes place or due to certain other termination events. These arrangements and potential post-employment termination compensation payments are described in more detail in the section entitled ‘‘Potential Payments Upon Termination or Change of Control’’ below.

McKernan Employment Agreement.    Effective as of June 1, 2006, we entered into an employment agreement with Mr. McKernan, which was modified on February 13, 2007 and June 28, 2007 (the ‘‘McKernan Agreement’’). The McKernan Agreement cancelled and superseded Mr. McKernan’s prior employment agreement, dated as of August 5, 2003. Mr. McKernan became our Executive Chairman in February 2007 when Mr. Nelson was hired as Chief Executive Officer and President. The McKernan Agreement provides that Mr. McKernan will receive an annual salary of $550,000, subject to review and discretionary increases by the Board of Directors, a target bonus of 125% of his annual salary and other employee benefits under the various benefit plans and programs we maintain for our e mployees. As of December 31, 2007, a ‘‘transition event’’ will be deemed to occur under the McKernan Agreement and Mr. McKernan’s annual salary will decrease by 40% and he will forfeit 40% of his nonvested stock options. Mr. McKernan will decrease his hours worked on behalf of the Company once the transition event occurs and will be permitted to undertake other engagements that do not interfere with his obligations to the Company.

The McKernan Agreement is for a five-year term. We may terminate the McKernan Agreement with or without cause and Mr. McKernan may resign in each case, other than a termination for cause, upon 30 days’ advance written notice to the other party. Under the McKernan Agreement, cause means (i) Mr. McKernan’s willful and continued failure to use his best efforts to perform his reasonably assigned duties (other than on account of disability); (ii) Mr. McKernan is indicted for, convicted of, or enters a plea of guilty or nolo contendere to, (x) a felony or (y) a misdemeanor involving moral turpitude; (iii) in carrying out his duties under the McKernan Agreement, Mr. McKernan engages in (x) gross negligence causing material harm to EDMC, its business or reputation, (y) willful and material misconduct or (z) willful and material breach of fiduciary duty; or (iv) Mr. McKernan willfully and materially breaches (x) the restrictive covena nts described in the McKernan Agreement or (y) certain material written policies of EDMC, as in effect on the date of the McKernan Agreement.

If Mr. McKernan is terminated during his term other than for cause (as defined in the McKernan Agreement), or by Mr. McKernan for good reason, Mr. McKernan is entitled to a lump sum severance payment of (i) one and one-half times (or three times if the date of termination is within the first two-year period, or if it is in anticipation of or within two years following a change of control, as defined in the 2006 Stock Option Plan) the sum of his base salary plus the target annual bonus, and (ii) a pro-rata annual bonus based on his target annual bonus. ‘‘Good reason,’’ as that term is used above, includes (a) any material diminution of authorities, titles or offices, (b) any change in the reporting structure such that Mr. McKernan reports to someone other than the Board of Directors, (c) a relocation of primary place of employment by more than 50 miles, (d) a material breach of ours of any material obligation to Mr . McKernan, and (e) any failure of ours to obtain the assumption in writing of its obligation to perform the McKernan Agreement by any successor following any merger, consolidation, sale or similar transaction, except where the assumption occurs by operation of law.

The McKernan Agreement contains non-competition, non-solicitation and confidentiality covenants. The non-competition provision continues for a period of twenty-four months following termination of employment. Mr. McKernan also purchased $3,000,000 of our common stock pursuant to a purchase agreement with the Principal Shareholders.

97

Table of Contents

Nelson Employment Agreement.    On February 8, 2007, we entered into an employment agreement (the ‘‘Nelson Agreement’’) with Mr. Nelson pursuant to which Mr. Nelson serves as the Chief Executive Officer and President of the Company and as a director of both the Company and EDMC.

The Nelson Agreement is for a term of three years ending on February 20, 2010 and is subject at the end of that initial term to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 180 days prior to the end of the applicable term. Under the terms the agreement, Mr. Nelson receives a base salary of $550,000 and a target bonus of 125% of his base salary. The salary and target bonus percentages will be reviewed annually and may be adjusted upward by the Board of Directors. Mr. Nelson will also receive other employee benefits under the various benefit plans and programs the Company maintains for its employees.

The Company may terminate the Nelson Agreement with or without cause and Mr. Nelson may resign upon 30 days’ advance written notice to the other party, except that no notice is required upon termination by the Company for cause. Under the Nelson Agreement, cause means (i) Mr. Nelson’s willful and continued failure to use his best efforts to perform his reasonably assigned duties (other than on account of disability); (ii) Mr. Nelson is indicted for, convicted of, or enters a plea of nolo contendere to, (x) a felony or (y) a misdemeanor involving moral turpitude; (iii) in carrying out his duties under the Nelson Agreement, Mr. Nelson engages in (x) gross negligence causing material harm to us or our business or reputation, (y) willful and material misconduct or (z) willful and material breach of fiduciary duty; (iv) Mr. Nelson willfully and materially breaches (x) the restrictive covenants described in the Nelson Agreement or (y) certain material written policies, as in effect on the Effective Date; or (v) Mr. Nelson is named in and receives a Wells Notice or is notified by the U.S. Department of Justice or U.S. Attorney’s Office that he has been designated a ‘‘target’’ of an investigation by either of them.

Upon the termination of Mr. Nelson’s employment for any reason, Mr. Nelson will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements. If Mr. Nelson is terminated during the term of the Nelson Agreement other than for cause, or if Mr. Nelson terminates his employment for good reason, Mr. Nelson is entitled to a lump sum severance payment equal to (i) 1.5 times the sum of his annual base salary plus his target annual bonus, and (ii) a pro-rated annual bonus based on his target annual bonus. In the event that such termination without cause or for good reason is in anticipation of or within two years following a change of control, as defined in the 2006 Stock Option Plan, the lump sum paid to Mr. Nelson will equal (y) 3.0 times the sum of his base salary plus the tar get annual bonus, and (z) a pro-rated annual bonus based on his target annual bonus. ‘‘Good Reason,’’ as that term is used above, generally includes (a) any material diminution in Mr. Nelson’s responsibilities or titles, or the assignment to him of duties that materially impair his ability to perform the duties normally assigned to an executive in his role at a corporation of the size and nature of the Company; (b) any change in the reporting structure so that Mr. Nelson does not report to the Board of Directors; (c) any relocation of the Company’s principal office to a location more than fifty (50) miles from Pittsburgh, Pennsylvania following Mr. Nelson’s relocation to the metropolitan Pittsburgh area; (d) a material breach by the Company of any material obligation to Mr. Nelson; or (e) in the event of a change of control, any failure of the Company to obtain written agreement of the successor to the Company to perform the Company’s obliga tions under the Nelson Agreement. If the Company terminates the agreement effective upon expiration of the term with timely notice to Mr. Nelson, and Mr. Nelson elects to terminate his employment within 30 days after the end of the term, then such termination will be treated as a termination without cause under the Nelson Agreement.

The Nelson Agreement also includes non-competition, non-solicitation and confidentiality covenants. The non-competition provision continues for a period of 12 months following termination of employment while the non-solicitation period continues for 24 months following termination of employment. Mr. Nelson purchased $10,000,000 of our common stock pursuant to the Nelson Agreement. We also agreed to reimburse Mr. Nelson for housing in Pittsburgh, Pennsylvania and periodic round trips to Phoenix, Arizona and Salt Lake City, Utah through June 2009.

98

Table of Contents

West Employment Agreement.    Effective as of June 1, 2006, we entered into an employment agreement with Mr. West, dated as of June 1, 2006 (the ‘‘West Agreement’’), under which Mr. West serves as our Executive Vice President and Chief Financial Officer. The West Agreement is for a term of three years ending on June 1, 2009 and is subject at the end of that initial term to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 180 days prior to any renewal date. Mr. West currently receives a base salary at an annual rate of $450,000, which is reviewed annually and may be adjusted upward by the Board of Directors, plus a target bonus of 125% of his annual salary and other employee benefits under the various benefit plans and programs we maintain for our employees.

Mr. West also purchased $500,000 of EDMC common stock pursuant to a purchase agreement with the Principal Shareholders.

We may terminate the West Agreement with or without cause and Mr. West may resign in each case, other than a termination for cause, upon 30 days advance written notice to the other party. Under the West Agreement, cause means (i) Mr. West’s willful and continued failure to use his best efforts to perform his reasonably assigned duties (other than on account of disability); (ii) Mr. West is indicted for, convicted of, or enters a plea of guilty or nolo contendere to, (x) a felony or (y) a misdemeanor involving moral turpitude; (iii) in carrying out his duties under the West Agreement, Mr. West engages in (x) gross negligence causing material harm to us or our business or reputation, (y) willful and material misconduct or (z) willful and material breach of fiduciary duty; or (iv) Mr. West willfully and materially breaches (x) the restrictive covenants described in the West Agreement or (y) certain material written policies of ED MC, as in effect on the Effective Date.

Upon an eligible termination for any reason, Mr. West will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements. Under the West Agreement, if Mr. West is terminated during his term other than for cause, or by Mr. West for good reason, Mr. West is entitled to a lump sum severance payment of (i) one and one-half times (or two times if the date of termination is in anticipation of or within two years following a change of control, as defined in the 2006 Stock Option Plan) the sum of Mr. West’s base salary plus the target annual bonus and (ii) a pro-rata annual bonus based on his target annual bonus. ‘‘Good reason,’’ as that term is used above, includes (a) any material diminution of authorities, titles or offices, (b) any change in the reporting structure such that Mr. We st reports to someone other than the Chief Executive Officer, (c) a relocation of primary place of employment by more than 50 miles, (d) a material breach of ours of any material obligation to Mr. West and (e) any failure of ours to obtain the assumption in writing of its obligation to perform the West Agreement by any successor following a change of control. If we terminate the agreement effective upon expiration of the term with timely notice to Mr. West, and Mr. West elects to terminate his employment within 30 days after the end of the term, then such termination will be treated as a termination without cause under the West Agreement.

The West Agreement contains non-competition, non-solicitation and confidentiality covenants. The non-competition provision continues for a period of 18 months following termination of employment. The West Agreement provides that we will reimburse Mr. West for housing in Pittsburgh, Pennsylvania and weekly round trips to Philadelphia, Pennsylvania through August 2007 unless Mr. West earlier relocates to Pittsburgh, Pennsylvania. We also agreed to bear the cost of Mr. West’s relocation to Pittsburgh, Pennsylvania in accordance with our relocation policy.

Other Executive Employment Agreements.    The employment agreements with Messrs. Mazzoni, South and Weiss include the following terms:

	•	A three-year term commencing December 7, 2006, with one-year automatic renewals unless terminated on 180 days advance notice, provided that if we terminate the agreement effective upon expiration of the term with timely notice to executive, and the executive elects to terminate his employment within 30 days after the end of the term, then such termination will be treated as a termination without cause under the employment agreement;

99

Table of Contents

	•	An annual base salary which is reviewed annually and may be adjusted upward by the Board of Directors, plus a target bonus based on a percentage of the executive’s annual salary;

	•	Employee benefits under the various benefit plans and programs we maintain for our employees;

	•	Participation in the EDMC stock option plan;

	•	Monthly salary and bonus payments for 12 months (18 months in the case of Mr. Weiss) upon a termination without ‘‘cause’’ or a resignation for ‘‘good reason’’, provided that the period of monthly payments increases to two years if the termination without cause or resignation for good reason if the date of termination is in anticipation of or within two years following a change of control, as defined in the 2006 Stock Option Plan;

	•	Cause means (i) the individual’s willful and continued failure to use his best efforts to perform his reasonably assigned duties (other than on account of disability); (ii) the individual is indicted for, convicted of, or enters a plea of guilty or nolo contendere to, (x) a felony or (y) a misdemeanor involving moral turpitude; (iii) the individual engages in (x) gross negligence causing material harm to us or our business or reputation, (y) willful and material misconduct or (z) willful and material breach of fiduciary duty; or (iv) the individual willfully and materially breaches (x) the restrictive covenants described in his respective agreement or (y) certain material written policies, as in effect on the Effective Date;

	•	Good reason means the occurrence of any of the following events without either the individual’s prior written consent or full cure within 30 days after he gives written notice to us describing the event and requesting cure: (i) the reassignment to the individual to a position that is not a corporate officer level position or the assignment to the individual of duties that are not consistent with such corporate officer level position; (ii) any relocation of the individual’s principal place of employment; (iii) any material breach by us or any of our affiliates of any material obligation to the individual; or (iv) any failure of us to obtain the assumption in writing of its obligation to perform his respective agreement by any successor to all or substantially all of our assets within 15 days after any merger, consolidation, sale or similar transaction, except where such assumption occurs by operation of law;

	•	Noncompetition, confidentiality and nonsolicitation restrictive covenants for a period of 12 months after termination of employment;

	•	In the event of the executive’s disability, continuation of all compensation and benefits through the earlier to occur of the next anniversary of the date of the employment agreement or the date of the executive’s death, provided that the obligation to pay the executive’s base salary will be reduced by the amounts paid to the executive under any long-term disability insurance plan that we sponsor or otherwise maintain and that in no event will our the total annual obligation base salary payments to the executive be greater than an amount equal to two-thirds of the executive’s base salary; and

	•	In the event of the executive’s death, six months of salary, a pro-rata bonus for the year of death and six months of bonus payments based on the higher of (i) the average bonus paid to the executive in each of the last three years, and (ii) the bonus paid to the executive in the most recent 12 month period (annualized for any partial year payments).

In addition, Mr. South’s employment agreement provides that we will reimburse him for membership fees at certain social clubs and for up to $160,000 in expenses associated with the use of his personal plane for business purposes. The definition of ‘‘good reason’’ in each of the executive’s employment agreements includes (i) the reassignment of the executive to a position that is not a corporate officer level position or the assignment to the executive of duties that are not consistent with such corporate officer level position, (ii) a relocation of the executive’s primary place of employment by more than 50 miles, (iii) a material breach of ours of any material obligation to the executive and (iv) any failure of ours to obtain the assumption in writing of its obligation to perform

100

Table of Contents

the employment agreement by any successor following a change of control. In addition, Mr. South’s employment agreement allows him to terminate the agreement for good reason (a) upon a change in the control or structure of the Company or South University which materially and adversely impacts his ability to satisfy the terms of an Escrow Agreement we entered into with him in connection with his sale of South University to us, and (b) his removal as Chancellor of South University.

The time vested stock option agreements entered into with each of our executive officers provide for additional vesting in the event that the executive is terminated without cause or resigns for good reason prior to the executive’s time vested options becoming fully vested.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding outstanding stock options and restricted stock held by the Named Executive Officers at June 30, 2007.

			Option Awards																											Stock Awards
			Number of Securities Underlying Unexercised Options (#) Exercisable						Number of Securities Underlying Unexercised Options (#) Unexercisable						Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)						Option Exercise Price ($)						Option Expiration Date			Number of Shares or Units of Stock That Have Not Vested (#)						Market Value of Shares or Units of Stock That Have Not Vested ($)						Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)						Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
John R. McKernan, Jr.					37,069	(1)					133,983	(1)					—					$	50.00				5/31/2016					—						—						—						—
					—						—						171,053	(2)					50.00				5/31/2016					—						—						—						—
Todd S. Nelson					—						282,101	(3)					—						55.00				3/8/2017					—						—						—						—
					—						—						282,102	(4)					55.00				3/8/2017					—						—						—						—
					—						25,000	(5)					—						55.00				3/29/2017					—						—						—						—
Edward H. West					13,684	(6)					54,737	(6)					—						50.00				5/31/2016					—						—						—						—
					—						—						68,421	(4)					50.00				5/31/2016					—						—						—						—
					—						10,263	(7)					—						60.00				6/27/2017					—						—						—						—
					—						—						10,263	(4)					60.00				6/27/2017					—						—						—						—
John M. Mazzoni					6,620	(6)					26,480	(6)					—						50.00				5/31/2016					—						—						—						—
					—						—						33,100	(4)					50.00				5/31/2016					—						—						—						—
					—						4,965	(7)					—						60.00				6/27/2017					—						—						—						—
					—						—						4,965	(4)					60.00				6/27/2017					—						—						—						—
John T. South, III					4,460	(6)					17,840	(6)					—						50.00				5/31/2016					—						—						—						—
					—						—						22,300	(4)					50.00				5/31/2016					—						—						—						—
					—						3,345	(7)					—						50.00				6/27/2017					—						—						—						—
					—						—						3,345	(4)					60.00				6/27/2017					—						—						—						—
Stephen J. Weiss					8,830	(6)					35,320	(6)					—						60.00				5/31/2016					—						—						—						—
					—						—						44,150	(4)					50.00				5/31/2016					—						—						—						—
					—						6,622	(7)					—						60.00				6/27/2017					—						—						—						—
					—						—						6,623	(4)					60.00				6/27/2017					—						—						—						—

(1) Represents time vested stock options that vest on a monthly basis over a five-year term. Mr. McKernan will forfeit 46,750 of his time vested stock options on December 31, 2007, the effective date of the ‘‘transition event’’ under his employment agreement.

(2) Represents performance vested stock options that vest based on investment returns to the private equity funds affiliated with the Principal Shareholders which invested in EDMC in connection with the Transaction. Mr. McKernan will forfeit 46,755 of his performance vested stock options on December 31, 2007, the effective date of the ‘‘transition event’’ under his employment agreement.

(3) Represents time-based stock options which vest over a five-year period with twenty percent vesting on March 9, 2008, one year from the date of grant, and twenty percent vesting on each of the next four anniversaries of the date of grant.

101

Table of Contents

(4) Represents performance vested stock options that vest based on investment returns to the private equity funds affiliated with the Principal Shareholders which invested in EDMC in connection with the Transaction.

(5) Represents time-based stock options which vest over a five-year period with twenty percent vesting on March 30, 2008, one year from the date of grant, and twenty percent vesting on each of the next four anniversaries of the date of grant.

(6) Represents time-based stock options, twenty percent of which vested on June 1, 2007 and twenty percent of which vests on June 1 of the next four years.

(7) Represents time-based stock options which vest over a five-year period with twenty percent vesting on June 28, 2008, one year from the date of grant, and twenty percent vesting on each of the next four anniversaries of the date of grant.

Option Exercises and Stock Vested

None of the Named Executive Officers exercised any stock options during fiscal 2007.

Pension Benefits

None of the Named Executive Officers receive pension benefits.

Nonqualified Deferred Compensation

The following table sets forth the nonqualified deferred compensation received by named executive officers during fiscal 2007.

			Executive Contributions in Fiscal 2007						Registrant Contributions in Fiscal 2007*						Aggregate Earnings in Fiscal 2007						Aggregate Withdrawals/ Distributions						Aggregate Balance at 6/30/07
John R. McKernan, Jr.				$	78,339					$	47,795					$	94,516						—					$	650,720
Todd S. Nelson					—						—						—						—						—
Edward H. West					—						—						—						—						—
John M. Mazzoni					3,677						16,305						13,174						—						113,944
John T. South, III					—						16,311						1,371						—						44,390
Stephen J. Weiss					—						13,115						3,126						—						27,323

* The amounts in this column are reported as compensation in the All Other Compensation column of the Summary Compensation Table.

We have a nonqualified deferred compensation plan for key executives, officers and certain other employees to allow compensation deferrals in addition to the amounts that may be deferred under the 401(k) plan. Participants in the deferred compensation plan may defer up to 100% of their annual cash compensation. While we do not match any portion of a participant’s contribution to the deferred compensation plan, participants who do not receive the full employer match on their contribution to the 401(k) plan due to Internal Revenue Code limitations on individual contributions to the 401(k) plan may have the matching contribution they would have received absent the Internal Revenue Code limitation contributed to the deferred compensation plan on their behalf. We currently match 100% of employee contributions to the 401(k) plan for up to 3% of compensation and 50% of employee contributions between 4% and 6% of compensation. The investment options available in t he deferred compensation plan are similar to those offered in the 401(k) plan, except that one managed investment fund available to participants in the 401(k) plan is not an investment option for the deferred compensation plan. Plan benefits are paid from our assets.

102

Table of Contents

Potential Payments Upon Termination or Change of Control

This section describes payments that may be made to the Company’s Named Executive Officers upon several events of termination, including termination in connection with a change of control, assuming the termination event occurred on June 30, 2007 (except as otherwise noted). All payments to an executive described below are conditioned on the executive’s execution, delivery and non-revocation of a valid and enforceable general release of claims.

We may terminate the employment agreements with each of the Named Executive Officers with or without cause and the executive may resign in each case, other than a termination for cause, upon 30 days’ advance written notice to the other party. Upon an eligible termination for any reason, the executive will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements. If the executive is terminated for cause or if the executive terminates his employment other than for good reason, any annual bonus earned will be forfeited.

The term ‘‘good reason’’ for each executive employment agreement is described above under ‘‘Employment Agreements’’.

The term ‘‘change in control’’ for each executive employment generally means a transaction or occurrence immediately following which the Principal Shareholders, in the aggregate, cease to beneficially own securities of the Company representing a majority of the outstanding voting power entitled generally to vote for the election of directors.

The term ‘‘cause’’ under each executive employment agreement generally means that the executive has engaged in any of a list of specified activities, including any of the following:

	•	the willful failure to use best efforts to perform the executive’s employment duties;

	•	the indictment for, conviction of or guilty plea to any felony or a misdemeanor involving moral turpitude;

	•	gross negligence causing harm to the Company or willful and material misconduct or breach of fiduciary duty; or

	•	the willful breach of certain restrictive covenants or written policies.

Other material terms of the employment agreements with the Named Executive Officers addressing payments upon termination or a change of control are as follows:

John R. McKernan, Jr.

If Mr. McKernan is terminated during his term other than for cause, or if Mr. McKernan terminates his employment for good reason, Mr. McKernan is entitled to a lump sum severance payment of (i) one and one-half times (or three times if the date of termination is within the first two-year period of the agreement, or if it is in anticipation of or within two years following a change in control) the sum of Mr. McKernan’s base salary plus the target annual bonus and (ii) a pro-rated annual bonus based on his target annual bonus.

In addition, the McKernan Agreement will terminate prior to its scheduled expiration date in the event of death or disability. In the event of Mr. McKernan’s death during the employment term, we will continue to pay any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements in addition to a pro-rated annual bonus payment based on his target annual bonus for the year of such termination.

Todd S. Nelson

If Mr. Nelson is terminated by the Company other than for cause, or if Mr. Nelson terminates his employment with good reason, Mr. Nelson is entitled to a lump sum severance payment equal to (i) 1.5 times (or three times if the termination is in anticipation of or within two years after a change in

103

Table of Contents

control) the sum of his annual base salary plus his target annual bonus, and (ii) a pro-rated annual bonus based on his target annual bonus. Mr. Nelson is also entitled to reimbursement for COBRA premiums in the amount of COBRA premiums charged to Mr. Nelson minus the amount charged to actively employed senior executives for like coverage not to exceed 18 months.

In addition, the Nelson Agreement will terminate prior to its scheduled expiration date in the event of Mr. Nelson’s death or disability. In the event of his death or disability during the employment term, the Company will pay Mr. Nelson or his estate, as applicable, in addition to any accrued unpaid amounts, his pro-rated annual bonus for the year of such termination.

Edward H. West

If Mr. West is terminated by the Company other than for cause, or if Mr. West terminates his employment with good reason, then Mr. West is entitled to a lump sum severance payment of (i) one and one-half times (or two times if the date of termination is in anticipation of or within two years following a change in control) the sum of Mr. West’s base salary plus the target annual bonus, and (ii) a pro-rated annual bonus based on his target annual bonus. Mr. West is also entitled to reimbursement for COBRA premiums, in the amount of COBRA premium charged to Mr. West minus the amount charged to actively employed senior executives for like coverage not to exceed 18 months.

In addition, the West Agreement will terminate prior to its scheduled expiration date in the event of death or disability. In the event of Mr. West’s death during the employment term, we will continue to pay any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements in addition to a pro-rated annual bonus payment based on his target annual bonus for the year of such termination.

Agreements with Messrs. Mazzoni, South and Weiss

If any of Messrs. Mazzoni, South or Weiss is terminated by the Company other than for cause, or one of these executives terminates his employment with good reason, then the executive is entitled to severance payment of (i) one times for Messrs. Mazzoni and South and one and one-half times for Mr. Weiss (or two times for all three executives if the termination is in anticipation of or within two years following a change in control) the sum of the executive’s base salary plus the target annual bonus, and (ii) a pro-rated annual bonus based on his target annual bonus. Severance payments are made on a monthly basis except in the event of a termination in anticipation of or within two years following a change of control, in which case the payment will be made in a lump sum. Each executive is also entitled to continuation of welfare benefits minus the amount charged to actively employed senior executives for like coverage not to exceed 18 months.

In addition, the employment agreements with Messrs. Mazzoni, South or Weiss will terminate prior to its scheduled expiration date in the event of death or disability. In the event of the executive’s death during the employment term, we will continue to pay to the executive’s designee or his estate the executive’s base salary and pro rata target annual bonus for a period of six months in addition to a pro-rated annual bonus payment based on his target annual bonus for the year of such termination. In the event of the executive’s disability, the employment agreement will not terminate until the anniversary date of the agreement next following the date that the executive is determined to be disabled. For the period from the date the Executive is determined to be disabled through the earlier of the next anniversary date of the date of the employment agreement or the date of the executive’s death, we will continue to provide the executiv e all compensation and benefits provided for under the agreement, provided that our obligation to pay the executive’s base salary will be reduced by the amounts paid to the executive under any long-term disability insurance plan and our total annual obligation pay the executive’s base salary will not exceed two-thirds of the executive’s base salary.

Table of Benefits Upon Termination Events

The following tables show potential payments to the Named Executive Officers upon termination of employment assuming a June 30, 2007 termination date. In connection with the amounts shown in

104

Table of Contents

the table, stock option benefit amounts for each option as to which vesting will be accelerated upon the occurrence of the termination event is equal to the product of the number of shares underlying the option multiplied by the difference between the exercise price per share of the option and the estimated fair market value of the stock on June 30, 2007 determined by an independent valuation firm.

John R. McKernan, Jr.

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus(2)				$	3,712,500					$	—					$	3,712,500					$	—					$	—
Target Bonus in Year of Termination					687,500						—						687,500						687,500						687,500
Stock Options(3)					2,637,587						926,725						4,276,300						926,725						926,725
Benefits and Perquisites:
Health and Welfare Benefits					—						—						—						—						—
Outplacement Services					—						—						—						—						—
Life Insurance Proceeds(4)					—						—						—						—						500,000
Disability Benefits(5)					—						—						—						—						—
Accrued Vacation Pay					8,461						8,461						8,461						8,461						8,461
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	7,046,048					$	935,186					$	8,684,761					$	1,622,686					$	2,122,686

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of three times the sum of (i) fiscal 2007 base salary of $550,000 and (ii) fiscal 2007 target incentive bonus of $687,500.

(3) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. McKernan is terminated other than for cause or terminates his employment for good reason, his time vested stock options will continue to vest for an additional 24 months. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for cause or within 30 days after a termina tion by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(4) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

105

Table of Contents

(5) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

Todd S. Nelson

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus				$	1,856,250	(2)				$	—					$	3,712,500	(3)				$	—					$	—
Target Bonus in Year of Termination					257,813						—						257,813						257,813						257,813
Stock Options(4)					2,456,808						—						6,142,020						—						—
Benefits and Perquisites:
Health and Welfare Benefits(5)					11,371						—						11,371						—						—
Outplacement Services					—						—						—						—						—
Life Insurance Proceeds(6)					—						—						—						—						500,000
Disability Benefits(7)					—						—						—						—						—
Accrued Vacation Pay					8,462						8,462						8,462						8,462						8,462
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	4,590,704					$	8,462					$	10,132,166					$	266,275					$	766,275

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of two times the sum of (i) fiscal 2007 base salary of $550,000 and (ii) fiscal 2007 target incentive bonus of $687,500.

(3) Consists of three times the sum of (i) fiscal 2007 base salary of $550,000 and (ii) fiscal 2007 target incentive bonus of $687,500.

(4) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. Nelson is terminated other than for cause or terminates his employment for good reason, an additional 20% of his time vested stock options will vest on each of the next two anniversaries of the date of grant. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for c ause or within 30 days after a termination by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(5) Amount equals the Company’s estimated expense of providing the executive with COBRA health insurance benefits for 18 months after termination.

(6) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

106

Table of Contents

(7) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

Edward H. West

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus				$	1,518,750	(2)				$	—					$	2,025,000	(3)				$	—					$	—
Target Bonus in Year of Termination					562,500						—						562,500						562,500						562,500
Stock Options(4)					1,087,893						342,105						1,864,470						342,105						342,105
Benefits and Perquisites:
Health and Welfare Benefits(5)					11,371						—						11,371						—						—
Outplacement Services					—						—						—						—						—
Life Insurance Proceeds(6)					—						—						—						—						500,000
Disability Benefits(7)					—						—						—						—						—
Accrued Vacation Pay					—						—						—						—						—
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	3,180,514					$	342,105					$	4,463,341					$	904,605					$	1,404,605

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of 1.5 times the sum of (i) fiscal 2007 base salary of $450,000 and (ii) fiscal 2007 target incentive bonus of $562,500.

(3) Consists of two times the sum of (i) fiscal 2007 base salary of $450,000 and (ii) fiscal 2007 target incentive bonus of $562,500.

(4) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. West is terminated other than for cause or terminates his employment for good reason, an additional 20% of his time vested stock options will vest on each of the next two anniversaries of the date of grant. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for cause or within 30 days after a termination by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(5) Amount equals the Company’s estimated expense of providing the executive with COBRA health insurance benefits for 18 months after termination.

(6) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

107

Table of Contents

(7) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

John M. Mazzoni

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus				$	570,000	(2)				$	—					$	1,140,000	(3)				$	200,000	(4)				$	285,000	(5)
Target Bonus in Year of Termination					270,000						—						270,000						270,000						270,000
Stock Options(6)					345,895						165,500						901,975						165,500						165,500
Benefits and Perquisites:
Health and Welfare Benefits(7)					7,580						—						7,580						7,580						—
Outplacement Services(8)					25,000						—						25,000						—						—
Life Insurance Proceeds(9)					—						—						—						—						500,000
Disability Benefits(10)					—						—						—						—						—
Accrued Vacation Pay					—						—						—						—						—
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	1,218,475					$	165,500					$	2,344,555					$	643,080					$	1,220,500

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $270,000.

(3) Consists of two times the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $270,000.

(4) Equals two-thirds of the executive’s base salary for fiscal 2007, the maximum amount of base salary the executive could receive under his employment agreement in the event that his employment is terminated due to a disability.

(5) Consists of one-half of the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $270,000.

(6) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. Mazzoni is terminated other than for cause or terminates his employment for good reason, an additional 20% of his time vested stock options will vest on the next anniversary of the date of grant. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for cause or withi n 30 days after a termination by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in

108

Table of Contents

connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(7) Amount equals the Company’s estimated expense of providing the executive with health and welfare benefits for 12 months after termination.

(8) Amount equals the Company’s estimated expense of providing the executive with outplacement services upon termination. The executive may elect to receive a lump sum payment from the Company in lieu of receiving outplacement services.

(9) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

(10) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

John T. South, III

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus				$	540,000	(2)				$	—					$	1,080,000	(3)				$	200,000	(4)				$	270,000	(5)
Target Bonus in Year of Termination					240,000						—						240,000						240,000						240,000
Stock Options(6)					233,035						111,500						607,675						111,500						111,500
Benefits and Perquisites:
Health and Welfare Benefits(7)					7,037						—						7,037						7,037						—
Outplacement Services(8)					25,000						—						25,000						—						—
Life Insurance Proceeds(9)					—						—						—						—						500,000
Disability Benefits(10)					—						—						—						—						—
Accrued Vacation Pay					3,462						3,462						3,462						3,462						3,462
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	1,048,534					$	114,962					$	1,963,174					$	561,999					$	1,124,962

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $240,000.

(3) Consists of two times the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $240,000.

(4) Equals two-thirds of the executive’s base salary for fiscal 2007, the maximum amount of base salary the executive could receive under his employment agreement in the event that his employment is terminated due to a disability.

(5) Consists of one-half of the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $240,000.

109

Table of Contents

(6) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. South is terminated other than for cause or terminates his employment for good reason, an additional 20% of his time vested stock options will vest on the next anniversary of the date of grant. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for cause or within 30 days after a termination by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(7) Amount equals the Company’s estimated expense of providing the executive with health and welfare benefits for 12 months after termination.

(8) Amount equals the Company’s estimated expense of providing the executive with outplacement services upon termination. The executive may elect to receive a lump sum payment from the Company in lieu of receiving outplacement services.

(9) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

(10) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

Stephen J. Weiss

			Without Cause or for Good Reason						For Cause or Without Good Reason						Change of Control or Sale of Business(1)						Disability						Death
Compensation:
Base Salary and Target Bonus				$	900,000	(2)				$	—					$	1,200,000	(3)				$	200,000	(4)				$	300,000	(5)
Target Bonus in Year of Termination					300,000						—						300,000						300,000						300,000
Stock Options(6)					461,366						220,750						1,203,080						220,750						220,750
Benefits and Perquisites:
Health and Welfare Benefits(7)					7,398						—						7,398						7,398						—
Outplacement Services(8)					25,000						—						25,000						—						—
Life Insurance Proceeds(9)					—						—						—						—						500,000
Disability Benefits(10)					—						—						—						—						—
Accrued Vacation Pay					5,769						5,769						5,769						5,769						5,769
Excise Tax and Gross-Up					—						—						—						—						—
Total:				$	1,699,533					$	226,519					$	2,741,247					$	733,917					$	1,326,519

(1) If a sale of a business occurs and the executive’s employment agreement is not assumed, then his termination is considered a resignation for good reason. If, however, a sale of a business occurs and the executive’s employment agreement is assumed but he chooses to terminate his employment, then the executive’s termination is considered a resignation without

110

Table of Contents

good reason. For purposes of the table, we have assumed that the executive is terminated without cause or terminates his employment for good reason after the occurrence of a change of control.

(2) Consists of 1.5 times the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $300,000.

(3) Consists of two times the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $300,000.

(4) Equals two-thirds of the executive’s base salary for fiscal 2007, the maximum amount of base salary the executive could receive under his employment agreement in the event that his employment is terminated due to a disability.

(5) Consists of one-half of the sum of (i) fiscal 2007 base salary of $300,000 and (ii) fiscal 2007 target incentive bonus of $300,000.

(6) Assumes fair market value of $75.00 per share. The executive’s time vested stock options become fully vested upon a change of control of EDMC. In the event that Mr. Weiss is terminated other than for cause or terminates his employment for good reason, an additional 20% of his time vested stock options will vest on the next anniversary of the date of grant. In the event that the executive is terminated for cause, the executive’s right to exercise his stock options terminates upon the effectiveness of the termination while the executive may exercise any vested stock options during the 30 day period following termination of employment by the executive without good reason. For purposes of the table, we have assumed that the executive exercises his vested stock options prior to a termination for cause or within 30 days after a termination by the executive without good reason. Amount does not include any vesting of performance vested stock options because the minimum vesting of such options requires a return of at least twice the initial investment in EDMC by certain investors in EDMC in connection with the Transaction. Does not include the impact of any repurchase rights held by EDMC upon exercise of the stock options under our existing shareholders agreement.

(7) Amount equals the Company’s estimated expense of providing the executive with health and welfare benefits for 12 months after termination.

(8) Amount equals the Company’s estimated expense of providing the executive with outplacement services upon termination. The executive may elect to receive a lump sum payment from the Company in lieu of receiving outplacement services.

(9) Amount equals the proceeds payable upon the executive’s death under the Company’s group term life insurance policy which covers all employees. Does not include the proceeds of any supplemental life insurance purchased by the executive.

(10) The Company does not provide a disability policy for employees. Does not include any disability benefits which the executive may be eligible for under a policy paid for by the executive.

Non-Employee Director Compensation Plan

On                             , our Board of Directors approved a plan for annual compensation for our non-management directors, effective as of the date of the consummation of this offering. The non-management directors will receive an annual retainer of $                  . The annual retainer will be payable at the director’s option either 100% in cash or 100% in shares of our common stock. In addition, our non-management directors will receive a share award with a grant date fair market value of $                  . The non-management chair of the audit committee will receive an additional $         ;           fee and each other non-management committee chair will receive an additional $                   fee, payable at his or her option either 100% in cash or 100% in shares of our common stock. All shares awarded to the non-management directors will be settled upon termination of Board service. No separate committee meeting fees will be paid.

111

Table of Contents

All directors are reimbursed for reasonable travel and lodging expenses incurred by them in connection with attending board and committee meetings.

Omnibus Long-Term Incentive Plan

We intend to adopt the Omnibus Long-Term Incentive Plan prior to consummation of this offering. We expect our Board of Directors and our shareholders to approve this plan prior to the consummation of this offering. The following summary describes what we anticipate to be the material terms of the Omnibus Plan. However, the final terms may be different.

Administration of the Plan.    Our Board of Directors has such powers and authorities related to the administration of the Omnibus Plan as are consistent with our corporate governance documents and applicable law. The Board of Directors may (and in some cases under applicable law, our governance documents or regulatory requirements must) delegate to a committee (the ‘‘committee’’) administration of all or some parts of the Omnibus Plan. Following the initial public offering, the committee to whom administrative responsibility will be delegated will be comprised of directors who (i) qualify as ‘‘outside directors’’ within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), (ii) meet such other requirements as may be establi shed from time to time by the SEC for plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Securities Exchange Act of 1934, as amended, and (iii) comply with the independence requirements of the stock exchange on which our common stock is listed.

Number of Authorized Shares.                  shares of our common stock have been reserved for issuance under the Omnibus Plan. Subject to the terms of the Omnibus Plan,                      of the reserved shares may be issued pursuant to incentive stock options (‘‘ISOs’’). The maximum number of each type of award granted to any grantee in any 36-month period will not exceed the following:

•	options –                 ;

•	SARS –                 ;

•	restricted stock –                 ;

•	restricted stock units –                 ; and

•	other stock-based awards –                 .

Any shares covered by an award that are forfeited, expired, cancelled, settled in cash, settled by issuance of fewer shares than the amount underlying the award, or otherwise terminated without delivery of shares to the grantee, will be available for future grants under the Omnibus Plan. The number and class of shares available under the Omnibus Plan and/or subject to outstanding awards may be equitably adjusted by our Board of Directors in the event of various changes in the capitalization of the Company.

Type of Awards.    The following types of awards are available for grant under the Omnibus Plan: ISOs, non-qualified stock options (‘‘NSOs’’), stock appreciation rights (‘‘SARs’’), restricted stock, restricted stock units, performance awards and other stock-based awards and cash awards.

Deferral Arrangements.    Our Board of Directors may permit or require the deferral of any award payment into a deferred compensation arrangement.

Eligibility and Participation.    Eligibility to participate in the Omnibus Plan is limited to such employees, officers, directors, consultants and advisors of the Company, or of any affiliate, as our Board of Directors may determine and designate from time to time.

Grant of Options and SARs.    Our Board of Directors may award ISOs, NSOs (together, ‘‘Options’’), and SARs to grantees. Our Board of Directors is authorized to grant SARs either in tandem with or as a component of other awards or alone.

Exercise Price of Options and SARs.    The exercise price per share of an Option will in no event be less than 100% of the fair market value per share of our stock underlying the award on the grant date. In no case will the exercise price of any Option be less than the par value of a share of our

112

Table of Contents

stock. A SAR will confer on the grantee a right to receive, upon exercise, a payment of the excess of (i) the fair market value of one share of our stock on the date of exercise over (ii) the grant price of the SAR as determined by our Board of Directors. The grant price will be fixed at the fair market value of a share of stock on the date of grant. SARs granted in tandem with an outstanding Option following the grant date of such Option may have a grant price that is equal to the Option’s exercise 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. The exercise price of Options granted during our initial public offering will be the price per share of common stock of the Company for the offering, as established by the Board of Directors.

Vesting of Options and SARs.    Our Board of Directors will determine when an Option or SAR will become exercisable and will include such information in the award agreement.

Special Limitations on ISOs.    In the case of a grant of an Option intended to qualify as an ISO to a grantee that owns more than ten percent of the total combined voting power of all classes of our outstanding stock, its parent or any of its subsidiaries, (a ‘‘Ten Percent Shareholder’’) the exercise price of the Option will not be less than 110 percent of the fair market value of a share of our stock on the grant date. Additionally, an Option will constitute an ISO only (i) if the grantee is an employee of the Company or a 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 ISOs held by such grantee beco me exercisable for the first time during any calendar year (under the Omnibus Plan and all other plans of the grantee’s employer and its affiliates) does not exceed $100,000.

Exercise of Options and SARs.    An Option may be exercised by the delivery to us of written notice of exercise and payment in full of the exercise price (plus the amount of any taxes which we may be required to withhold). The minimum number of shares with respect to which an Option may be exercised, in whole or in part, at any time will be the lesser of (i) the number set forth in the applicable award agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise. Our Board of Directors has the discretion to determine the method or methods by which a SAR may be exercised.

Expiration of Options and SARs.    Options and SARs will expire at such time as our Board of Directors determines; provided, however that no Option may be exercised more than ten years from the date of grant, or in the case of an ISO held by a Ten Percent Shareholder, not more than five years from the date of grant.

Restricted Stock and Restricted Stock Units.    At the time a grant of restricted stock or restricted stock units is made, our Board of Directors may, in its sole discretion, establish the applicable ‘‘restricted period’’ and prescribe restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or individual performance objectives. Unless our Board of Directors otherwise provides in an award agreement, holders of restricted stock will have the right to vote such stock and the right to receive any dividends declared or paid with respect to such stock. Our Board of Directors may provide that any such dividends paid must be reinvested in shares of stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such restricted stock . All distributions, if any, received by a grantee with respect to restricted stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction will be subject to the restrictions applicable to the original grant. Holders of restricted stock units will have no rights as shareholders of the Company. Our Board of Directors may provide that the holder of restricted stock units will be entitled to receive dividend equivalent rights, which may be deemed reinvested in additional restricted stock units.

The grantee will be required, to the extent required by applicable law, to purchase the restricted stock at a price equal to the greater of (i) the aggregate par value of the shares of stock represented by such restricted stock or (ii) the price, if any, specified in the award agreement relating to such restricted stock. If specified in the award agreement, the price may be deemed paid by services already rendered.

113

Table of Contents

Performance Awards.    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 our Board of Directors. Our Board of Directors may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may, subject to certain limitations in the case of a performance award intended to qualify under Section 162(m) of the Code (‘‘Section 162(m)’’), exercise its discretion to reduce the amounts payable under any award subject to performance conditions. If and to the extent required under Section 162(m), any power or authority relating to a performance award intended to qualify under Section 162(m), will be exercised by the committe e and not our Board of Directors.

We intend that performance awards granted to persons who are designated by the committee as likely to be ‘‘Covered Employees’’ within the meaning of Section 162(m) and regulations thereunder will, if so designated by the committee, constitute ‘‘qualified performance-based compensation’’ within the meaning of Section 162(m) and regulations thereunder. The grant, exercise and/or settlement of such performance award will be contingent upon achievement of pre-established performance goals which will consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria. Performance goals will be objective and will otherwise meet the requirements of Section 162(m) and regulations thereunder.

One or more of the following business criteria for the Company will be used exclusively by the committee in establishing performance goals for such awards: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre-or after-tax 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 flows or cash flows 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 achievements; and implementation, completion or attainment of measurable objectives with respect to research, development, products or projects and recruiting and maintaining personnel.

Other Stock-Based Awards.    Our Board of Directors may, in its discretion, grant other stock-based awards, consisting of stock units or other awards, valued in whole or in part by reference to, or otherwise based upon, our common stock. The terms of such other stock-based awards will be set forth in the applicable award agreements.

Change of Control.    Our Board of Directors may provide for actions that will be taken upon a change of control (as defined in the Omnibus Plan) of the Company, including but not limited to, alternative vesting, termination or assumption of awards.

Nontransferability of Awards.    Generally, during the lifetime of a grantee, only the grantee may exercise rights under the Omnibus Plan and no award will be assignable or transferable other than by will or laws of descent and distribution. If authorized in the award agreement, a grantee may transfer, not for value, all or part of an award (other than an ISO) to certain family members (including trusts and foundations for the benefit thereof). 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 restrictions prescribed by our Board of Directors.

Separation from Service.    Our Board of Directors may provide in the applicable award agreements for actions that will be taken upon a grantee’s separation from service from the Company, including but not limited to, accelerated vesting or termination of awards.

Tax Withholding and Tax Offset Payments.    We will 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

114

Table of Contents

be withheld with respect to the vesting of or other lapse of restrictions applicable to an award or upon the issuance of any shares of stock upon the exercise of an Option or pursuant to an award.

Term of Plan.    Unless earlier terminated by our Board of Directors, the authority to make grants under the Omnibus Plan will terminate on the date that is ten years after it is adopted by our Board of Directors.

Amendment and Termination.    Our Board of Directors may, at any time and from time to time, amend, suspend, or terminate the Omnibus Plan as to any shares of stock as to which awards have not been made. An amendment will be contingent on approval of our shareholders to the extent stated by our Board of Directors, required by applicable law or required by applicable stock exchange listing requirements. No Awards will be made after termination of the Omnibus Plan. No amendment, suspension, or termination of the Omnibus Plan will, without the consent of the grantee, impair rights or obligations under any award theretofore awarded under the Omnibus Plan.

New Plan Benefits.    All grants of awards under the Omnibus Plan will be discretionary. Therefore, in general, the benefits and amounts that will be received under the Omnibus Plan are not determinable.

Federal Income Tax Consequences.    The following is a summary of the general federal income tax consequences to the Company and to U.S. taxpayers of awards granted under the Omnibus Plan. Tax consequences for any particular individual or under state or non-U.S. tax laws may be different.

	•	NSOs and SARs.    No taxable income is reportable when a NSO or SAR is granted. Upon exercise, generally, the recipient will have ordinary income equal to the fair market value of the underlying shares of stock on the exercise date minus the exercise price. Any gain or loss upon the disposition of the stock received upon exercise will be capital gain or loss to the recipient if the appropriate holding period under federal tax law is met for such treatment.

	•	ISOs.    No taxable income is reportable when an ISO is granted or exercised (except for grantees who are subject to the alternative minimum tax, who may be required to recognize income in the year in which the ISO is exercised). If the recipient exercises the ISO and then sells the underlying shares of stock more than two years after the grant date and more than one year after the exercise date, the excess of the sale price over the exercise price will be taxed as capital gain or loss. If the recipient exercises the ISO and sells the shares before the end of the two- or one-year holding periods, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the ISO.

	•	Restricted Stock and Restricted Stock Units.    A recipient of restricted stock or restricted stock units will not have taxable income upon the grant unless, in the case of restricted stock, he or she elects to be taxed at that time. Instead, he or she will have ordinary income at the time of vesting equal to the fair market value on the vesting date of the shares (or cash) received minus any amount paid for the shares.

	•	Tax Effect for the Company.    We generally will receive a tax deduction for any ordinary income recognized by a grantee in respect of an award under the Omnibus Plan (for example, upon the exercise of a NSO). In the case of ISOs that meet the holding period requirements described above, the grantee will not recognize ordinary income; therefore, we will not receive a deduction.

Special rules limit the deductibility of compensation paid to our CEO and to each of our four most highly compensated executive officers. Under Section 162(m), the annual compensation paid to each of these executives may not be deductible to the extent that it exceeds $1 million. However, we intend to rely on Treas. Reg. Section 1.162-27(f) which provides that the deduction limit of Section 162(m) does not apply to any remuneration paid pursuant to a compensation plan or agreement that existed during the period in which the company was not publicly held. Subject to certain requirements, we may rely on this ‘‘grandfather’’ provision for up to a maximum of three years

115

Table of Contents

after we become publicly held. Additionally, after the expiration of the grandfather period, we can preserve the deductibility of compensation over $1 million if certain conditions of Section 162(m) are met. These conditions include shareholder approval of the Omnibus Plan, setting limits on the number of awards that any individual may receive and, for awards other than Options and SARs, establishing performance criteria that must be met before the award will actually be granted, be settled, vest or be paid. The Omnibus Plan has been designed to permit the committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).

Registration of Shares.    Following the completion of this offering we intend to file a registration statement on Form S-8 under the Securities Act to register approximately                  shares of common stock reserved for issuance under the Omnibus Plan, as well as registration statements on Form S-8 to register shares of common stock reserved for issuance under the 2006 Stock Option Plan and the LTIC Plan.

116

Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents information regarding the beneficial ownership of our equity securities as of November 30, 2007 by each person who is known by us to beneficially own more than 5% of our equity securities, by each of our directors, by each of the named executive officers, and by all of our directors and executive officers as a group.

															Shares Beneficially Owned After This Offering
Name and Address of Beneficial Owner(1)			Shares Beneficially Owned Prior to This Offering												Assuming the Underwriters’ Option Is Not Exercised(2)												Assuming the Underwriters’ Option Is Exercised in Full(2)
			Number						Percent						Number						Percent						Number						Percent
Providence Equity Funds(3)					8,965,000						33.5	%					8,965,000							%					8,965,000							%
GS Limited Partnerships(4) (5)					8,965,000						33.5	%					8,965,000							%					8,965,000							%
GS EDMC Investors, LP(5)					1,600,000						6.0	%					1,600,000							%					1,600,000							%
GS Private Equity Partners Funds(6)					1,400,000						5.2	%					1,400,000							%					1,400,000							%
Leeds Equity Partners(7)					2,000,000						7.5	%					2,000,000							%					2,000,000							%
Adrian M. Jones(5) (6)					8,965,000						33.5	%					8,965,000							%					8,965,000							%
Jeffrey T. Leeds(7)					2,000,000						7.5	%					2,000,000							%					2,000,000							%
John M. Mazzoni(8)					14,620							*					14,620							*					14,620							*
John R. McKernan, Jr.(9)					114,177							*					114,177							*					114,177							*
Leo F. Mullin					10,000							*					10,000							*					10,000							*
Todd S. Nelson					181,818							*					181,818							*					181,818							*
Paul J. Salem(3)					8,965,000						33.5	%					8,965,000							%					8,965,000							%
John T. South, III(10)					54,460							*					54,460							*					54,460							*
Stephen J. Weiss(11)					18,830							*					18,830							*					18,830							*
Edward H. West(12)					23,684							*					23,684							*					23,684							*
Peter O. Wilde(3)					8,965,000						33.5	%					8,965,000							%					8,965,000							%
All executive officers and directors as a group (15 persons)(13)					20,362,030						75.8	%					20,362,030							%					20,362,030							%

* Less than 1%.

(1) The address of each listed shareholder, unless otherwise noted, is c/o Education Management Corporation, 210 Sixth Avenue, 33^rd Floor, Pittsburgh, Pennsylvania 15222.

(2) We will grant the underwriters an option to purchase up to an additional                         shares in this offering.

(3) Includes (i) 7,223,947 shares of common stock held by Providence Equity Partners V, LP (‘‘PEP V’’), whose general partner is Providence Equity GP V LP, whose general partner is Providence Equity Partners V L.L.C. (‘‘PEP V LLC’’); (ii) 1,141,053 shares of common stock held by Providence Equity Partners V-A (‘‘PEP V-A’’)’’, whose general partner is Providence Equity GP V LP, whose general partner is PEP V LLC; (iii) 598,071 shares of common stock held by Providence Equity Partners IV LP (‘‘PEP IV’’), whose general partner is Providence Equity Partners GP IV LP, whose general partner is Providence Equity Partners IV L.L.C. (‘‘PEP IV LLC’’), and (iv) 1,929 shares of common stock held by Providence Equity Operating Partners IV LP (‘‘PEOP IV’’) and, collectively with PEP IV, PEP V and PEP V-A, the ‘‘Providence Equity Funds’’), whose general partner is Providence Equity Partners GP IV LP, whose general partner is PEP IV LLC. PEP V LLC may be deemed to share beneficial ownership of the shares owned by PEP V and PEP V-A. PEP V LLC disclaims this beneficial ownership. PEP IV LLC may be deemed to share the beneficial ownership of PEP IV and PEOP IV. PEP IV LLC disclaims this beneficial ownership. Mr. Salem is a member of PEP V LLC and PEP IV LLC and may also be deemed to possess indirect beneficial ownership of the securities owned by the Providence Equity Funds, but disclaims such beneficial ownership. Mr. Wilde is a limited partner of Providence Equity Partners GP IV LP and Providence Equity

117

Table of Contents

Partners GP V LP and disclaims beneficial ownership of any securities owned by such limited partnerships. The address of Mr. Salem, Mr. Wilde and each of the entities listed in this footnote is c/o Providence Equity Partners Inc., 50 Kennedy Plaza, 18^th Floor, Providence, Rhode Island 02903.

(4) Consists of 4,720,611 shares owned by GS Capital Partners V Fund, L.P., 2,438,470 shares owned by GS Capital Partners Fund V Offshore Fund, L.P., 1,618,762 shares owned by GS Capital Partners V Institutional, L.P., and 187,157 shares owned by GS Capital Partners V GmbH & Co. KG (collectively, the ‘‘Goldman Sachs Capital Partners Funds’’).

(5) The Goldman Sachs Group, Inc. and certain affiliates, including Goldman, Sachs & Co., may be deemed to directly or indirectly own the 10,565,000 shares of common stock which are collectively owned directly or indirectly by the Goldman Sachs Capital Partners Funds and GS EDMC Investors, LP, of which affiliates of The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. are the general partner, managing limited partner or the managing partner. Goldman, Sachs & Co. is the investment manager for certain of the Goldman Sachs Capital Partner Funds and GS EDMC Investors, LP. Goldman, Sachs & Co. is a direct and indirect wholly-owned subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and the Goldman Sachs Capital Partner Funds and GS EDMC Investors, LP share voting power and investment power with certain of their respective affiliates. Adrian M. Jones is a managing director of Goldman, Sachs & Co. Each of Mr. Jones, The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. disclaims beneficial ownership of the common shares owned directly or indirectly by the Goldman Sachs Capital Partners Funds and GS EDMC Investors, LP, except to the extent of their pecuniary interest therein, if any. The address of the Goldman Sachs Capital Partner Funds, The Goldman Sachs Group, Inc., Goldman Sachs & Co. and Mr. Jones is 85 Broad Street, 10^th Floor, New York, New York 10004.

(6) Consists of 427,926 shares owned by GS Private Equity Partners 2000, L.P., 150,626 shares owned by GS Private Equity Partners 2000 Offshore, L.P., 166,192 shares owned by GS Private Equity Partners 2000 — Direct Investment Fund, L.P., 59,656 shares owned by GS Private Equity Partners 2002, L.P., 229,774 shares owned by GS Private Equity Partners 2002 Offshore, L.P., 51,850 shares owned by GS Private Equity Partners 2002 — Direct Investment Fund, L.P., 26,380 shares owned by GS Private Equity Partners 2002 Employee Fund, L.P., 18,554 shares owned by GS Private Equity Partners 2004, L.P., 120,705 shares owned by GS Private Equity Partners 2004 Offshore, L.P., 34,596 shares owned by Multi-Strategy Holdings, LP, 83,372 shares owned by GS Private Equity Partners 2004 — Direct Investment Fund, L.P. and 30,369 sh ares owned by GS Private Equity Partners 2004 Employee Fund, L.P. (collectively, the ‘‘GS Private Equity Partners Funds’’). The Goldman Sachs Group, Inc., and certain of its affiliates, including Goldman Sachs Asset Management, L.P., may be deemed to directly or indirectly own the shares of common stock which are owned by the GS Private Equity Partners Funds, of which affiliates of The Goldman Sachs Group, Inc. and Goldman Sachs Asset Management, L.P. are the general partner, managing limited partner or the managing partner. Goldman Sachs Asset Management, L.P. is the investment manager for certain of the GS Private Equity Partners Funds. Goldman Sachs Asset Management, L.P. is a direct and indirect wholly-owned subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs Group, Inc., Goldman Sachs Asset Management, L.P. and the GS Private Equity Partners Funds share voting power and investment power with certain of their respective affiliates. Each of The Goldman Sachs Group, I nc. and Goldman Sachs Asset Management, L.P. disclaims beneficial ownership of the common shares owned directly or indirectly by the GS Private Equity Partners Funds except to the extent of their pecuniary interest therein, if any. The address of Goldman Sachs Asset Management, L.P. and the GS Private Equity Partner Funds is 32 Old Slip, 9^th Floor, New York, New York 10004.

118

Table of Contents

(7) Shares are owned by Leeds Equity Partners IV, L.P., whose general partner is Leeds Equity Associates IV, L.L.C. Jeffrey T. Leeds, a director of the Company, is the Managing Member of Leeds Equity Associates IV, L.L.C. The address of Leeds Equity Partners IV, L.P., Leeds Equity Associates IV, L.L.C. and Mr. Leeds is 350 Park Avenue, 23^rd Floor, New York, New York 10022.

(8) Includes 6,620 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

(9) Includes 54,177 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

(10) Includes 4,460 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

(11) Includes 8,830 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

(12) Includes 13,684 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

(13) Includes 92,711 shares of common stock receivable upon the exercise of options that are exercisable within 60 days of the date of the table set forth above.

We sold 181,818 shares of common stock to Todd S. Nelson for $55.00 per share in March 2007 pursuant to the terms of Mr. Nelson’s employment agreement. In addition, in October of 2006 we sold the following shares of common stock to executive officers and a director at $50.00 per share pursuant to a voluntary executive common stock purchase plan: Joseph A. Charlson – 4,500 shares; John M. Mazzoni – 8,000 shares; Leo F. Mullin – 10,000 shares; Stacey R. Sauchuk – 5,000 shares; John T. South, III – 50,000 shares; and Stephen J. Weiss – 10,000 shares.

119

Table of Contents

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shareholders Agreement

In connection with the Transaction, we entered into our existing shareholders agreement with the Sponsors and all of our shareholders, including management shareholders. We refer to this agreement as our ‘‘existing shareholders agreement’’. The existing shareholders agreement contains agreements among the parties with respect to the election of our directors, restrictions on the issuance or transfer of shares, including special corporate governance provisions and call options. Six of our current directors, Messrs. Nelson, Jones, Leeds, Mullin, Salem and Wilde, were appointed pursuant to the existing shareholders agreement. Upon completion of this offering, certain of our shareholders, including the Sponsors will enter into a replacement shareholders agreement, which we refer to as our ‘‘Shareholders Agreement’’, that will provide for the rights of Sponsors to appoint members to our Board of Directors and will conta in certain provisions relating to transfer restrictions. Upon completion of this offering, Providence Equity Partners and Goldman Sachs Capital Partners each will have the right to appoint two members to our Board of Directors, and Leeds Equity Partners will have the right to appoint one member to our Board of Directors. The respective rights of Providence Equity Partners and Goldman Sachs Capital Partners to appoint directors will be reduced to the right to appoint one director if such Sponsor’s stock ownership drops below 10% of the outstanding shares of our common stock, and the right of each Sponsor to appoint directors will be eliminated if that Sponsor’s stock ownership drops below 2% of the outstanding shares of our common stock.

Sponsor Management Agreement

Upon completion of the Transaction, we entered into a Sponsor Management Agreement with affiliates of each of the Sponsors pursuant to which such entities or their affiliates provide management services. Pursuant to such agreement, affiliates of the Sponsors receive an aggregate annual management fee equal to $5.0 million and reimbursement for out-of-pocket expenses incurred by them or their affiliates in connection with the Transaction and in connection with the provision of services pursuant to the agreement. In addition, pursuant to such agreement, affiliates of the Sponsors also received aggregate transaction fees and expenses of approximately $40.7 million in connection with services provided by such entities related to the Transaction. Finally, the Sponsor Management Agreement provides that affiliates of the Sponsors are entitled to receive additional fees as agreed by the parties in connection with certain subsequent financing, acquisition, disp osition and change of control transactions based on a percentage of the gross transaction value of any such transaction. The Sponsor Management Agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.

Upon a change of control in our ownership or a public offering of our equity that meets certain conditions, and in recognition of facilitation of such change of control or public offering by affiliates of the Sponsors, these affiliates of the Sponsors may elect to receive, in lieu of annual payments of the management fee, a single lump sum cash payment equal to the then-present value of all then-current and future management fees payable under this agreement, assuming a ten-year term as required by the agreement, and calculated using discount rates equal to the yield on U.S. treasury securities with a maturity on or near the tenth anniversary of the closing date of the Transaction. The lump sum payment would only be payable to the extent that it is permitted under the indentures and other agreements governing our indebtedness. In connection with the completion of this offering, we will pay the Sponsors an aggregate management termination fee of approximately $&n bsp;                million.

Historical Transactions with Management

Robert B. Knutson, our Chairman of the Board prior to the Transaction, was a limited partner, with no managerial authority, in Ocean World Associates Ltd. The Art Institute of Fort Lauderdale leases one of its buildings from Ocean World Associates Ltd. for approximately $1.9 million annually. In July 2005, Ocean World Associates Ltd. sold its interest in the building leased by The Art Institute of Fort Lauderdale.

120

Table of Contents

Mr. Knutson and Albert Greenstone, a director emeritus prior to the Transaction, were limited partners, with no managerial authority, in AIPH Limited Partnership, which is the general partner of The Art Institute of Philadelphia Limited Partnership (the ‘‘Lessor’’). The Art Institute of Philadelphia, a division of a wholly-owned subsidiary of EDMC, leases one of its buildings from the Lessor for approximately $720,000 annually. The Art Institute of Philadelphia is the greater partner of AIPH Limited Partnership and consolidates both AIPH Limited Partnership and the Lessor in its financial statements.

J. William Brooks, our former President and Chief Operating Officer, is married to Nancy Brooks, who we employed as Vice President of Marketing — Brown Mackie College. Ms. Brooks received compensation of $170,170 and $128,265 during fiscal 2005 and fiscal 2006, respectively, in connection with her employment. Ms. Brooks did not report to Mr. Brooks, and he was not responsible for determining her annual compensation or bonus.

Registration Rights Agreement

In connection with the Transaction, we entered into a registration rights agreement, which was subsequently joined by Leeds Equity Partners and certain management shareholders, with certain private equity funds affiliated with Providence Equity Partners and Goldman Sachs Capital Partners. The registration rights agreement grants to these private equity funds the right, beginning 180 days following the completion of this offering, to cause us, at our expense, to use our best efforts to register such securities held by the private equity funds for public resale, subject to certain limitations. The exercise of this right will be limited to three requests by the private equity funds affiliated with each of Providence Equity Partners and Goldman Sachs Capital Partners. In the event that we register any of our common stock following completion of this offering, these private equity funds also have the right to require us to use our best efforts to include shares of ou r common stock held by them in such registration, subject to certain limitations, including as determined by the applicable underwriters. The registration rights agreement also provides for our indemnification of the shareholders party to that agreement and their affiliates in connection with the registration of their securities.

Other Relationships

South University, which is a wholly-owned subsidiary of the Company, leases two of the buildings it occupies from two separate entities owned by John T. South, III, one of our executive officers. Total rental payments under these arrangements, which are included in educational services on our consolidated statements of income, were approximately $1.6 million for fiscal 2007, $0.1 million for the Successor one-month period ended June 30, 2006, $1.4 million for the Predecessor 11-month period ended May 31, 2006 and $1.4 million for fiscal 2005.

During fiscal 2007, we purchased through a relocation company a house owned by Edward H. West, one of our executive officers, for approximately $2.5 million pursuant to our employee relocation policy. The house was sold by the relocation company after year-end for net proceeds to us of approximately $2.3 million.

In June 2006, we entered into a five-year interest rate swap agreement in the amount of $375.0 million with an affiliate of Goldman Sachs Capital Partners, one of the Sponsors. The terms of the interest rate swap agreement are described in Note 10 to the accompanying audited consolidated financial statements. In February 2007, we paid $425,000 to an affiliate of Goldman Sachs Capital Partners in connection with investment banking services provided to us when we amended and restated our senior secured loan facilities. The beneficial stock ownership of Goldman Sachs Capital Partners in EDMC is described in ‘‘Security Ownership of Certain Beneficial Owners and Management’’. Adrian M. Jones and Leo F. Mullin are appointees of Goldman Sachs Capital Partners on our Board of Directors under the terms of our existing shareholders agreement.

In connection with offering of the Notes and entering into our senior secured credit facilities in June 2006, we paid an affiliate of Goldman Sachs Capital Partners $5.2 million in fees for certain underwriting and financial services rendered to us.

121

Table of Contents

Expense Reimbursement to the Sponsors

We have reimbursed the Sponsors for certain travel-related expenses of their employees in connection with meetings of our Board of Directors and other meetings related to the management and monitoring of our business by the Sponsors. Since the completion of the Transaction, we have paid approximately $0.3 million in aggregate total expense reimbursements to the Sponsors.

122

Table of Contents

DESCRIPTION OF CAPITAL STOCK

General Matters

The following description of our common stock and preferred stock and the relevant provisions of our articles of incorporation and bylaws are summaries thereof and are qualified by reference to our articles of incorporation and bylaws, copies of which have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part, and applicable law. References in this section to our articles of incorporation and our bylaws refer to our articles of incorporation and bylaws as such documents will be amended and restated upon completion of this offering.

Under our articles of incorporation, our authorized capital stock consists of                         shares of common stock, par value $0.01 per share, and                         shares of preferred stock, par value $0.01 per share.

Common Stock

Immediately following the completion of this offering, there will be                     shares of common stock outstanding.

The holders of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available therefor. See ‘‘Dividend Policy’’. In the event of the liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non - -assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable. As of November 30, 2007, there were approximately 107 holders of our common stock.

Preferred Stock

Our Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the shareholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company without further action by the shareholders and may adversely affect the voting and other rights of the holders of common stock. We have no current plans to issue any of the preferred stock.

Voting

The affirmative vote of a majority of the shares of our capital stock present, in person or by written proxy, at a meeting of shareholders and entitled to vote on the subject matter will be the act of the shareholders.

Our articles of incorporation may be amended in any manner provided by the PBCL, provided that the affirmative vote of two-thirds of the voting power of outstanding shares of our capital stock, voting together as a single class, is required to amend certain provisions of our articles of incorporation. Our Board of Directors has the power to adopt, amend or repeal our bylaws, subject to the power of our shareholders to adopt, amend or repeal the bylaws by the affirmative vote of the holders of at least two-thirds of the voting power of our outstanding shares of capital stock, voting together as a single class.

123

Table of Contents

Action by Written Consent

Our articles of incorporation and bylaws provide that shareholder action cannot be taken by written consent of the shareholders once the private equity funds affiliated with the Sponsors cease to own 50% or more of our outstanding common stock, other than unanimous written consent of all of the shareholders.

Ability to Call Special Meetings

Our articles of incorporation and bylaws provide that special meetings of our shareholders can only be called pursuant to a resolution adopted by a majority of our Board of Directors or by the chairman of our Board of Directors, our chief executive officer or our president. Special meetings may also be called by the holders of at least 25% of the outstanding shares of our common stock until the private equity funds affiliated with the Sponsors own less than 50% of the outstanding common stock. Thereafter, shareholders will not be permitted to call a special meeting or to require our board to call a special meeting.

Anti-Takeover Provisions

Our articles of incorporation and bylaws, as well as the PBCL, contain various provisions intended to promote the stability of our shareholder base and render more difficult certain unsolicited or hostile attempts to take us over, which could disrupt us, divert the attention of our directors, executive officers or employees and adversely affect the independence and integrity of the business.

Classified Board of Directors; Removal of Directors.    Upon completion of this offering, our Board of Directors will be divided into three classes, denominated as Class I, Class II and Class III. Each class will consist as nearly as possible of one-third of the directors. Members of each class will hold office for staggered three-year terms, except that Class I directors will have an initial term expiring in 2009, Class II directors will have an initial term expiring in 2010, and Class III directors will have an initial term expiring in 2011. At each annual meeting of our shareholders beginning in 2009, the successors to the directors whose term expires at that meeting will be elected to serve until the third annual meeting after their election or until their successor has been elected and qualified. See ‘‘Management — Board Struct ure’’.

Our bylaws provide that newly created directorships resulting from any increase in the number of directors and any vacancies on our Board of Directors resulting from death, resignation, disqualification, removal or other cause will be filled by the affirmative vote of a majority of the remaining directors then in office. This is the case even if the remaining directors constitute less than the number of directors previously required to establish a quorum of the members of the Board of Directors, or if there is only a sole remaining director. Any director appointed as described in this paragraph will hold office for the full term of the class of directors in which the new directorship was created or the vacancy occurred and until the director’s successor has been duly elected and qualified. No decrease in the number of directors constituting our Board of Directors will shorten the term of any incumbent director. The PBCL further provides that shareholders m ay remove directors only for cause because our articles of incorporation and bylaws provide for a classified Board of Directors.

These provisions of our articles of incorporation and bylaws and of the PBCL preclude a third party from removing incumbent directors and simultaneously gaining control of our Board of Directors by filling the vacancies created as a result of the removal with its own nominees. An individual or group would require at least two elections of directors to gain control of our Board of Directors. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of us.

No Cumulative Voting.    Our articles of incorporation provide that shareholders do not have the right to cumulate votes in the election of directors. Cumulative voting rights would have been available to the holders of our common stock if our articles of incorporation did not prohibit cumulative voting.

124

Table of Contents

Advance Notice Requirements for Shareholder Proposals and Director Nominations.    Our bylaws establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders, including proposed nominations of persons for election to the Board of Directors.

Shareholders at our annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our Board of Directors or by a shareholder who was a shareholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our secretary timely written notice, in proper form, of the shareholder’s intention to bring that business before the meeting. Although neither our articles of incorporation nor our bylaws gives the Board of Directors the power to approve or disapprove shareholder nominations of candidates or proposals about other business to be conducted at a special or annual meeting, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.

Preferred Stock.    Our Board of Directors has authority to issue series of preferred stock with such voting rights and other powers as the Board of Directors may determine, as described above.

Pennsylvania Anti-Takeover Law.    The PBCL provides certain anti-takeover protections to domestic corporations which do not elect out of those protections. Under our articles of incorporation, we have elected out of these provisions; however, our election to opt out of subchapter F of chapter 25 of the PBCL will not be effective for 18 months following approval by our shareholders of our articles of incorporation. Under this subchapter, a person who acquires direct or indirect beneficial ownership of 20% or more of the voting power of our capital stock is considered an interested shareholder, and we may not enter into certain business combinations, such as mergers, consolidations, share exchanges and asset sales, with the interested shareholder for a period of five years. Under the PBCL, our Board of Directors generally may exclude a business combin ation from these restrictions on a case by case basis, subject to certain limitations. So long as this subchapter remains applicable, it may discourage open market purchases of our stock or a non-negotiated tender or exchange offer for our stock and, accordingly, may be considered disadvantageous by a shareholder who would desire to participate in any such transaction.

Under Section 1715 of the PBCL, our directors are not required to regard the interests of any particular group, including those of the shareholders, as being dominant or controlling in considering our best interests. The directors may consider, to the extent they deem appropriate, such factors as:

	•	the effects of any action upon any group affected by such action, including our shareholders, employees, suppliers, customers and creditors, and communities in which we have offices or other establishments;

	•	our short-term and long-term interests, including benefits that may accrue to us from our long-term plans and the possibility that these interests may be best served by our continued independence;

	•	the resources, intent and conduct of any person seeking to acquire control of us; and

	•	all other pertinent factors.

Section 1715 further provides that any act of our Board of Directors, a committee of the Board of Directors or an individual director relating to or affecting an acquisition or potential or proposed acquisition of control to which a majority of our disinterested directors have assented will be presumed to satisfy the standard of care set forth in the PBCL, unless it is proven by clear and convincing evidence that our disinterested directors did not consent to such act in good faith after reasonable investigation. As a result of this and the other provisions of Section 1715, our directors are provided with broad discretion with respect to actions that may be taken in response to acquisitions or proposed acquisitions of corporate control.

125

Table of Contents

The rights and limitations provided by Section 1715 may discourage open market purchases of our common stock or a non-negotiated tender or exchange offer for our common stock and, accordingly, may be considered disadvantageous by a shareholder who would desire to participate in any such transaction. Therefore, the rights and limitations provided by Section 1715 may have a depressive effect on the price of our common stock.

Limitation of Liability and Indemnification Matters

Our articles of incorporation and bylaws provide that a director of the Company will not be liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director, except in certain cases where liability is mandated by the PBCL. Our articles of incorporation and bylaws also provide for indemnification, to the fullest extent permitted by law and subject to certain limited exceptions, by the Company of any officer or director (including former officers and directors) made or threatened to be made a party to, or who is involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer or other authorized representative of the Company, against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred or suffered by such person in connection with the action, suit or p roceeding. Our articles of incorporation and bylaws also provide that, to the extent authorized from time to time by our Board of Directors, we may provide indemnification to any one or more employees and other agents of the Company to the extent and effect determined by our Board of Directors to be appropriate and authorized by the PBCL. Our articles of incorporation and bylaws also permit us to purchase and maintain insurance for the foregoing and we expect to maintain such insurance.

Corporate Opportunities

Our articles of incorporation provides that the Sponsors have no obligation to offer us an opportunity to participate in business opportunities presented to the Sponsors or their respective affiliates even if the opportunity is one that we might reasonably have pursued, and that neither the Sponsors nor their respective affiliates will be liable to us or our shareholders for breach of any duty by reason of any such activities unless, in the case of any person who is a director or officer of the Company, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as an officer or director of the Company. Shareholders will be deemed to have notice of and consented to this provision of our articles of incorporation.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be                             .

126

Table of Contents

DESCRIPTION OF CERTAIN INDEBTEDNESS

As of September 30, 2007, we had $1,936.8 million in aggregate indebtedness outstanding, with $38.1 million included in short-term liabilities. We also have an additional $207.6 million of borrowing capacity available under our revolving credit facility, after giving effect to outstanding letters of credit. Our liquidity requirements are significant and include debt service and capital expenditures, as further described below.

Senior Secured Credit Facilities

Overview.    In connection with the Transaction, our subsidiary, Education Management LLC, entered into senior secured credit facilities consisting of a $1,185.0 million term loan facility and a $300.0 million revolving credit facility. The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

Interest Rate and Fees.    Borrowings under the senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin or, at our option, an applicable margin plus an alternative base rate determined by reference to the higher of (x) the prime rate as published in The Wall Street Journal or (y) the federal funds rate plus ½ of 1.0%. The initial applicable margin for borrowings under the revolving credit facility was 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings and, under the term loan facility, 1.50% with respect to base rate borrowings and 2.50% with respect to LIBOR borrowings . The applicable margin for borrowings under the senior secured credit facilities has been reduced subject to our attainment of certain leverage ratios, as discussed below.

On February 13, 2007 we amended and restated our term loan facility to decrease the interest rate on the outstanding indebtedness to LIBOR plus an applicable margin spread of 2.0% over LIBOR plus an applicable margin spread of 2.5%. The amended and restated term loan facility also includes a provision that requires us to pay a premium equal to 1% of the outstanding loan balance in connection with any future amendment that results in an additional margin reduction prior to February 13, 2008. The amendment and restatement of the term loan facility was accounted for under Emerging Issues Task Force 96-19 ‘‘Debtor’s Accounting for a Modification or Exchange of Debt Instruments’’, under which the old and new debt agreements were not considered ‘‘substantially different’’.

The applicable margin spread was further reduced to 1.75% on May 18, 2007 as a result of our leverage ratio falling below 5.5x as of March 31, 2007. The interest rate, including applicable margin, on the term loan facility was 7.125% at September 30, 2007.

We utilize interest rate swap agreements, which are contractual agreements to exchange payments based on underlying interest rates, to manage the variable rate portion of our term debt. On June 6, 2006, we entered into two five-year interest rate swap agreements for a total notional amount of $750 million in order to hedge a portion of our exposure to variable interest payments associated with the senior secured credit facilities. The interest rate swaps are for $375.0 million effective July 1, 2006 and $375.0 million effective July 3, 2006. Under the terms of the interest rate swaps, we receive payments based on variable interest rates based on the three month LIBOR and make payments based on a fixed rate of 5.397%.

In addition to paying interest on outstanding principal under the senior secured credit facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate may be reduced to 0.375% subject to our attaining certain leverage ratios. We also must pay customary letter of credit fees.

Payments.    We are required to pay installments on the loans under the term loan facility in quarterly principal amounts equal to 0.25% of their initial total funded principal amount calculated as of the closing date through April 1, 2013, with the remaining amount payable on June 1, 2013.

127

Table of Contents

We are required to make additional principal payments beginning in the first fiscal quarter of 2008 based on excess cash flows generated for the preceding fiscal year, as defined in the senior secured term loan agreement. This mandatory prepayment of $22.6 million with respect to cash generated during fiscal 2007 was paid in the second quarter of fiscal 2008 and included in current liabilities on our June 30, 2007 and September 30, 2007 balance sheets. We cannot estimate the additional principal amounts, if any, that we may be required to pay after fiscal 2008.

Principal amounts outstanding under the revolving credit facility are due and payable in full on June 1, 2012.

Certain Covenants and Events of Default.    The credit agreement governing the senior secured credit facilities contains a number of covenants that, among other things, restrict, subject to certain exceptions, our subsidiaries’ ability to:

	•	incur additional indebtedness;

	•	create liens on assets;

	•	engage in mergers or consolidations;

	•	sell assets;

	•	pay dividends and distributions or repurchase the capital stock of Education Management LLC;

	•	make investments, loans or advances;

	•	make capital expenditures;

	•	repay subordinated indebtedness (including the senior subordinated notes);

	•	amend agreements governing our subordinated indebtedness (including the senior subordinated notes) and our constitutive documents;

	•	change the nature of our business; and

	•	change the status of Education Management Holdings LLC as a passive holding company.

In addition, the credit agreement governing the senior secured credit facilities requires Education Management LLC to maintain a maximum total leverage ratio and a minimum interest coverage ratio within specified ranges.

The credit agreement governing the senior secured credit facilities also contains certain customary affirmative covenants and events of default. The credit agreement also has a cross-default provision to debt with a principal amount of greater than $50 million, which would cause the term loan to be prepaid or redeemed.

Senior Notes and Senior Subordinated Notes

        8¾% Senior Notes due 2014

General.    In connection with the Transaction, our subsidiaries, Education Management LLC and Education Management Finance Corp. (collectively, the ‘‘issuers’’), co-issued $375.0 million aggregate principal amount of 8¾% senior notes due 2014. Cash interest payments are due and payable semi-annually in arrears on June 1 and December 1 to holders of the senior notes of record on the immediately preceding May 15 and November 15, and commenced on December 1, 2006. Interest on the senior notes is computed on the basis of a 360-day year comprised of 12 30-day months.

Ranking.    The senior notes are the issuers’ unsecured senior obligations and rank equally in right of payment with or senior to all other indebtedness of the issuers (including borrowings under the senior secured credit facilities), but are effectively subordinated to all secured indebtedness of the issuers (including borrowings under the senior secured credit facilities) to the extent of the value of

128

Table of Contents

the assets securing such indebtedness and to all liabilities of non-guarantor subsidiaries of the issuers; and are senior in right of payment to any existing and future subordinated indebtedness of the issuers (as defined with respect to the senior notes), including the senior subordinated notes.

Optional Redemption.    The senior notes may be redeemed at the issuer’s option, in whole or in part, at any time prior to June 1, 2010, at a redemption price equal to 100% of the principal amount of the senior notes redeemed, plus the greater of (1) 1.0% of the then outstanding principal amount of the senior notes; and (2) the excess, if any, of (a) the present value at such redemption date of the redemption price of the senior notes at June 1, 2010 (as set forth in the table below), computed using a discount rate equal to the applicable treasury rate as of such redemption date plus 50 basis points; over (b) the then outstanding principal amount of the senior notes, plus accrued and unpaid interest and additional interest, if any, to the redemption date. The senior notes may be redeemed at the issuers’ option, in whole or in part, at any time on or after June 1, 2010, at the redemption prices (expressed as percentages of principal amount thereof) as set forth in the table below, plus accrued and unpaid interest and additional interest, if any, to the redemption date, if redeemed during the 12-month period commencing on June 1 of the years set forth below:

Year			Percentage
2010					104.375	%
2011					102.188	%
2012 and thereafter					100.000	%

In addition, until June 1, 2009, up to 35% of the aggregate principal amount of senior notes shall be redeemable in cash at the issuer’s option at a redemption price of 108.75% of the principal amount thereof, plus additional interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings; provided, however, that at least 50% of the original aggregate principal amount of the senior notes and any additional senior notes remains outstanding after such redemption and provided, further, that such redemption occurs within 90 days of the date of closing of each such equity offering.

Change of Control.    Upon the occurrence of a change of control, which is defined in the indenture governing the senior notes, each holder of the senior notes has the right to require the issuers to repurchase all of such holder’s senior notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the repurchase date.

Covenants. The indenture governing the senior notes contains covenants limiting, among other things, the issuers’ ability and the ability of their restricted subsidiaries to

	•	incur additional indebtedness;

	•	pay dividends on or make other distributions or repurchase the capital stock of Education Management LLC or any of its parent companies;

	•	make certain investments, including capital expenditures;

	•	enter into certain types of transactions with affiliates;

	•	use assets as security in other transactions; and

	•	sell certain assets or merge with or into other companies.

Events of Default.    The indenture governing the senior notes also provides for events of default which, if any of them occurs, would permit or require the principal amount of, premium, if any, and accrued interest and additional interest, if any, on such senior notes to become or to be declared due and payable. In addition, the senior notes include a cross-default provision to debt with a principal amount of greater than $50.0 million, which would cause the senior notes to be prepaid or redeemed.

As of September 30, 2007, we were in compliance in all material respects with all covenants and provisions contained in the indenture governing these notes.

Guarantees.    The senior notes are fully and unconditionally guaranteed on an unsecured senior basis by all of Education Management LLC’s direct and indirect domestic restricted subsidiaries,

129

Table of Contents

other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets. The guarantees of the senior notes will rank equally in right of payment with or senior to all indebtedness of each such entity.

        10¼% Senior Subordinated Notes due 2016

General.    In connection with the Transaction, our subsidiaries, Education Management LLC and Education Management Finance Corp. (collectively, the ‘‘issuers’’), co-issued $385.0 million aggregate principal amount of 10¼% senior subordinated notes due 2016. Cash interest payments are due and payable semi-annually in arrears on June 1 and December 1 to holders of the senior subordinated notes of record on the immediately preceding May 15 and November 15, and commenced on December 1, 2006. Interest on the senior subordinated notes is computed on the basis of a 360-day year comprised of 12 30-day months.

Ranking.    The senior subordinated notes are the issuers’ unsecured senior subordinated obligations and are subordinated in right of payment to all existing and future senior indebtedness of the issuers (including borrowings under the senior secured credit facilities) to the extent of the value of the assets securing such indebtedness and to all liabilities of non-guarantor subsidiaries of the issuers; and are senior in right of payment to any future subordinated indebtedness of the issuers (as defined with respect to the senior subordinated notes).

Optional Redemption.    The senior subordinated notes may be redeemed at the issuer’s option, in whole or in part, at any time prior to June 1, 2011, at a redemption price equal to 100% of the principal amount of the senior subordinated notes redeemed, plus the greater of (1) 1.0% of the then outstanding principal amount of the senior subordinated notes; and (2) the excess, if any, of (a) the present value at such redemption date of the redemption price of the senior subordinated notes at June 1, 2011 (as set forth in the table below), computed using a discount rate equal to the applicable treasury rate as of such redemption date plus 50 basis points; over (b) the then outstanding principal amount of the senior subordinated notes, plus accrued and unpaid interest and additional interest, if any, to the redemption date. The senior subordinated n otes may be redeemed at the issuers’ option, in whole or in part, at any time on or after June 1, 2011, at the redemption prices (expressed as percentages of principal amount thereof) as set forth in the table below, plus accrued and unpaid interest and additional interest, if any, to the redemption date, if redeemed during the 12-month period commencing on June 1 of the years set forth below:

Year			Percentage
2011					105.125	%
2012					103.417	%
2013					101.708	%
2014 and thereafter					100.000	%

In addition, until June 1, 2009, up to 35% of the aggregate principal amount of senior subordinated notes shall be redeemable in cash at the issuer’s option at a redemption price of 110.25% of the principal amount thereof, plus additional interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings; provided, however, that at least 50% of the original aggregate principal amount of the senior subordinated notes and any additional senior subordinated notes remains outstanding after such redemption and provided further, that such redemption occurs within 90 days of the date of closing of each such equity offering.

Change of Control.    Upon the occurrence of a change of control, which is defined in the indenture governing the senior subordinated notes, each holder of the senior subordinated notes has the right to require the issuers to repurchase all of such holder’s senior subordinated notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the repurchase date.

Covenants.    The indenture governing the senior subordinated notes contains covenants limiting, among other things, the issuers’ ability and the ability of their restricted subsidiaries to

130

Table of Contents

	•	incur additional indebtedness;

	•	pay dividends on or make other distributions or repurchase the capital stock of Education Management LLC;

	•	make certain investments, including capital expenditures;

	•	enter into certain types of transactions with affiliates;

	•	use assets as security in other transactions; and

	•	sell certain assets or merge with or into other companies.

Events of Default.    The indenture governing the senior subordinated notes also provides for events of default which, if any of them occurs, would permit or require the principal amount of, premium, if any, and accrued interest and additional interest, if any, on such senior notes to become or to be declared due and payable.

As of September 30, 2007, we were in compliance in all material respects with all covenants and provisions contained in the indenture governing these notes.

Guarantees.    The senior subordinated notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of Education Management LLC’s direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets. The guarantees of the senior subordinated notes will be subordinated in right of payment to all existing and future senior indebtedness of each entity.

Covenant Compliance

Under our senior secured credit facilities, we are required to satisfy a maximum total leverage ratio, a minimum interest coverage ratio and other financial conditions tests. As of September 30, 2007, we were in compliance with the financial and non-financial covenants. Our continued ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests in the future.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the Notes and in credit agreement governing the 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 our senior secured credit facilities and the indentures governing the Notes. 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 credit agreement governing the 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 borrowed amounts due and payable. Any such acceleration also would result in a default under our indentures governing the Notes. Additionally, under the credit agreement governing the senior secured credit facilities and the indentures governing the 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. While Adjusted EBITDA and similar measures frequently are 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 credit agreement governing the senior secured

131

Table of Contents

credit facilities and the indentures governing the Notes allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income. However, 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 affected disproportionately by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent 12-month period or any complete fiscal year.

The following is a reconciliation of net income, which is a GAAP measure of our operating results, to Adjusted EBITDA for Education Management LLC as defined in our debt agreements. The terms and related calculations are defined in the indentures governing the senior notes and senior subordinated notes (in millions).

			Combined 12 Months Ended June 30, 2006						Year Ended June 30, 2007						For the 12 Months Ended September 30,												For the 12 Months Ended September 30, 2007, as adjusted(1)
															2006						2007
Net income				$	80.7					$	32.2					$	57.0					$	36.1					$
Interest expense, net					8.8						169.1						53.4						165.8
Provision for income taxes					61.2						27.1						47.6						29.6
Depreciation and amortization(2)					70.3						90.5						74.8						96.8
EBITDA					221.0						318.9						232.8						328.3
Reversal of impact of unfavorable lease liabilities(3)					(0.2	)					(1.7	)					(0.7	)					(1.6	)
Advisory and transaction costs(4)					40.1						5.5						41.0						5.4
Non-cash equity compensation expense(5)					32.2						—						25.9						—
Severance and relocation					2.6						3.9						2.5						4.3
Capital taxes					—						0.5						0.1						0.5
Adjusted EBITDA – Covenant Compliance				$	295.7					$	327.1					$	301.6					$	336.9					$

(1) As adjusted to give effect to (i) the sale of                 shares of common stock by us in this offering at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus and (ii) the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

(2) Depreciation and amortization includes non-cash charges related to fixed asset impairments.

(3) Represents non-cash reduction to rent expense in the 12 months ended September 30, 2007 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.

(4) Represents $5.0 million of advisory fees per annum beginning June 1, 2006 under the Sponsor Management Agreement, along with costs incurred as a direct result of the Transaction. These Transaction costs include $29.8 million, $0.5 million, $29.9 million, and $0.4 million related to legal and other professional services fees in the combined 12-month period ended June 30, 2006, the year ended June 30, 2007, the combined 12-month period ended September 30, 2006, and the 12-month period ended September 30, 2007, respectively, as well as compensation and payroll taxes directly attributed to the Transaction of $9.9 million in each of the combined 12-month periods ended June 30, 2006 and September 30, 2006.

(5) Represents non-cash equity compensation expense recognized in accordance with SFAS No. 123R.

132

Table of Contents

Our covenant requirements and actual and as adjusted ratios for the 12-month period ended September 30, 2007 are as follows:

Covenant Requirements

Actual Ratios

As Adjusted Ratios(1)

Senior secured credit facilities

Adjusted EBITDA to consolidated interest expense ratio

Minimum of 1.40x

2.04x

x

Consolidated total debt to Adjusted EBITDA ratio

Maximum of 7.75x

4.83x

x

(1) As adjusted to give effect to the sale of          shares of common stock by us in this offering at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus and the application of the net proceeds of this offering as described under ‘‘Use of Proceeds’’.

133

Table of Contents

MATERIAL U.S. FEDERAL TAX CONSEQUENCES
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of common stock by a beneficial owner that is a ‘‘non-U.S. holder’’ that holds common stock as a capital asset (generally, property hold for investments) and that does not own, and is not deemed to own, more than 5% of the Company’s common stock. A ‘‘non-U.S. holder’’ is a person or entity that, for U.S. federal income tax purposes, is a:

	•	non-resident alien individual, other than certain former citizens and residents of the United States subject to tax as expatriates;

	•	foreign corporation; or

	•	foreign estate or trust.

A ‘‘non-U.S. holder’’ does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition of common stock and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.

This discussion is based on the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to non-U.S. holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction.

If a partnership holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partners of a partnership holding common stock should consult their own tax advisors.

Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of common stock, including the consequences under the laws of any state, local or foreign jurisdiction.

Dividends

Dividends paid by the Company to a non-U.S. holder of common stock generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide an Internal Revenue Service Form W-8BEN certifying its entitlement to benefits under a treaty. A non-U.S. holder of common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.

The withholding tax does not apply to dividends paid to a non-U.S. holder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. resident. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional ‘‘branch profits tax’’ imposed at a rate of 30% (or a lower treaty rate).

134

Table of Contents

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other disposition of common stock unless:

	•	the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, subject to an applicable treaty providing otherwise; or

	•	the Company is or has been a U.S. real property holding corporation, as defined below, at any time within the five-year period preceding the disposition or the non-U.S. holder’s holding period, whichever period is shorter, and its common stock is not regularly traded on an established securities market at any time during the calendar year in which the sale or disposition occurs.

The Company believes that it is not, and does not anticipate becoming, a U.S. real property holding corporation.

Information Reporting Requirements and Backup Withholding

Information returns will be filed with the Internal Revenue Service in connection with payments of dividends. You may have to comply with certification procedures to establish that you are not a U.S. person in order to avoid additional information reporting (for example, information reporting in connection with the proceeds from a sale or other disposition of common stock) and backup withholding tax requirements. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements necessary to avoid the additional information reporting and backup withholding tax as well. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is furnished to the Internal Revenue Service.

Federal Estate Tax

An individual non-U.S. holder who is treated as the owner of, or has made certain lifetime transfers of, an interest in the common stock will be required to include the value of the stock in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.

135

Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock. Nevertheless, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

Upon the completion of this offering, we will have outstanding an aggregate of                 shares of our common stock (assuming no outstanding options are exercised). Of these outstanding shares, the                shares to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased in this offering by our ‘‘affiliates’’, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described below. The                    remaining outstanding shares of common stock that are not sold in this offering will be deemed ‘‘restrict ed securities’’ as that term is defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act, such as under Rule 144 or 144(k) under the Securities Act, which are summarized below.

Rule 144

In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated), including an affiliate, who has beneficially owned shares of our common stock for at least one year is entitled to sell in any three-month period a number of shares that does not exceed the greater of:

	•	1% of the then-outstanding shares of common stock (approximately             shares immediately after this offering assuming no exercise of options); and

	•	the average weekly reported volume of trading in the common stock on the Nasdaq Global Market during the four calendar weeks preceding the date on which notice of sale on Form 144 is filed, subject to restrictions.

Sales under Rule 144 are also subject to manner-of-sale provisions and notice requirements and to the availability of current public information about us.

Rule 144(k)

In addition, a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell those shares under Rule 144(k) without regard to the manner of sale, public information, volume limitation or notice requirements of Rule 144. To the extent that our affiliates sell their shares, other than pursuant to Rule 144 or a registration statement, the purchaser’s holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate.

Stock Option and Incentive Plans

We intend to file one or more registration statements on Form S-8 under the Securities Act following this offering to register the common stock that is issuable upon exercise of stock options outstanding or issuable under our stock option and incentive plans. These registration statements are expected to become effective upon filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to any applicable lock-up agreements and to Rule 144 limitations applicable to affiliates.

136

Table of Contents

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period contained in Rule 144.

Registration Rights

Pursuant to a registration rights agreement, certain of our shareholders have the right to require us to register shares of our common stock held by them. See ‘‘Certain Relationships and Related Party Transactions — Registration Rights Agreement’’.

Lock-up Agreements

In connection with this offering, the Company, its directors and executive officers, the Sponsors and certain other parties to our existing shareholders agreement, representing a majority of our outstanding shares of common stock immediately prior to the offering, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives the section of this prospectus entitled ‘‘Underwriting.’’ This agreement does not apply to any existing employee benefit plans.

The 180-day restricted period described in the preceding paragraph will be automatically extended if:

	•	during the last 17 days of the 180-day restricted period the Company issues an earnings release or announces material news or a material event; or

	•	prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 15-day period following the last day of the 180-day period,

in which case the restrictions described in this paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.

137

Table of Contents

UNDERWRITING

The Company and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. is the representative of the underwriters.

Underwriters			Number of Shares
Goldman, Sachs & Co.
Total

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional                         shares from the Company. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by the Company. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase                         additional shares.

Paid by the Company

No Exercise

Full Exercise

Per Share

$

$

Total

$

$

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

The Company and its officers, directors and holders of substantially all of the Company’s common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to any existing employee benefit plans. See ‘‘Shares Available for Future Sale’’ for a discussion of certain transfer restrictions.

The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period the company issues an earnings release or announces material news or a material event; or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release of the announcement of the material news or material event.

Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among the Company and the underwriters. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market

138

Table of Contents

conditions, will be the Company’s historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company’s management and the consideration of the above factors in relation to market valuation of companies in related businesses.

EDMC intends to apply for the quotation of the common stock on the Nasdaq Global Market under the symbol ‘‘EDMC’’.

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Shorts sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. ‘‘Covered’’ short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from the Company in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additiona l shares pursuant to the option granted to them. ‘‘Naked’’ short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the Company’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the Nasdaq Global Market, in the over-the-counter market or otherwise.

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

	(a)	to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

	(b)	to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

	(c)	to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of Goldman, Sachs & Co. for any such offer; or

	(d)	in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

139

Table of Contents

For the purposes of this provision, the expression an ‘‘offer of shares to the public’’ in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented and agreed that:

	(a)	it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the issuer; and

	(b)	it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a ‘‘prospectus’’ within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respe ct to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given fo r the transfer; or (3) by operation of law.

The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or

140

Table of Contents

sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

The Company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $            .

The Company has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Company, for which they received or will receive customary fees and expenses.

Affiliates of Goldman, Sachs & Co. beneficially own more than 10% of EDMC. Because Goldman, Sachs & Co. is an underwriter and its affiliates beneficially own more than 10% of EDMC, the underwriters are deemed to have a ‘‘conflict of interest’’ under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which are overseen by the Financial Industry Regulatory Authority. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 2720. Rule 2720 requires that the initial public offering price can be no higher than that recommended by a ‘‘qualified independent underwriter’’, as defined by Rule 2720.                          has served in that capacity and performed due diligence investigations and reviewed and participated in t he preparation of the registration statement of which this prospectus forms a part. The underwriters will not confirm sales to any accounts over which they exercise discretionary authority without first receiving a written consent from those accounts. EDMC has agreed to indemnify                          against certain liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.

141

Table of Contents

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Kirkpatrick & Lockhart Preston Gates Ellis LLP, Pittsburgh, Pennsylvania, and certain legal matters will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York. Simpson Thacher & Bartlett LLP has in the past provided legal services to us and the Sponsors and may in the future continue to provide legal services to us and the Sponsors.

EXPERTS

The consolidated financial statements and schedule of Education Management Corporation at June 30, 2007 (Successor) and 2006 (Successor), and for the year ended June 30, 2007 (Successor), for the period from June 1, 2006 to June 30, 2006 (Successor), for the period from July 1, 2005 to May 31, 2006 (Predecessor) and for the year ended June 30, 2005 (Predecessor), appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission or SEC, in Washington, DC, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. For further information with respect to us and our common stock, reference is made to the registration statement and the exhibits and any schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by such reference. A copy of the registration statement, including the exhibits and schedules thereto, may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. Informatio n on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov, from which interested persons can electronically access the registration statement, including the exhibits and any schedules thereto.

As a result of this offering, we will become subject to the full informational requirements of the Securities Exchange Act of 1934, as amended. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our shareholders with annual reports containing consolidated financial statements certified by an independent public accounting firm. We also maintain an Internet site at http://www.edmc.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.

You may obtain a copy of any of our filings, at no cost, by writing or telephoning us at:

Education Management Corporation
210 Sixth Avenue, 33^rd Floor
Pittsburgh, Pennsylvania 15222
(412) 562-0900
Attn: Corporate Secretary

142

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

			Page
Audited Financial Statements
Report of Independent Registered Public Accounting Firm					F-2
Consolidated Balance Sheets as of June 30, 2007 and 2006					F-3
Consolidated Statements of Operations for the Year Ended June 30, 2007, the Period from June 1, 2006 through June 30, 2006, the Period from July 1, 2005 through May 31, 2006 and the Year Ended June 30, 2005					F-4
Consolidated Statements of Cash Flows for the Year Ended June 30, 2007, the Period from June 1, 2006 through June 30, 2006, the Period from July 1, 2005 through May 31, 2006 and the Year Ended June 30, 2005					F-5
Consolidated Statements of Shareholders’ Equity for the Year Ended June 30, 2007, the Period from June 1, 2006 through June 30, 2006, the Period from July 1, 2005 through May 31, 2006 and the Year Ended June 30, 2005					F-7
Notes to Consolidated Financial Statements					F-8
Schedule II – Valuation and Qualifying Accounts					F-34
Supplemental Quarterly Information (unaudited)					F-35
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited), June 30, 2007 and September 30, 2006 (unaudited)					F-36
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2007 (unaudited) and the Three Months Ended September 30, 2006 (unaudited)					F-37
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2007 (unaudited) and the Three Months Ended September 30, 2006 (unaudited)					F-38
Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2007 (unaudited) and the Year Ended June 30, 2007					F-39
Notes to Condensed Consolidated Financial Statements (unaudited)					F-40

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Education Management Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Education Management Corporation and Subsidiaries (the Company) as of June 30, 2007 (Successor) and 2006 (Successor) and the consolidated statements of operations, shareholders’ equity, and cash flows for the year ended June 30, 2007 (Successor), for the period from June 1, 2006 to June 30, 2006 (Successor), for the period from July 1, 2005 to May 31, 2006 (Predecessor) and for the year ended June 30, 2005 (Predecessor). Our audits also included the financial statement schedule listed in the Index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the ove rall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Education Management Corporation and Subsidiaries at June 30, 2007 (Successor) and 2006 (Successor), and the consolidated results of their operations and their cash flows for the year ended June 30, 2007 (Successor) for the period from June 1, 2006 to June 30, 2006 (Successor), for the period from July 1, 2005 to May 31, 2006 (Predecessor), and for the year ended June 30, 2005 (Predecessor) in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As described in Note 2, the Predecessor adopted Financial Accounting Standards Board Statement 123(R), ‘‘Share Based Payment’’, during the period ended May 31, 2006.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
September 18, 2007

F-2

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

			June 30, 2007						June 30, 2006
Assets
Current assets:
Cash and cash equivalents				$	290,674					$	263,296
Restricted cash					10,308						10,036
Total cash, cash equivalents and restricted cash					300,982						273,332
Receivables, net of allowances of $38,002 and $35,392					69,940						50,404
Notes, advances and other					8,802						7,828
Inventories					6,969						6,169
Deferred income taxes					15,320						23,645
Prepaid income taxes					—						26,635
Other current assets					26,421						15,264
Total current assets					428,434						403,277
Property and equipment, net					416,394						376,136
Other long-term assets					68,240						80,580
Intangible assets, net					499,567						517,383
Goodwill					2,576,055						2,568,034
Total assets				$	3,988,690					$	3,945,410
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt				$	38,121					$	12,795
Revolver					90,000						160,000
Accounts payable					50,419						41,522
Accrued liabilities					112,792						75,948
Accrued income taxes					9,430						—
Unearned tuition					51,952						36,641
Advance payments					78,337						110,390
Total current liabilities					431,051						437,296
Long-term debt, less current portion					1,901,858						1,937,170
Deferred income taxes					216,276						220,402
Deferred rent					80,166						61,051
Other long-term liabilities					8,585						6,769
Shareholders’ equity:
Common stock, par value $0.01 per share; 40,000,000 shares authorized; 26,771,818 and 26,000,000 issued and outstanding					268						260
Additional paid-in capital					1,339,232						1,299,740
Retained earnings (deficit)					12,715						(19,696	)
Accumulated other comprehensive income (loss)					(1,461	)					2,418
Total shareholders’ equity					1,350,754						1,282,722
Total liabilities and shareholders’ equity				$	3,988,690					$	3,945,410

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

F-3

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)

			Successor												Predecessor
			Year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						Year ended June 30, 2005
Net revenues				$	1,363,690					$	74,397					$	1,095,763					$	1,019,338
Costs and expenses:
Educational services					801,554						64,683						649,839						640,445
General and administrative					314,887						26,004						273,305						203,813
Amortization of intangible assets					19,307						1,709						3,960						6,492
Total costs and expenses					1,135,748						92,396						927,104						850,750
Income (loss) before interest and income taxes					227,942						(17,999	)					168,659						168,588
Interest expense (income), net					168,287						14,106						(5,350	)					(220	)
Income (loss) before income taxes					59,655						(32,105	)					174,009						168,808
Provision for (benefit from) income taxes					27,244						(12,409	)					73,603						67,234
Net income (loss)				$	32,411					$	(19,696	)				$	100,406					$	101,574
Earnings (loss) per share:
Basic				$	1.23					$	(0.76	)				$	1.33					$	1.37
Diluted				$	1.23					$	(0.76	)				$	1.30					$	1.35
Weighted average number of shares outstanding:
Basic					26,442						26,000						75,366						74,012
Diluted					26,442						26,000						77,117						75,153

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

F-4

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

			Successor												Predecessor
			Year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						Year ended June 30, 2005
Cash flows provided by operating activities:
Net income (loss)				$	32,411					$	(19,696	)				$	100,406					$	101,574
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization					71,258						5,676						58,936						58,166
Reimbursements for tenant improvements					6,568						—						1,353						14,629
Amortization of intangibles					19,307						1,709						3,960						6,492
Amortization of debt issuance costs					7,662						—						—						—
Non-cash adjustments to deferred rent					(898	)					(407	)					(2,127	)					(692	)
Non-cash changes related to lease accounting					—						—						—						3,821
Excess tax benefits from share-based payments					—						—						(5,462	)					—
Stock-based compensation expense					—						—						32,219						1,044
Deferred income taxes					2,868						1,199						(8,423	)					424
Changes in assets and liabilities:
Restricted cash					(272	)					(5,293	)					149						1,522
Receivables					(18,965	)					14,675						(12,993	)					(5,703	)
Inventories					(784	)					(363	)					(182	)					(545	)
Other assets					1,622						(3,663	)					(3,008	)					(1,826	)
Accounts payable					4,856						(1,533	)					8,782						2,117
Accrued liabilities					72,571						(26,965	)					77,286						(1,611	)
Unearned tuition					14,060						(52,348	)					59,440						8,927
Advance payments					(32,403	)					64,539						(8,672	)					4,158
Total adjustments					147,450						(2,774	)					201,258						90,923
Net cash flows provided by (used in) operating activities					179,861						(22,470	)					301,664						192,497
Cash flows used in investing activities:
Acquisition of Predecessor, net of cash acquired					—						(3,526,171	)					—						—
Acquisition of subsidiaries, net of cash acquired					(8,543	)					—						(1,333	)					(12,298	)
Expenditures for long-lived assets					(96,057	)					(7,664	)					(57,932	)					(74,883	)
Reimbursements for tenant improvements					(6,568	)					—						(1,353	)					(14,629	)
Investment in marketable securities					(344,885	)					—						(832,221	)					(266,195	)
Redemption of marketable securities					344,885						—						832,221						266,195
Other items, net					387						(122	)					4,203						3,711
Net cash flows used in investing activities					(110,781	)					(3,533,957	)					(56,415	)					(98,099	)
Cash flows used in financing activities:
Borrowings under revolving credit facility					90,000						210,000						—						72,500
Payments on revolving credit facility					(160,000	)					(50,000	)					(62,000	)					(135,600	)
Payments of debt					(9,986	)					(91	)					(3,603	)					2,935
Excess tax benefits from share-based payments					—						—						5,462						—
Equity investments					39,500						1,300,000						—						—
Debt issuance costs					(833	)					(59,574	)					—						—
Net proceeds received from stock option and award plans					—						100,186						16,450						21,169
Borrowings for the acquisition of Predecessor					—						1,945,000						—						—
Other					—						—						530						—
Net cash flows (used in) provided by financing activities					(41,319	)					3,445,521						(43,161	)					(38,996	)
Effect of exchange rate changes on cash and cash equivalents					(383	)					124						16						(156	)
Net change in cash and cash equivalents					27,378						(110,782	)					202,104						55,246
Cash and cash equivalents, beginning of year					263,296						374,078						171,974						116,728
Cash and cash equivalents, end of year				$	290,674					$	263,296					$	374,078					$	171,974

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

F-5

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Supplemental Disclosures of Cash Flow Information (in thousands):

			Successor												Predecessor
			Year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						Year ended June 30, 2005
Cash paid (received) during the period for:
Interest (including swap settlement)				$	152,963					$	175					$	674					$	1,108
Income taxes, net of refunds					(19,371	)					1,001						41,037						80,182
Noncash investing and financing activities:
Expenditures in accounts payable and accrued liabilities at end of period for property and equipment				$	21,279					$	10,772					$	8,165					$	6,310

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

F-6

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

			Common Stock at Par Value						Additional Paid-in Capital						Treasury Stock						Retained Earnings (Deficit)						Accumulated Other Comprehensive Income (Loss) (a)						Total
Predecessor
Balance, June 30, 2004				$	735					$	296,038					$	(1,495	)				$	230,382					$	3,027					$	528,687
Comprehensive income:
Net income					—						—						—						101,574						—						101,574
Foreign currency translation					—						—						—						—						3,095						3,095
Comprehensive income																																			104,669
Shares exchanged under stock-based plan					—						—						(296	)					—						—						(296	)
Issuance of restricted stock					1						1,044						—						—						—						1,045
Exercise of stock options					15						18,779						—						—						—						18,794
Tax effect of stock option exercises					—						10,441						—						—						—						10,441
Stock issued under employee stock purchase plan					—						2,670						—						—						—						2,670
Balance, June 30, 2005					751						328,972						(1,791	)					331,956						6,122						666,010
Comprehensive income:
Net income					—						—						—						100,406						—						100,406
Foreign currency translation					—						—						—						—						2,348						2,348
Comprehensive income																																			102,754
Shares exchanged under stock-based plan					—						—						(351	)					—						—						(351	)
Issuance of restricted stock					—						942						—						—						—						942
Restricted stock expense					—						17,176						—						—						—						17,176
Stock option expense					—						14,080						—						—						—						14,080
Exercise of stock options					8						15,338						—						—						—						15,346
Tax effect of stock option exercises					—						5,463						—						—						—						5,463
Stock issued under employee stock purchase plan					1						1,985						—						—						—						1,986
Balance, May 31, 2006				$	760					$	383,956					$	(2,142	)				$	432,362					$	8,470					$	823,406
Successor
Investment by Principal Shareholders				$	260					$	1,299,740					$	—					$	—					$	—					$	1,300,000
Comprehensive loss:
Net loss					—						—						—						(19,696	)					—						(19,696	)
Foreign currency translation					—						—						—						—						(66	)					(66	)
Unrealized gain on interest rate swaps, net of tax					—						—						—						—						2,484						2,484
Comprehensive loss																																			(17,278	)
Balance, June 30, 2006					260						1,299,740						—						(19,696	)					2,418						1,282,722
Equity investment					8						39,492						—						—						—						39,500
Comprehensive income:
Net income					—						—						—						32,411						—						32,411
Foreign currency translation					—						—						—						—						(334	)					(334	)
Unrealized loss on interest rate swaps, net of tax					—						—						—						—						(3,545	)					(3,545	)
Comprehensive loss																																			28,532
Balance, June 30, 2007				$	268					$	1,339,232					$	—					$	12,715					$	(1,461	)				$	1,350,754

(a) The balance in accumulated other comprehensive loss at June 30, 2007 is comprised of $0.4 million of cumulative foreign currency translation losses and $1.1 million of unrealized net losses on interest rate swaps.

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

F-7

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    DESCRIPTION OF BUSINESS, GOVERNANCE AND CHANGE IN OWNERSHIP

Description of Business

Education Management Corporation and its subsidiaries (the ‘‘Company’’) is among the largest providers of postsecondary education in North America, with more than 80,300 active students as of the fall of 2006. The Company offers education through four different education systems (The Art Institutes, Argosy University, the 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.

Change in Ownership

On June 1, 2006, the Company was acquired by a consortium of private equity investment funds led by Providence Equity Partners and Goldman Sachs Capital Partners (together, the ‘‘Principal Shareholders’’). 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 outstanding shares of the Company’s common stock were cancelled in exchange for $43 per share in cash. The Principal Shareholders, together with certain other investors, became the owners of the Company. For purposes of these financial statements, the ‘‘Predecessor’’ refers to the Company during the period prior to June 1, 2006. The ‘‘Successor’’ refers to the Company effective June 1, 2006 and thereafter.

The acquisition of the Predecessor was financed by equity invested in EM Acquisition Corporation by the Principal Shareholders and other investors, cash on hand, borrowings under a new senior secured credit facility by EDMC’s wholly-owned subsidiary Education Management LLC (‘‘EM LLC’’), and notes issued by EM LLC and Education Management Finance Corp. (a wholly-owned subsidiary of EM LLC) of senior notes due 2014 and senior subordinated notes due 2016. The obligations under the new senior credit facility are guaranteed by Education Management Holdings LLC, a wholly-owned subsidiary of the Company, and all of EM LLC’s existing direct and indirect domestic subsidiaries, other than any subsidiary that directly owns or operates a school or any inactive subsidiary that has less than $100,000 of assets. The notes are fully and unconditionally guaranteed by all of EM LLC’s direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets.

Government Regulations

Each of the Company’s schools located in the United States is recognized by accreditation agencies and by the U.S. Department of Education, enabling students to access federal student loans, grants and other forms of public and private financial aid. Participating institutions are required to administer Title IV program funds in accordance with the Higher Education Act (‘‘HEA’’) and U.S. Department of Education regulations and must use diligence in approving and disbursing funds and servicing loans. In the event a participating institution does not comply with federal requirements or if student loan default rates are at a level that exceeds certain thresholds set by statute and regulation, that institution could lose its eligibility to participate in Title IV programs or could be required to repay funds determined to have been improperly disbursed. Most of the students that attend the Company’s schools participate in federal a nd state financial aid and assistance programs.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and a controlled entity. All significant inter-company transactions and

F-8

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

balances have been eliminated. Unless otherwise specified, any reference to a ‘‘year’’ is to a fiscal year ended June 30. Certain prior year balances have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on assumptions that management believes to be reasonable under the circumstances, the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. However, management believes that its estimates are reasonable.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. These investments are stated at cost, which, based upon the scheduled maturities, approximates market value.

Many of the schools hold funds from the United States government under various student grant and loan programs in separate bank accounts, and serve as trustee for the U.S. Department of Education or respective lender, guaranty agency or student borrower, as applicable. The funds held in these bank accounts are not shown as cash or restricted cash on the consolidated balance sheet until the authorization and disbursement process has occurred. Once the authorization and disbursement process to the student has been completed, the funds are transferred to unrestricted accounts and become available for use in current operations. This transfer generally occurs for the period of the academic term for which such funds were authorized with no term being more than 16 weeks in length.

U.S. Department of Education regulations require Title IV program funds received by the Company’s institutions in excess of the charges applied to the relevant students at that time to be, with these students’ permission, maintained and classified as restricted. In addition, some states have similar requirements. Restricted cash balances include $8.3 million and $5.3 million of these amounts at June 30, 2007 and 2006, respectively.

Restricted cash balances also include amounts held in escrow related to the acquisition of South University and for other encumbrances. The Company held $1.5 million and $1.4 million at June 30, 2007 and 2006, respectively, in escrow for future contingent payments related to the South University acquisition. These funds will be transferred to the previous owner upon the satisfaction of certain conditions primarily relating to the development of certain health profession programs. Restricted cash also includes $2.8 million at June 30, 2006 held to collateralize outstanding letters of credit which had been issued pursuant to the Predecessor’s revolving credit facility. Outstanding letters of credit were previously collateralized by the Predecessor’s undrawn revolving credit facilities. No such collateralized letters of credit were necessary at June 30, 2007. An endowment of $0.5 million required by state law for two o f the Company’s schools is also included in restricted cash at June 30, 2007 and 2006, respectively.

Allowances for Doubtful Accounts

The Company determines its allowance for doubtful accounts for most locations primarily by categorizing gross receivables based upon enrollment status (in-school vs. out-of-school) of the student and establishing a reserve based on the likelihood of collection in consideration of the

F-9

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company’s historical experience. Student accounts are monitored through an aging process whereby past due accounts are pursued. When certain criteria are met (primarily aging past the due date by more than four months) and internal collection measures have been taken without success, the accounts of former students are placed with an outside collection agency.

Inventories

Inventories consist mainly of textbooks and supplies held for sale to students enrolled in the Company’s educational programs. Cost is determined using the first-in, first-out method, and inventories are valued at the lower of cost or market.

Property and Equipment

Property and equipment are recorded at their estimated cost less accumulated depreciation. As a result of the Transaction, the remaining estimated useful lives of already-existing property and equipment were reevaluated on a prospective basis. These remaining useful lives ranged from 1 year to 20 years across all asset classes with the exception of buildings, whose useful lives ranged from 15 to 40 years.

The Company’s depreciation policies for assets acquired after the Transaction are as follows:

	•	Buildings are depreciated over an estimated useful life of 30 years using the straight-line method.

	•	Leasehold improvements and capitalized lease costs are amortized using the straight-line method over the shorter of the original lease term, exclusive of any renewal periods, or their estimated useful lives, which is generally 7 to 15 years.

	•	The remainder of the Company’s property and equipment are depreciated over estimated useful lives ranging from 3 to 7 years using the straight-line method.

Accelerated depreciation methods are generally used for income tax purposes. The Company evaluates the recoverability of property and equipment with finite lives whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable in accordance with SFAS No. 144 ‘‘Accounting for Impairment or Disposal of Long-Lived Assets’’.

Leases

The Company and its subsidiaries lease certain classroom, dormitory and office space as well as equipment and automobiles under operating leases. Before entering into a lease, an analysis is performed to determine whether a lease should be classified as a capital or an operating lease according to SFAS No. 13, ‘‘Accounting for Leases’’, as amended. The Company also leases space from time to time on a short-term basis in order to provide specific courses or programs.

Certain of the Company’s lease agreements include tenant improvement allowances. These tenant improvement allowances are recorded as leasehold improvement assets in property and equipment and deferred rent liabilities on the consolidated balance sheet. Leasehold improvement assets are amortized on a straight-line basis over the shorter of the term of the lease or useful life of the asset as additional depreciation expense while deferred rent liabilities are amortized over the term of the lease as a reduction to rent expense.

Certain of the Company’s lease agreements include rent escalation clauses, which if fixed and determinable, are recognized on a straight-line basis over the life of the lease in accordance with SFAS No. 13, as amended. Lease terms generally range from one to ten years with one or more renewal options. For leases with renewal options, the Company records rent expense and amortizes the leasehold improvements on a straight-line basis over the original lease term, exclusive of the renewal period. When a renewal occurs, the Company records rent expense over the new term.

F-10

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During the third quarter of fiscal 2005, the Predecessor initiated a review of all of its current real estate operating leases and determined that its previous method of accounting for landlord incentives and allowances was not in accordance with guidance issued by the Securities and Exchange Commission in February 2005. The Predecessor had historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset when cash was received from the landlord. Similarly, these reimbursements were reflected as reductions to capital expenditures in investing activities on the consolidated statements of cash flows. In the past, when tenant improvement allowances were paid directly by the landlord, no accounting entries were made. At March 31, 2005, the Predecessor determined that the appropriate interpretation of FASB Technical Bulletin No. 88-1, ‘‘Issues Relating to Accounting for Leases’’, r equires these allowances to be recorded as a leasehold improvement asset and deferred rent liability on the consolidated balance sheet at the lease inception date and as both an investing activity outflow (addition to property and equipment, net) and as an inflow from operating activities on the consolidated statements of cash flows when the reimbursements are received. The net impact of these accounting adjustments resulted in additional net leasehold improvements and deferred rent liabilities of approximately $35.7 million and $39.5 million, respectively, at March 31, 2005. This adjustment includes approximately $14.6 million of reimbursements from landlords used to fund leasehold improvements. These reimbursements are reflected as an increase to cash flows from operations and an offsetting increase to expenditures for property and equipment (investing activities) in the accompanying consolidated statements of cash flows for fiscal 2005. The Predecessor also reviewed its leases to accou nt for rent holidays and, in some cases, corrected its accounting to expense rent charges from the date where the Predecessor had ‘‘possession and control’’ of the facility. Amortization expense for the nine months ended March 31, 2005 included an increase of approximately $19.5 million, while rent expense was reduced by approximately $15.7 million. The net result was a non-cash, pretax charge of approximately $3.8 million ($2.3 million after tax) recorded in educational services expense in the fiscal 2005 third quarter.

Goodwill and Other Identifiable Intangible Assets

Goodwill consists of the cost in excess of fair value of the identifiable net assets of entities acquired in purchase business combinations. Other intangibles include student relationships, accreditation, tradenames, and programs acquired in purchase business combinations as well as recording existing favorable leases at fair value upon the Transaction date. The Company uses the income approach to establish accreditation, tradename and student relationship asset fair values. Accreditations and tradenames are valued by the ‘‘relief from royalty’’ method, estimating the amount of royalty income that would be generated if the assets were licensed in an arms length transaction to a third party. The Company uses the discounted cash flow method to establish acquired student relationship asset values. The resulting asset value reflects the present value of the projected earnings generated by the student relationship. The cost of intangible asset s with determinable useful lives is amortized over estimated useful lives ranging from 3 to 9 years. Goodwill and indefinite-lived intangibles are evaluated annually for impairment and on an interim basis if events or changes in circumstances between annual tests indicate that the asset might be impaired.

Goodwill is potentially impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two-step approach. The first step is to determine the estimated fair value of each reporting unit with goodwill. Components are combined when determining reporting units if they have similar economic characteristics. Generally, each education system that the Company operates is a reporting unit for purposes of the impairment tests.

The Company estimates the fair value of each reporting unit by estimating the present value of the reporting unit’s future cash flows. If the recorded net assets of the reporting unit are less than the reporting unit’s estimated fair value, then no impairment exists. Alternatively, if the recorded net assets of the reporting unit exceed its estimated fair value, then goodwill is potentially impaired and a

F-11

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

second step is performed. In the second step, the implied fair value of the goodwill is determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit from the estimated fair value of the reporting unit. If the recorded amount of goodwill exceeds this implied fair value, an impairment charge is recorded for the excess.

The impairment test for indefinite-lived assets, consisting of accreditation and tradenames, generally requires a new determination of the fair value of the intangible asset. If the fair value of the intangible asset is less than its carrying value, an impairment loss is recognized for an amount equal to the difference. The intangible asset is then carried at its new fair value.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, ‘‘Accounting for Income Taxes’’, which requires the use of 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. SFAS No. 109 also requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized.

Derivative Financial Instruments

EM LLC utilizes interest rate swap agreements, which are contractual agreements to exchange payments based on underlying interest rates, to manage a portion of its floating rate term debt. The interest rate swap agreements qualify and are designated as cash flow hedges under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’. As such, the swaps are accounted for as an asset or a liability in the consolidated balance sheets at fair value, net of tax. Changes in the fair value of the interest rate swaps are recorded in other comprehensive income (loss), net of tax benefit or expense. The fair value of the swap agreements are estimated based on current settlement prices and quoted market prices of comparable contracts. EM LLC currently does not use derivative financial instruments for trading or speculative purposes, nor is EM LLC a party to leveraged derivatives. As further discussed in Notes 10 and 16, EM L LC entered into one of its two swap agreements with an affiliate of one of the Principal Shareholders.

Self-Insurance Liabilities

The Company is self-insured up to certain limits for employee medical benefits and has purchased stop-loss coverage to limit its exposure to significant individual employee medical claims. Self-insured losses are accrued for known and anticipated claims based upon certain assumptions and historical claim payment patterns as well as estimates of claims incurred but not yet reported based on the Company’s historical trends. These assumptions take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in the Company’s business and workforce, and general economic factors. The Company’s self-insurance accruals are reviewed on a quarterly basis or more frequently if factors dictate a more frequent review is warranted.

Projections of future loss are inherently uncertain because of the random nature of insurance claim occurrences and could be significantly affected if future occurrences and claims differ from historical trends.

Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiaries are initially measured in these entities’ functional currency, which is Canadian dollars. Accordingly, the assets

F-12

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and liabilities of the foreign subsidiaries are translated to U.S. dollars using the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars using the average monthly exchange rates. Translation adjustments resulting from this process are recorded as a separate component of equity designated as accumulated other comprehensive income in the consolidated balance sheets. Translation gains or losses during the years presented in the financial statements were not material.

Revenue Recognition

The Company’s net revenues consist of tuition and fees, student housing fees, bookstore sales, restaurant sales in connection with culinary programs, workshop fees, finance charges related to credit extended to students and sales of related study materials, reduced for student refunds and scholarships.

Tuition revenue varies based on the average tuition charge per credit hour, type of program, specific curriculum, the average student population and number of credit hours taken. The Company derived 91.2% and 92.2% of its net revenues from tuition and fees during fiscal 2007 and for the Successor period June 1, 2006 through June 30, 2006, respectively. Net revenues from tuition and fees represented 91.1% and 90.6% for the Predecessor period July 1, 2005 through May 31, 2006 and fiscal 2005, respectively. Bookstore and housing revenues are largely a function of the average student population.

The Company bills tuition and housing revenues at the beginning of an academic term and recognizes the revenue on a pro rata basis over the term of instruction or occupancy. For most of the Company’s programs, the academic terms and fiscal quarters are the same. Thus, unearned tuition is typically not significant at the end of a fiscal quarter. However, Argosy University, the Brown Mackie Colleges and to a lesser degree South University and certain Art Institutes have educational programs with academic terms with starting and ending dates that differ from the Company’s fiscal quarters. Therefore, at the end of each fiscal quarter, the Company has tuition from these academic terms where the associated revenue has not yet been earned in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, ‘‘Revenue Recognition in Financial Statements’’. Accordingly, these amounts have been record ed as unearned tuition in the accompanying consolidated balance sheets. Advance payments represent that portion of payments received but not earned and are also recorded as a current liability in the accompanying consolidated balance sheets. These payments are typically related to future academic periods and are for the most part refundable.

If a student withdraws prior to the end of an academic term, the Company will refund tuition already paid that the institution is not entitled to retain, pursuant to the respective institution’s refund policy and applicable federal and state law and accrediting agency standards.

Costs and Expenses

Educational services expense consists primarily of costs related to the development, delivery and administration of the Company’s education programs. Major cost components are faculty compensation, administrative salaries, costs of educational materials, facility leases and school occupancy costs, information systems costs, bad debt expense and depreciation and amortization of property and equipment.

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 the Company’s education programs.

Advertising costs are expensed in the fiscal year incurred and classified as general and administrative expense in the accompanying consolidated statements of operations. The Company’s

F-13

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

advertising expense was $117.7 million during the fiscal year ended June 30, 2007 and $10.8 million for the Successor period June 1, 2006 through June 30, 2006. The Predecessor recorded advertising expense of $80.6 million for the period July 1, 2005 through May 31, 2006 and $63.5 million for fiscal 2005.

Share-Based Payment

In August 2006, the Company’s Board of Directors approved the 2006 Stock Option Plan for executive management and key personnel. During fiscal 2007, approximately 1.8 million options were granted under this plan. As the Company’s shares are no longer publicly traded as a result of the Transaction, under SFAS No. 123R, ‘‘Share-Based Payment’’, compensation expense related to these grants is not recognized until one of the conditions entitling these participants to fair value for their shares becomes probable. The Company has not recognized compensation expense related to any of the fiscal 2007 grants during the year ended June 30, 2007. The Company also did not recognize any compensation expense during the Successor period from June 1, 2006 through June 30, 2006.

The Black-Scholes option pricing model is used to determine the fair value of time-based stock options at the grant date. In order to value performance and market-based options, the Company uses a Monte Carlo simulation model based on the assumptions used in the time-based options’ Black-Scholes model. Such assumptions can significantly impact the fair values of stock options and associated compensation expense recognized over the requisite service periods. See Note 13 for further discussion of stock-based compensation.

Segment Reporting

Effective July 17, 2006, management reorganized the way in which it operates the Company and makes business decisions. The chief operating decision maker, as defined by SFAS No. 131, ‘‘Disclosure about Segments of an Enterprise and Related Information’’, allocates resources and assesses the performance of the Company at an education system level closely aligned to the brands it manages. The majority of the Company’s schools across these education systems provide services to students utilizing similar delivery methods resulting in similar long term financial performance characteristics. Under this organization structure, the Company meets the criteria in SFAS No. 131 for aggregating the education systems into a single reportable segment.

Contingencies

The Company accrues for contingent obligations when it is probable that a liability is incurred and the amount is reasonably estimable. As facts concerning contingencies become known, management reassesses its position and makes appropriate adjustments to its financial statements. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters, which are subject to change as events evolve, and as additional information becomes available during the administrative and litigation process.

Recently Issued Accounting Standards

On July 13, 2006, the FASB issued FASB Interpretation No. (‘‘FIN’’) 48, ‘‘Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109’’, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was adopted by the Company on July 1, 2007. For the effect of the adoption of this standard, refer to the accompanying unaudited financial statements.

F-14

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On September 15, 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company’s fiscal year beginning July 1, 2008. The Company is in the process of evaluating the potential impact of SFAS No. 157, if any.

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):

			Successor												Predecessor
			Year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						Year ended June 30, 2005
Net income (loss)				$	32,411					$	(19,696	)				$	100,406					$	101,574
Weighted average number of shares outstanding:
Basic					26,442						26,000						75,366						74,012
Effect of stock options					—						—						1,751						1,141
Diluted					26,442						26,000						77,117						75,153
Earnings (loss) per share:
Basic				$	1.23					$	(0.76	)				$	1.33					$	1.37
Diluted				$	1.23					$	(0.76	)				$	1.30					$	1.35

EPS for the Predecessor is not comparable to EPS for the Successor. This is due to the significant change in capital structure as a result of the Transaction.

All stock options at June 30, 2007 were contingently issuable as defined by SFAS No. 128, ‘‘Earnings Per Share’’. As none of the thresholds that would cause share dilution under this standard were met, none of the Company’s outstanding stock options during the Successor periods were dilutive.

Unexercised stock options to purchase 2.6 million shares were excluded from the diluted EPS calculation at June 30, 2005 because of their antidilutive effect; at June 30, 2005, the exercise price of these options exceeded the market price of the Predecessor’s stock. At May 31, 2006, there were no antidilutive shares required to be excluded from the calculation of diluted EPS.

4.    BUSINESS COMBINATION

Acquisition of Tucson entities

In June 2007, the Company completed the acquisition of two schools in Tucson, Arizona — Tucson Design College and Chaparral College — for approximately $9.3 million, including $0.8 million of cash acquired. The majority of the purchase price was allocated to goodwill. These schools will be included with the Company’s existing Art Institute and Brown Mackie College education systems, respectively.

The Transaction

The Transaction was completed on June 1, 2006 and was financed by a combination of equity invested by the Principal Shareholders and other investors, borrowings under the EM LLC’s senior secured credit facilities, the issuance by EM LLC and Education Management Finance Corporation of

F-15

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

senior notes due 2014 and senior subordinated notes due 2016, and EM LLC’s cash on hand. See Note 9 for a description of EM LLC’s indebtedness. These funds, net of proceeds from the exercise of outstanding stock options, were used to purchase all the Predecessor’s shares of common stock that were issued and outstanding immediately prior to the completion of the Transaction.

Sources and Uses:

The sources and uses of the funds for the Transaction are shown in the table below (in thousands):

Sources of funds:
Revolving credit facility				$	50,000
Cash and cash equivalents from Predecessor(1)					374,078
Senior secured term loan facilities, due 2013 at 7.63%					1,185,000
Senior notes due 2014 at 8.75%					375,000
Senior subordinated notes due 2016 at 10.25%					385,000
Equity contribution by Principal Shareholders and other investors					1,300,000
Total sources of funds				$	3,669,078

Uses of funds:
Equity purchase price(2)				$	3,380,598
Cash and cash equivalents to Successor(1)					147,750
Debt issuance costs					59,574
Transaction costs in purchase price(3)					45,387
Transaction costs incurred by Predecessor(4)					30,279
Prepaid advisory fees					2,932
Other					2,558
Total uses of funds				$	3,669,078

(1) Excludes restricted cash.

(2) The holders of outstanding shares of common stock were paid $43.00 in cash per share, in connection with the Transaction. There were no outstanding shares of preferred stock at the date of the Transaction. The equity purchase price is reduced by the stock option proceeds of $100.2 million.

(3) Represents fees and expenses associated with the Transaction paid by the Successor including accounting, legal and investment banking fees and transaction fees paid to affiliates of the Principal Shareholders, as well as other transaction costs and professional fees.

(4) Represents fees and expenses associated with the Transaction paid by the Predecessor, including investment banking, legal and other professional fees.

Purchase Price Allocation:

The purchase price included the $3.4 billion purchase of the outstanding common stock and settlement of stock options outstanding, and transaction costs of $105.0 million, of which $59.6 million was allocated to the cost of issuing debt while the remaining $45.4 million was included in the overall purchase price.

Under business combination accounting, the total purchase price was allocated to the Company’s net tangible and identifiable intangible assets based on their estimated fair values as of June 1, 2006 as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The allocation of the purchase price for property and equipment, intangible assets and deferred income taxes was based upon valuation data at the date of the Transaction; the estimates and assumptions were subject to change during the allocation period as defined by SFAS No. 141. See Note 7 for the adjustments made to goodwill during fiscal 2007.

F-16

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as originally allocated (in thousands):

Property and equipment				$	368,665
Other long-term assets					17,202
Intangible assets					518,666
Goodwill					2,568,034
Net current assets acquired					340,179
Deferred income tax liabilities					(217,625	)
Deferred rent and other long-term liabilities					(63,895	)
Debt assumed					(5,055	)
Total purchase allocation				$	3,526,171

A summary of the allocation of purchase price to tangible and identifiable intangible assets, other than goodwill, is as follows:

Asset Class			FMV (in thousands)						Weighted− Average Life
Property and Equipment:
Land				$	17,805				Indefinite
Buildings and improvements					71,880						26.6
Leasehold improvements and capitalized lease costs					145,362						10.3
Furniture and equipment					44,173						3.2
Technology and other equipment					64,170						3.1
Software					13,033						5.1
Library books					12,242						3.4
Total				$	368,665
Intangible Assets:
Tradename – Art Institutes				$	330,000				Indefinite
Licensing, accreditation & Title IV program participation					114,000				Indefinite
Student relationships					39,000						4.5
Favorable leases					16,235						6.0
Programs					10,000						6.4
Online curriculum					6,431						3.3
Tradename – Argosy University					3,000						9.0
Total				$	518,666

Unaudited pro forma financial information:

The following unaudited pro forma results of operations assume that the Transaction occurred as of the beginning of each of the periods presented and were reflected in the Company’s results from that date. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the Transaction had actually occurred at the beginning of each period presented, nor of the results that may be obtained in the future. The pro forma adjustments include the effect of purchase accounting adjustments, transaction costs (including stock-based compensation charges due to the acceleration of stock options in connection with the Transaction), interest expense and related tax effects.

F-17

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

			Year ended June 30,
			2006						2005
			(in thousands)
Net revenues				$	1,170,160					$	1,019,338
Net loss					(33,396	)					(56,409	)

Transaction Costs incurred by Predecessor:

During the period from June 1, 2005 through May 31, 2006, the Predecessor recorded costs associated with the Transaction of $52.8 million. These costs consist of $29.4 million of accounting, investment banking, legal and other professional fees, $9.9 million of employee compensation and payroll taxes, and a $13.5 million non-cash charge for stock compensation resulting from the acceleration of stock options and restricted stock.

5.    OTHER CURRENT ASSETS

Other current assets consisted of the following at June 30 (in thousands):

			2007						2006
Tenant improvement receivables				$	14,769					$	2,345
Prepaid rent					1,687						1,745
Prepaid advisory fees					2,521						2,521
Prepaid software licenses					1,409						1,552
Prepaid insurance					1,633						3,480
Prepaid service contracts					980						164
Other					3,422						3,457
Total other current assets				$	26,421					$	15,264

6.    PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30 (in thousands):

Asset Class			2007						2006
Land				$	17,805					$	17,805
Buildings and improvements					72,847						72,133
Leasehold improvements and capitalized lease costs					206,696						154,024
Furniture and equipment					63,176						45,273
Technology and other equipment					94,198						65,727
Software					19,835						14,005
Library books					18,005						12,845
Total					492,562						381,812
Less accumulated depreciation					76,168						5,676
Property and equipment, net				$	416,394					$	376,136

Depreciation and amortization expense on property and equipment was $71.3 million for the year ended June 30, 2007, $5.7 million for the Successor period June 1, 2006 through June 30, 2006, $58.9 million for the Predecessor period July 1, 2005 through May 31, 2006 and $58.2 million for fiscal 2005. Such expense includes amortization of capital lease assets under SFAS No. 13, as well as approximately $4.2 million of impairment charges related to fixed assets at certain schools in fiscal 2005.

F-18

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.    GOODWILL AND INTANGIBLE ASSETS

The Company made certain adjustments to the allocation of the purchase price during the Successor period. The preliminary allocation of the purchase price for property and equipment, intangible assets and deferred income taxes was based on valuation data and management’s estimates and assumptions, which were subject to change during the allocation period as more information became available. The following table summarizes changes in goodwill for the Successor period from June 1, 2006 through June 30, 2007 (in thousands):

Acquisition of Predecessor in June 1, 2006				$	2,562,974
Additional adjustments to fair value subsequent to Transaction					5,060
Balance at June 30, 2006					2,568,034
Additional goodwill from acquisitions of schools					8,246
Additional adjustments to fair value subsequent to Transaction					(225	)
Balance at June 30, 2007				$	2,576,055

Intangible assets other than goodwill consisted of the following amounts at June 30 (in thousands):

			2007												2006
Asset Class			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Tradename – Art Institutes				$	330,000					$	—					$	330,000					$	—
Tradename – Argosy University					3,000						(361	)					3,000						(28	)
Licensing, accreditation and Title IV program participation					112,179						—						114,000						—
Curriculum and programs					19,507						(4,835	)					16,861						(369	)
Student contracts, applications & relationships					39,511						(11,856	)					39,000						(912	)
Favorable leases and other					16,391						(3,969	)					16,231						(400	)
Total Intangible Assets				$	520,588					$	(21,021	)				$	519,092					$	(1,709	)

State authorizations and accreditations of the Company’s schools are renewed over time 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 therefore assigned them an indefinite life.

Capitalized costs associated with the internal development of online curriculum and programs, which are included in curriculum and programs in the above table were $2.6 million during fiscal 2007, $0.4 million for the Successor period June 1, 2006 through June 30, 2006, $3.0 million for the Predecessor period July 1, 2005 through May 31, 2006 and $3.6 million for fiscal 2005. Amortization of intangible assets was $19.3 million in fiscal 2007, $1.7 million for the Successor period June 1, 2006 through June 30, 2006, $4.0 million for the Predecessor period July 1, 2005 through May 31, 2006, and $6.5 million for fiscal 2005.

F-19

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total estimated amortization of the Company’s intangible assets for each of the years ended June 30, 2008 through 2012 and thereafter is as follows (in thousands):

Fiscal years			Amortization Expense
2008				$	18,569
2009					16,105
2010					6,622
2011					5,289
2012					4,224
Thereafter					6,579

8.    ACCRUED LIABILITIES

Accrued liabilities consist of the following at June 30 (in thousands):

			2007						2006
Interest				$	27,987					$	13,594
Payroll and related taxes					48,181						32,419
Capital expenditures					9,377						2,789
Advertising					7,397						7,993
Self-insurance accrual					2,327						3,173
Professional fees					2,528						4,208
Other					14,995						11,772
Total accrued liabilities				$	112,792					$	75,948

9.    SHORT TERM AND LONG TERM DEBT

On June 1, 2006, in connection with the Transaction, EM LLC (i) entered into a new $1,485.0 million senior secured credit facility, consisting of a $1,185.0 million term loan facility with a seven year maturity and a $300.0 million revolving credit facility with a six year maturity, and (ii) issued an aggregate of $760.0 million of senior notes and senior subordinated notes. Borrowings on the revolving credit facility outstanding at June 30, 2007 and 2006 are classified as short-term debt on the balance sheet as each year’s outstanding balance was repaid in full in the first month of the following fiscal year. In both fiscal year end periods, EM LLC borrowed in order to satisfy certain year-end regulatory financial ratios at June 30.

Short-Term Debt:

At June 30, 2007 and 2006, $90.0 million and $160.0 million, respectively, was outstanding under the $300.0 million revolving credit facility. Outstanding letters of credit totaling $92.0 million at June 30, 2007 reduced availability of borrowings under the revolving credit facility, leaving $118.0 million of available borrowings under the facility. The interest rate on outstanding borrowings on the revolving credit facility at June 30, 2007 was 9.25%, which equals prime plus a margin of 1.00%. The applicable margin for borrowings under the revolving credit facility can change dependent on certain leverage ratios. EM LLC is obligated to pay a 0.50% 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 EM LLC’s assets and is subject to their satisfaction of certain covenants a nd financial ratios described elsewhere in this footnote.

F-20

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Long-Term Debt:

Long-term debt consisted of the following at June 30 (in thousands):

			2007						2006
Senior secured term loan facility, due 2013				$	1,176,113					$	1,185,000
Senior notes due 2014 at 8.75%					375,000						375,000
Senior subordinated notes due 2016 at 10.25%					385,000						385,000
Capital leases					2,244						3,101
Mortgage debt of consolidated entities					1,622						1,864
Total long term debt					1,939,979						1,949,965
Less current portion					38,121						12,795
Total long term debt, less current portion				$	1,901,858					$	1,937,170

Senior Secured Credit Facility

EM LLC issued $1,185.0 million of term loans on June 1, 2006 under the senior secured credit facility. The term loans bore interest at a rate equal to LIBOR plus an applicable margin or, at their option, an applicable margin plus an alternative base rate determined by reference to the higher of (1) the prime rate of interest quoted in the Wall Street Journal Money Rates Section and (2) the federal funds rate plus ½ of 1%. The applicable margin for borrowings under the secured credit facility may be reduced subject to satisfying certain leverage ratios.

On February 13, 2007, EM LLC amended and restated the senior secured term loan facility to decrease the interest rate on the outstanding indebtedness to LIBOR plus an applicable margin of 2.0% from LIBOR plus an applicable margin spread of 2.5%. The amended and restated senior secured term loan facility also includes a provision that requires EM LLC to pay a premium equal to 1% of the outstanding loan balance in connection with any future re-pricing that results in an additional margin reduction prior to February 13, 2008. The amendment and restatement of the senior secured term loan facility was accounted for under Emerging Issues Task Force 96-19 ‘‘Debtor’s Accounting for a Modification or Exchange of Debt Instruments’’ in which the old and new debt agreements were not considered substantially different.

The applicable margin spread was further reduced to 1.75% on May 18, 2007 as a result of EM LLC’s leverage ratio, as defined in the senior secured credit facilities debt agreement, falling below 5.5x at March 31, 2007. The interest rate on the senior secured term loan facility was 7.125% and 7.625% at June 30, 2007 and 2006, respectively.

All obligations under the senior secured credit facilities, including the revolving credit facility, are unconditionally guaranteed by Education Management Holdings LLC and all of EM LLC’s subsidiaries other than subsidiaries that own or operate a school and inactive subsidiaries that have less than $100,000 of assets. The senior secured credit facilities are also secured by pledges of the capital stock of EDMC and each guarantor and a security interest in, and mortgages on, substantially all the tangible and intangible assets of EDMC and each guarantor.

The senior secured credit facilities require EM LLC to prepay outstanding term loans, subject to certain exceptions, with excess cash flow and in the event of certain asset sales, casualty and condemnation events and issuances of debt. In addition, EM LLC is required to make installment payments on the outstanding term loans in quarterly principal amounts of 0.25% of their funded total principal amount for the first six years and nine months, with the remaining amount payable on June 1, 2013.

The senior secured credit facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, EM LLC’s ability to incur additional indebtedness, pay dividends

F-21

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and distributions on or repurchase capital stock, create liens on assets, enter into sale and leaseback transactions, repay subordinated indebtedness, make investments, loans or advances, make capital expenditures, engage in certain transactions with affiliates, amend certain material agreements, change its lines of business, sell assets and engage in mergers or consolidations. In addition, EM LLC is required to satisfy and maintain a maximum total leverage ratio and a minimum interest coverage ratio under the senior secured credit facilities.

Senior Notes Due 2014 and Senior Subordinated Notes Due 2016

EM LLC issued the senior notes due 2014 and senior subordinated notes due 2016 on June 1, 2006 in connection with the closing of the Transaction. The senior notes due 2014 and senior subordinated notes due 2016 are guaranteed by all of the EM LLC’s subsidiaries other than any subsidiary that owns or operates a school or has been formed for such purpose and has no material assets.

The $375.0 million of senior notes due 2014, which bear interest at 8.75%, are senior unsecured obligations that rank senior in right of payment to future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the senior notes, including the senior subordinated notes due 2016. The senior notes (i) rank equally in right of payment to all existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the senior notes, (ii) are effectively subordinated in right of payment to all existing and future secured debt to the extent of the value of the assets securing such debt, and (iii) are structurally subordinated to all obligations of each subsidiary of EM LLC that is not a guarantor of the senior notes.

The $385.0 million of senior subordinated notes due 2016, which bear interest at 10.25%, are unsecured senior subordinated obligations that are subordinated in right of payment to the existing and future senior debt, including the senior secured credit facilities and the senior notes due 2014. The senior subordinated notes (i) are senior in right of payment to all future subordinated debt, (ii) are effectively subordinated in right of payment to all existing and future secured debt to the extent of the value of the assets securing such debt, and (iii) are structurally subordinated to all obligations of each subsidiary of EM LLC that is not a guarantor of the senior subordinated notes.

Interest on the senior notes due 2014 and senior subordinated notes due 2016 is payable semi-annually commencing on December 1, 2006. The senior notes due 2014 and senior subordinated notes due 2016 are redeemable in whole or in part, at the option of EM LLC, at any time at varying redemption prices that generally include premiums, which are defined in the applicable indentures. In addition, upon a change of control, EM LLC is required to make an offer to redeem all of the senior notes and senior subordinated notes at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest.

The indentures governing the senior notes due 2014 and senior subordinated notes due 2016 contain a number of covenants that restrict, subject to certain exceptions, EM LLC’s ability and the ability of its restricted subsidiaries to incur additional indebtedness or issue certain preferred shares, pay dividends on or make other distributions in respect of its capital stock or make other restricted payments, make certain investments, enter into certain types of transactions with affiliates, create liens securing certain debt without securing the senior notes due 2014 or senior subordinated notes due 2016, as applicable, sell certain assets, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets and designate its subsidiaries as unrestricted subsidiaries.

Other indebtedness

EM LLC has a 1% general partnership interest in a consolidated entity that has an outstanding mortgage on one of the Company’s leased facilities in the amount of approximately $1.6 million at June 30, 2007. EM LLC would be required to perform under these guarantees if the subsidiary could not satisfy the obligations. EM LLC has no guarantees for any unconsolidated entities.

F-22

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EM LLC had outstanding letters of credit of $92.0 million at June 30, 2007, including several letters of credit to the U.S. Department of Education for $89.0 million. The U.S. Department of Education requires EM LLC to maintain a $87.9 million letter of credit due to EM LLC’s failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce the availability of EM LLC to borrow funds under its $300.0 million revolving credit facility.

As of June 30, 2007, future annual principal payments on long-term debt related instruments are as follows (in thousands):

Fiscal year:
2008				$	38,121
2009					12,863
2010					12,610
2011					12,123
2012					9,197
Thereafter					1,855,065
Total				$	1,939,979

F-23

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (CONTINUED)

10.	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. On June 6, 2006, EM LLC entered into two five-year interest rate swap agreements, for a total notional amount of $750.0 million, in order to hedge a portion of its exposure to variable interest payments associated with the senior secured credit facilities. The interest rate swaps are for $375.0 million effective July 1, 2006 and $375.0 million effective July 3, 2006. Under the terms of the interest rate swaps, EM LLC receives payments based on variable interest rates based on the three month LIBOR and makes payments based on a fixed rate of 5.397%. 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 under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’. As such, the swaps are recorded as an asset or a liability in the consolidated balance sheet at fair value, net of tax. The fair values of the swap agreements are based on current settlement prices and quoted market prices of comparable contracts. For the fiscal year ended June 30, 2007, EM LLC recorded an unrealized after-tax loss of $3.5 million in other comprehensive income (loss) related to the change in market value on the swap agreements. At June 30, 2007, there was a cumulative unrealized net loss of $1.1 million, net of tax, related to the swaps included in accumulated other comprehensive income on the Company’s consolidated balance sheet, which may be immediately recognized in the consolidated statement of operations if future events cause the loss of treatment as cash flow hedges as required by SFAS No. 133.

11.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of financial instruments as of June 30 (in thousands):

			2007												2006
			Carrying Value						Fair Value						Carrying Value						Fair Value
Fair value of interest rate swaps				$	(1,890	)				$	(1,890	)				$	4,424					$	4,424
Variable rate debt				$	1,176,113					$	1,163,045					$	1,185,000					$	1,189,444
Fixed rate debt				$	763,866					$	785,804					$	764,965					$	756,440

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liabilities will be settled in cash, approximated carrying values because of the short-term nature of these instruments. The derivative financial instruments are carried at fair value, which is based on the amount EM LLC would pay to terminate the agreements. The fair values of EM LLC’s debt were determined based on each investment’s trading value at June 30.

F-24

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.	INCOME TAXES

The composition of income (loss) before taxes from domestic and foreign locations is as follows (in thousands):

			Successor												Predecessor
			For the fiscal year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						For the fiscal year ended June 30, 2005
Income (loss) before taxes:
Domestic				$	57,617					$	(34,207	)				$	169,759					$	172,838
Foreign					2,038						2,102						4,250						(4,030	)
				$	59,655					$	(32,105	)				$	174,009					$	168,808

The components of the income tax provision (benefit) reflected in the accompanying consolidated statements of operations are as follows (in thousands):

			Successor												Predecessor
			For the fiscal year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						For the fiscal year ended June 30, 2005
Current taxes (benefit):
Federal				$	16,857					$	(10,211	)				$	67,823					$	54,445
State and local					7,519						(3,397	)					14,203						12,365
Tax benefit of stock options					—						(39,656	)					(5,000	)					(10,441	)
Total current tax provision (benefit)					24,376						(53,264	)					77,026						56,369
Deferred tax provision					2,868						1,199						(8,423	)					424
Tax benefit of stock options					—						39,656						5,000						10,441
Total provision (benefit) for income taxes				$	27,244					$	(12,409	)				$	73,603					$	67,234

The provision (benefit) for income taxes reflected in the accompanying consolidated statements of operations varies from the amounts that would have been provided by applying the United States federal statutory income tax rate to earnings before income taxes as shown below:

			Successor												Predecessor
			For the fiscal year ended June 30, 2007						Period from June 1, 2006 through June 30, 2006						Period from July 1, 2005 through May 31, 2006						For the fiscal year ended June 30, 2005
U.S. Federal statutory income tax rate					35.0	%					35.0	%					35.0	%					35.0	%
State and local income taxes, net of U.S. federal income tax benefit					5.7	%					16.2	%					7.1	%					4.7	%
Increase (decrease) in valuation allowance					9.4	%					(10.3	%)					3.4	%					0.6	%
Permanent items					(3.1	%)					(2.1	%)					2.3	%					0.0	%
Stock options					0.0	%					0.0	%					(5.5	%)					0.0	%
Other, net					(1.3	%)					(0.1	%)					0.0	%					(0.5	%)
Effective income tax rate					45.7	%					38.7	%					42.3	%					39.8	%

F-25

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net deferred income tax assets (liabilities) consist of the following at June 30:

			2007						2006
Current deferred tax assets:
Allowance for doubtful accounts				$	15,005					$	14,175
Restricted stock and stock options					—						10,025
Other					1,101						1,337
Gross current deferred tax assets					16,106						25,537
Less valuation allowance					(786	)					(1,892	)
Total current deferred tax assets				$	15,320					$	23,645
Noncurrent deferred tax assets:
Deferred liabilities				$	9,167					$	7,316
Foreign and state net operating losses					14,013						6,498
Other					2,036						540
Gross noncurrent deferred tax assets					25,216						14,354
Less valuation allowance					(18,333	)					(9,734	)
Total noncurrent deferred tax assets				$	6,883					$	4,620
Noncurrent deferred tax liabilities:
Intangibles				$	213,044					$	216,307
Property and equipment					2,831						6,775
Other					7,284						1,940
Total noncurrent deferred tax liabilities				$	223,159					$	225,022
Total net noncurrent deferred tax liabilities				$	216,276					$	220,402

The Company recorded its assets and liabilities at fair market value in conjunction with the Transaction. As part of the business combination accounting, deferred tax liabilities of approximately $218.0 million were recorded related to the book write-up of tangible and intangible property to fair market value. Additionally, deferred tax assets of $45.0 million were recorded with respect to restricted stock and stock options and liabilities recorded for unfavorable leases. Also, as a result of anticipated future state tax net operating losses arising from interest expense on acquisition-related debt, the Company has established a valuation allowance of $4.1 million against various deferred tax assets because the Company has determined that it is currently ‘‘more likely than not’’ that those deferred tax assets will not be realized. The overall net deferred tax impact resulting from the business combination accounting was the creation of a net deferred tax liability of $177.1 million.

At June 30, 2007, the Company had state net operating loss carry forwards of approximately $89.5 million available to offset future taxable income and a related deferred tax asset of $6.2 million. The carry forwards expire at varying dates beginning in fiscal 2008 through fiscal 2026. The Company has determined that it is currently ‘‘more likely than not’’ that the deferred tax assets associated with $84.7 million of its state net operating loss carry forwards will not be realized and has established a valuation allowance equal to the gross deferred tax asset balance of $6.1 million related to these net operating loss carry forwards. In addition, certain of the Company’s state net operating losses may be subject to annual limitation due to these states’ adoption of the ownership change limitations imposed by Internal Revenue Code Section 382 or similar state provisions, which could result in the e xpiration of these state net operating loss carry forwards before they can be utilized.

F-26

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At June 30, 2007, the Company had Canadian net operating loss carry forwards of approximately $23.9 million available to offset future taxable income and a related deferred tax asset of $7.8 million. The carry forwards expire at varying dates beginning in fiscal 2009 through fiscal 2016. The significant increase over the balance at June 30, 2006 was due to a return-to-provision adjustment related to the write-down of the assets of the Canadian operations to fair market value as a result of the Transaction. At June 30, 2007, the Company had additional Canadian deferred tax assets of $0.6 million related to temporary items. The Company has determined that it is currently ‘‘more likely than not’’ that the deferred tax assets related to its Canadian net operating losses and temporary items will not be realized and has established a valuation allowance equal to the gross deferred tax assets. Under FASB Statement 109, a s a result of the purchase accounting associated with the Transaction, any future release of the valuation allowance against the Canadian deferred tax assets will reduce goodwill and correspondingly increase the deferred tax provision.

13.	SHARE-BASED PAYMENT

Successor:

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 1,368,421 shares of the Company’s common stock. The Option Plan was amended during fiscal 2007 to increase the number of available shares to 1,845,171. Under the Option Plan, certain management and key employees of the Company have been or will be granted a combination of options with service and performance conditions (‘‘time-based options’’) and options with performance and market conditions (‘‘performance-based options’’) to purchase common stock issued by the Company. 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 occur in order for the participants to receive fair market value for their opt ions such as an initial public offering or a change in the ownership of the Company.

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. 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. No outstanding options were exercised prior to June 30, 2007.

As a result of the Transaction, the Company was required to reassess the assumptions used in estimating the fair value of options granted to employees. Because of the fact that the Company’s stock is not publicly traded, an evaluation of the most appropriate fair value technique as well as how to apply the assumptions used in the fair value calculation was conducted. The Company decided that the continued use of a Black-Scholes method to estimate the fair value of time-based options was appropriate. In order to estimate the fair values of performance-based options, the Company uses a Monte Carlo simulation model based on the assumptions used in the time-based options’ Black-Scholes model.

Generally, the option term on 2007 grants was determined using a simplified method based on the average of the weighted vesting term and the contractual term of the options, except for one individual whose previous option exercise activity allowed for an empirical approach to be used.

F-27

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Expected volatility was determined using historical volatility of a seven-company peer group, all of which have stock that is publicly traded. The risk-free interest rate assumption was determined using the yield on a zero-coupon U.S. Treasury strip by extrapolating to a forward-yield curve. The forfeiture rate was determined using a historical forfeiture rate based on the Predecessor’s activity. Finally, as the Company does not currently declare dividends or intend to do so in the short term, a dividend yield of zero was used.

Below is a summary of the weighted-average assumptions used for all options granted during the year ended June 30, 2007:

Weighted average fair value of options			$19.34
Expected dividend yield			0.0%
Expected volatility			38.6%
Risk-free interest rate			4.5%
Expected forfeiture rate			12.4%
Expected term			5.2 years

Options granted during fiscal 2007 are as follows:

			Options						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (yrs)						Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2006					—					$	—
Granted					1,796,920						52.21
Exercised					—						—
Forfeited					(17,400	)					50.92
Outstanding at June 30, 2007					1,779,520					$	52.23						9.4					$	40,541
Exercisable at June 30, 2007					102,603					$	50.00						9.1					$	2,565

Time-based options vest ratably over the applicable service period, which is generally five years, on each anniversary of the date of grant. Time-based options also generally vest upon a change in control event, subject to certain conditions. Options generally expire ten years from the date of grant. Performance-based options vest upon the attainment of specified returns on capital invested in the Company by the Principal Shareholders. The aggregate intrinsic values in the table above represent the pre-tax differences between the estimated fair market value of the Company common stock at June 30, 2007 and the exercise price of each outstanding and exercisable stock option. Although certain time-based options are formally vested and therefore exercisable, the lower of cost or market call right prevents the holder from realizing any increase in fair value of the shares; therefore, any exercise prior to lapsing of the call right is not substantive for acc ounting purposes.

At June 30, 2007, the Company considered the conditions entitling the option holders to the fair value for their shares to be less than probable in accordance with SFAS No. 5, ‘‘Accounting for Contingencies’’ as defined by SFAS No. 123R. Under SFAS No. 123R, compensation expense on the grants is not recognized until the conditions entitling these participants to fair value for their shares becomes probable. Accordingly, the Company has not recognized compensation expense related to any of these grants during the year ended June 30, 2007. The total amount of unrecognized compensation cost of all options, net of expected forfeitures, is $30.4 million at June 30, 2007.

Long Term Incentive Compensation Plan

The Company also adopted the Long-Term Incentive Compensation Plan (the ‘‘LTIC Plan’’) during fiscal 2007. Pursuant to the terms of the plan, a bonus pool will be created based on returns

F-28

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to certain of our shareholders after the occurrence of a ‘‘realization event’’ under the terms of the plan during fiscal 2007. Employees of the Company were granted a total of approximately 760,000 units, of a total of 1,000,000 authorized, under the LTIC Plan, which represent 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 not probable to occur at June 30, 2007, no compensation expense has been recognized by the Company during the fiscal year ended June 30, 2007 related to these units. The LTIC Plan is currently being accounted for as a liability-plan as the units must be settled in cash if a realization event were to occur prior to an initial public offering. Upon an initial public offering, the units may be settled in shares or cash at the discretion of the Company. Accordingly, the LTIC Plan will then be treated as a performance-based equity plan, and the Company will determine the fair value of each unit. Then upon a subsequent realization event, the units’ estimated fair value as determined at the initial public offering date will be recorded in the Company’s statement of operations.

Predecessor:

The Predecessor maintained a 1996 Stock Incentive Plan and a 2003 Incentive Plan for directors, executive management and key personnel, which provided for the issuance of stock-based incentive awards. An aggregate of 12,000,000 and 5,400,000 shares of Common Stock were reserved for issuance under the 1996 Stock Incentive Plan and 2003 Stock Incentive Plan, respectively. Prior to fiscal 2004, options issued to employees under the 1996 Incentive Plan provide for time-based vesting over three and four years. The majority of the grants made to employees in fiscal 2004, and all grants for fiscal 2005 and the period from July 1, 2005 through May 31, 2006 provide for time-based vesting over two years.

Effective July 1, 2005, the Predecessor adopted the fair value recognition provisions of SFAS No. 123R using the modified prospective transition method; therefore, the Predecessor has not restated results for prior periods. Under this transition method, stock-based compensation expense for the combined fiscal year ended June 30, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, ‘‘Accounting for Stock-Based Compensation’’. Stock-based compensation expense for all stock-based compensation awards, which include stock options and restricted stock units, granted after July 1, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. During the period from July 1, 2005 throug h May 31, 2006, the Predecessor recognized these compensation costs on a straight-line basis over the requisite service period of the awards, which is generally the option vesting term. Prior to the adoption of SFAS No. 123R, the Predecessor recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, ‘‘Accounting for Stock Issued to Employees,’’ (APB 25). Under this standard, the Predecessor did not recognize option-based employee compensation cost in the statement of operations for the fiscal year ended June 30, 2005.

As a result of adopting SFAS No. 123R, income before taxes and net income for the Predecessor period July 1, 2005 through May 31, 2006 was $14.1 million and $8.1 million lower, respectively than if the Predecessor had continued to account for share-based compensation under APB 25. Then, prior to the consummation of the Transaction, the remaining $18.7 million of unrecognized compensation cost relating to stock options and restricted stock was accelerated and recorded as compensation expense, as all remaining outstanding unvested stock options became fully vested and settled. Therefore, the total non-cash charges under SFAS No. 123R during the period from July 1, 2005 to May 31, 2006 was $32.2 million, of which $13.4 million related to stock options and $17.8 million related to restricted stock.

F-29

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table illustrates the effect on the Predecessor’s net income as if the Predecessor had applied the fair value recognition provisions of SFAS No. 123R to options granted under its stock option plans in all periods presented (dollars in thousands).

			Eleven Months ended May 31, 2006						Year ended June 30, 2005
Net income:
As reported				$	100,406					$	101,574
Add: Stock-based employee compensation expense included in reported net income, net of tax					—						626
Deduct: Impact of SFAS No. 123R, net of tax					—						(17,108	)
Pro forma net income				$	100,406					$	85,092
Weighted average fair value of options granted				$	14.50					$	11.75

The Predecessor estimated the fair value of each option award on the date of grant using a Black-Scholes option valuation model and the assumptions in the following table. The risk-free interest rate for the periods within the contractual life of the option was generally based on United States Treasury yields at the date of grant. The Predecessor assumed no dividend since it had historically not paid and did not expect to pay dividends in the immediate future. The Predecessor used historical option exercise and termination data behavior to estimate the expected life of an option grant. Expected volatilities were based on historical volatility of the Predecessor’s stock price.

			Eleven Months ended May 31, 2006						Year ended June 30, 2005
Risk-free interest rate					3.94	%					3.62	%
Expected dividend yield					—						—
Expected life of options (years)					4.5						4.5
Expected volatility rate					30.90	%					39.70	%

Prior to the adoption of SFAS No. 123R, the Predecessor presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the statements of cash flows. SFAS No. 123R requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash flows, with a corresponding reduction to operating cash flows. The total income tax benefit recognized in the statement of operations for share-based compensation plans was $11.8 million for the period July 1, 2005 through May 31, 2006.

F-30

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Below is a summary of stock options maintained by the Predecessor for the period from June 1, 2005 through May 31, 2006:

			Predecessor
			Period from July 1, 2005 through May 31, 2006												For the fiscal years ended June, 2005
			Options						Weighted Average Exercise Price						Options						Weighted Average Exercise Price
Outstanding, beginning of period					5,318,964					$	22.28						6,848,039					$	20.23
Granted					32,575						32.16						276,088						30.57
Exercised					807,113						18.44						1,514,629						13.39
Forfeited					153,602						29.20						290,534						28.39
Outstanding, end of period					4,390,824					$	22.82						5,318,964					$	22.28
Exercisable, end of period					4,390,824												3,421,058

As described above, all outstanding unvested stock options were fully vested and settled in connection with the Transaction.

The Predecessor also had two non-qualified management stock option plans under which options to purchase shares of common stock were granted to management employees prior to 1996. All outstanding options under these non-qualified plans were fully vested prior to fiscal 2004. Under the terms of the plans, the Board of Directors granted options to purchase shares at prices representing the fair market value of the shares at the time of the grant. The maximum term of all equity awards was ten years and it was the Predecessor’s policy to issue new shares upon share option exercises.

During the period from July 1, 2005 through May 31, 2006, the Predecessor granted shares of restricted stock to non-employee directors, executive management and key personnel under the 2003 Incentive Plan. The restricted stock awards entitled the holder to shares of common stock as the award vested, including in connection with a change in control of the Predecessor. The Predecessor measured the fair value of restricted stock awards based upon the market price of the underlying common stock at the date of grant. Restricted stock expense was amortized over the applicable vesting period using the straight-line method. As of the date of the Transaction, all 561,768 shares of outstanding restricted stock became vested, as described above.

The Predecessor also maintained an employee stock purchase plan. The employee stock purchase plan allowed eligible employees of the Predecessor to purchase, at a discount, up to an aggregate of 3,000,000 shares of common stock through periodic payroll deduction. The Predecessor issued 70,496 and 110,155 shares of common stock under the employee stock purchase plan in fiscal 2006 and 2005, respectively. The purchase price discount for participants in the employee stock purchase plan was 15% during fiscal 2005. The discount percentage was reduced to 5% for fiscal 2006.

In addition to the above, the Predecessor’s retirement plan had an employee stock ownership plan (‘‘ESOP’’) feature which permitted the Predecessor to make contributions of its common stock to the ESOP for the benefit of its employees. The Predecessor was not under any obligation to make ESOP contributions to the Plan, but they could do so at its discretion. The Predecessor did not make any ESOP contributions during the period July 1, 2005 through May 31, 2006 or fiscal 2005.

14.	OTHER EMPLOYEE BENEFIT PLANS

The Company sponsors a retirement plan that covers substantially all employees. The Company currently matches 100% of employee contributions to the retirement plan for up to 3% of

F-31

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

compensation and 50% of employee contributions between 4% and 6% of compensation. The provisions of the retirement plan allow forfeitures of unvested balances to be used to reduce the Company’s matching contributions. The Company recorded expense relating to the retirement plan of approximately $9.8 million for the fiscal year ended June 30, 2007, $0.7 million for the Successor period June 1, 2006 through June 30, 2006, $8.5 million for the Predecessor period July 1, 2005 through May 31, 2006 and $6.7 million for fiscal 2005.

15.	COMMITMENTS AND CONTINGENCIES

The Company leases certain classroom, dormitory and office space as well as equipment and automobiles under operating leases that expire on various future dates. Rent expense under these leases was $108.1 million for the fiscal year ended June 30, 2007, $8.6 million for the Successor period June 1, 2006 through June 30, 2006, $84.0 million for the Predecessor period July 1, 2005 through May 31, 2006, $73.8 million for fiscal 2005. Rent expense includes short-term commitments for student housing of $35.6 million during the fiscal year ended June 30, 2007, $2.5 million for the Successor period June 1, 2006 through June 30, 2006, $27.3 million for the Predecessor period July 1, 2005 through May 31, 2006 and $26.7 million for fiscal 2005. Certain of the Company’s operating leases contain provisions for escalating payments and options for renewal.

As of June 30, 2007, the annual minimum future commitments under non-cancelable, long-term operating leases are as follows (in thousands):

2008				$	110,007
2009				$	92,052
2010				$	79,944
2011				$	69,425
2012				$	64,950
Thereafter				$	257,409
				$	673,787

The Predecessor had a management incentive compensation plan that provided for the awarding of cash bonuses to management personnel using formalized guidelines based upon the operating results of individual schools and the Company as well as other qualitative factors. The Company assumed the previous management compensation plan at the date of the Transaction. These amounts are reflected in accrued liabilities in the accompanying consolidated balance sheets.

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 investigation concerning NEIA’s participation in Massachusetts state financial aid programs and student lending and marketing practices engaged in by the school and its students’ lenders. NEIA responded to the request for information in August 2007 and intends to fully cooperate with the Attorney General’s office in connection with its investigation.

The Art Institute of Portland and our 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.

F-32

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

16.	RELATED PARTY TRANSACTIONS

In connection with the Transaction, EM LLC paid the Principal Shareholders $40.7 million in fees and expenses for financial and structural advice and analysis as well as assistance with due diligence investigations and debt financing negotiations. This amount has been allocated as debt issuance costs or included in the overall purchase price of the Transaction. Under the terms of an agreement among the Company, the Principal Shareholders and Leeds Equity Partners (together with the Principal Shareholders, the ‘‘Sponsors’’), EM LLC agreed to pay the Sponsors advisory fees of $5.0 million annually. As of June 30, 2007, other current assets includes $2.5 million relating to prepaid advisory fees, and general and administrative expenses includes $5.0 million related to these advisory fees. This agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates. Additi onally, the Company paid an affiliate of one of the Sponsors $0.4 million for investment banking services provided in connection with the February 13, 2007 debt amendment described in Note 9.

South University, a wholly-owned subsidiary of the Company, leases three of the buildings it occupies from two separate entities owned by the President of South University, who became an employee of the Company after the purchase of South University in July 2003. Total rental payments, which are included in educational services in the consolidated statements of operations, under these arrangements approximated $1.6 million for the fiscal year ended June 30, 2007, $0.1 million for the Successor period June 1, 2006 through June 30, 2006, $1.4 million for the Predecessor period July 1, 2005 through May 31, 2006 and $1.4 million for fiscal 2005.

At various dates throughout fiscal 2007, a non-employee director and company employees purchased shares of the Company’s common stock at estimated fair market value totalling $19.5 million.

In June 2006, EM LLC entered into a five-year interest rate swap agreement in the amount of $375.0 million with an affiliate of one of the Principal Shareholders. The terms of this swap are discussed in Note 10.

F-33

Table of Contents

SCHEDULE II
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)

			Balance at Beginning of Period						Additions Charged to Expenses						Deductions						Balance at End of Period
Allowance accounts for:
Predecessor
Year ended June 30, 2005
Uncollectable accounts receivable				$	40,903					$	28,017					$	36,096					$	32,824
Estimated future loan losses					1,534						147						—						1,681
Deferred tax asset valuation allowance					7,643						1,023						—						8,666
Period from July 1, 2005 through May 31, 2006
Uncollectable accounts receivable				$	32,824						21,721						15,328						39,217
Estimated future loan losses					1,681						—						—						1,681
Deferred tax asset valuation allowance					8,666						—						2,779						5,887
Successor
Period from June 1, 2006 through June 30, 2006
Uncollectable accounts receivable				$	39,217					$	1,306					$	5,131					$	35,392
Estimated future loan losses					1,681						—						—						1,681
Deferred tax asset valuation allowance					10,006	(a)					1,620						—						11,626
Year ended June 30, 2007
Uncollectable accounts receivable				$	35,392					$	27,930					$	25,320					$	38,002
Estimated future loan losses					1,681						38						—						1,719
Deferred tax asset valuation allowance					11,626						7,493						—						19,119

(a) In conjunction with the Transaction, the Company recorded a $4.1 million valuation allowance against various deterred tax assets.

F-34

Table of Contents

SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
(Dollars in Thousands)

The Company’s quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments. Student enrollment at the Company’s Art Institute schools has typically peaked in the fall (fiscal second quarter), when the largest number of recent high school and college graduates typically begin post-secondary education programs. The first quarter is typically the lowest revenue recognition quarter due to student vacations. The seasonality of the Company’s business has decreased over the last several years due to an increased percentage of students enrolling in online programs.

			Predecessor																								Successor
			Quarter ended September 30						Quarter ended December 31						Quarter ended March 31						Period from April 1 through May 31						Period from June 1 through June 30
Fiscal 2006
Net revenues				$	252,985					$	312,611					$	312,533					$	217,634					$	74,397
Income (loss) before interest and income taxes					20,655						77,852						64,624						5,528						(17,999	)
Income (loss) before income taxes					21,359						79,296						66,800						6,554						(32,105	)
Net income (loss)					13,952						47,629						40,358						(1,533	)					(19,696	)

			Successor
			Quarter ended
			September 30						December 31						March 31						June 30
Fiscal 2007
Net revenues				$	290,515					$	358,786					$	366,721					$	347,668
Income before interest and income taxes					27,979						84,367						74,161						41,435
Income (loss) before income taxes					(16,010	)					41,427						32,920						1,318
Net income (loss)					(9,814	)					25,395						17,685						(855	)

F-35

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

			September 30, 2007						June 30, 2007						September 30, 2006
			(Unaudited)												(Unaudited)
Assets
Current assets:
Cash and cash equivalents				$	348,743					$	290,674					$	206,000
Restricted cash					17,950						10,308						13,035
Total cash, cash equivalents and restricted cash					366,693						300,982						219,035
Receivables, net of allowances of $42,345, $38,002 and $36,769					65,000						69,940						56,502
Notes, advances and other					7,622						8,802						10,693
Inventories					11,669						6,969						9,181
Deferred income taxes					17,063						15,320						14,837
Prepaid income taxes					3,759						—						10,881
Other current assets					28,705						26,421						18,140
Total current assets					500,511						428,434						339,269
Property and equipment, net					426,422						416,394						377,914
Other long-term assets					67,234						68,240						72,870
Intangible assets, net					494,767						499,567						513,085
Goodwill					2,586,209						2,576,055						2,570,225
Total assets				$	4,075,143					$	3,988,690					$	3,873,363
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt				$	38,140					$	38,121					$	12,797
Revolver					—						90,000						—
Accounts payable					58,712						50,419						48,007
Accrued liabilities					116,128						112,792						81,868
Accrued income taxes					—						9,430						—
Unearned tuition					79,889						51,952						64,610
Advance payments					211,092						78,337						177,830
Total current liabilities					503,961						431,051						385,112
Long-term debt, less current portion					1,898,655						1,901,858						1,933,987
Deferred income taxes					202,746						216,276						208,990
Deferred rent					82,906						80,166						63,710
Other long-term liabilities					53,841						8,585						18,744
Shareholders’ equity:
Common stock, par value $0.01 per share; 40,000,000 shares authorized; 26,771,818 at September 30, 2007 and June 30, 2007 and 26,000,000 at September 30, 2006 issued and outstanding					268						268						260
Additional paid-in capital					1,339,232						1,339,232						1,299,740
Retained earnings (deficit)					5,817						12,715						(29,510	)
Accumulated other comprehensive loss					(12,283	)					(1,461	)					(7,670	)
Total shareholders’ equity					1,333,034						1,350,754						1,262,820
Total liabilities and shareholders’ equity				$	4,075,143					$	3,988,690					$	3,873,363

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

F-36

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)

			For the three months ended September 30,
			2007						2006
Net revenues				$	361,333					$	290,515
Costs and expenses:
Educational services					228,170						184,634
General and administrative					96,131						72,828
Amortization of intangible assets					5,741						5,074
Total costs and expenses					330,042						262,536
Income before interest and income taxes					31,291						27,979
Net interest expense					40,340						43,989
Loss before income tax benefit					(9,049	)					(16,010	)
Income tax benefit					(3,490	)					(6,196	)
Net loss				$	(5,559	)				$	(9,814	)
Loss per share:
Basic				$	(0.21	)				$	(0.38	)
Diluted				$	(0.21	)				$	(0.38	)
Weighted average number of shares outstanding:
Basic					26,772						26,000
Diluted					26,772						26,000

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

F-37

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

			For the three months ended September 30,
			2007						2006
Cash flows provided by operating activities:
Net loss				$	(5,559	)				$	(9,814	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization					22,551						17,026
Reimbursements for tenant improvements					474						31
Amortization of intangibles					5,741						5,074
Amortization of debt issuance costs					1,922						1,897
Non-cash adjustments in deferred rent					(395	)					(569	)
Deferred income taxes					(41	)					(462	)
Changes in assets and liabilities:
Restricted cash					(7,642	)					(2,999	)
Receivables					4,982						(8,964	)
Inventories					(4,669	)					(3,013	)
Other assets					6,295						(394	)
Accounts payable					9,759						11,084
Accrued liabilities					(8,463	)					24,208
Unearned tuition					27,937						27,969
Advance payments					132,445						67,446
Total adjustments					190,896						138,334
Net cash flows provided by operating activities					185,337						128,520
Cash flows used in investing activities:
Acquisition of subsidiaries, net of cash acquired					(420	)					(205	)
Expenditures for long-lived assets					(32,760	)					(22,222	)
Reimbursements for tenant improvements					(474	)					(31	)
Investment in marketable securities					—						(105,795	)
Redemption of marketable securities					—						105,795
Other items, net					—						26
Net cash flows used in investing activities					(33,654	)					(22,432	)
Cash flows used in financing activities:
Payments on revolving credit facility					(90,000	)					(160,000	)
Payments of debt					(3,184	)					(3,181	)
Debt issuance costs					—						(163	)
Net cash flows used in financing activities					(93,184	)					(163,344	)
Effect of exchange rate changes on cash and cash equivalents					(430	)					(40	)
Net change in cash and cash equivalents					58,069						(57,296	)
Cash and cash equivalents, beginning of year					290,674						263,296
Cash and cash equivalents, end of year				$	348,743					$	206,000
Cash paid (received) during the period for:
Interest (including swap settlement)				$	22,548					$	31,967
Income taxes, net of refunds					2,129						(26,401	)

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

F-38

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

			Common Stock at Par Value						Additional Paid-in Capital						Retained Earnings (Deficit)						Accumulated Other Comprehensive Income (Loss) (a)						Total
Balance, June 30, 2006				$	260					$	1,299,740					$	(19,696	)				$	2,418					$	1,282,722
Equity investment					8						39,492						—						—						39,500
Comprehensive income (loss):
Net income					—						—						32,411						—						32,411
Foreign currency translation					—						—						—						(334	)					(334	)
Unrealized loss on interest rate swaps, net of tax of $2,772					—						—						—						(3,545	)					(3,545	)
Comprehensive income					—						—						—						—						28,532
Balance, June 30, 2007					268						1,339,232						12,715						(1,461	)					1,350,754
(Unaudited)
Comprehensive income (loss):
Net loss					—						—						(5,559	)					—						(5,559	)
Foreign currency translation					—						—						—						119						119
Unrealized loss on interest rate swaps, net of tax of $6,297					—						—						—						(10,941	)					(10,941	)
Comprehensive income (loss)					—						—						(5,559	)					(10,822	)					(16,381	)
Cumulative effect of adoption of FASB Interpretation No. 48 (Note 8)					—						—						(1,339	)					—						(1,339	)
Balance, September 30, 2007 (Unaudited) (b)				$	268						1,339,232					$	5,817					$	(12,283	)(b)				$	1,333,034

(a) During the quarter ended September 30, 2006, other comprehensive loss consisted of a $14 foreign currency translation loss and a $10,074 unrealized loss on interest rate swaps, net of tax of $6,360.

(b) The balance in accumulated other comprehensive at September 30, 2007 is comprised of $281 of cumulative foreign currency translation losses and $12,002 of unrealized net losses on interest rate swaps, net of tax of $7,126.

F-39

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION

Basis of presentation

The accompanying unaudited consolidated financial statements of Education Management Corporation and its subsidiaries (collectively, 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, 2007, June 30, 2007 and September 30, 2006, the statements of operations for the three months ended September 30, 2007 and 2006 and the statements of cash flows for the three months ended September 30, 2007 and 2006. The statements of operations for the three months ended September 30, 2007 and 2006 are not necessarily indicative of the results that may be expected for future periods. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Prospectus for the fiscal year ended June 30, 2007. The accompanying consolidated balance sheet at June 30, 2007 has been derived from the consolidated audited balance sheet included elsewhere in this Prospectus.

Nature of operations

The Company is among the largest providers of postsecondary education in North America, with approximately 96,000 active students as of the fall of 2007. The Company offers education through four different education systems (The Art Institutes, Argosy University, the 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 Principal Shareholders. 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 outstanding shares of the Company’s common stock were cancelled in exchange for $43 per share in cash. The Principal Shareholders, together with certain other investors, became the owners of the Company. For purposes of these financial statements, the ‘‘Predecessor’’ refers to the Company during the period prior to June 1, 2006. The ‘‘Successor’’ refers to the Company after June 1, 2006.

The acquisition of the Predecessor was financed by equity invested in EM Acquisition Corporation by the Principal Shareholders and other investors, cash on hand, borrowings under a new senior secured credit facility by the Company’s wholly-owned subsidiary Education Management LLC (‘‘EM LLC’’), and notes issued by EM LLC and Education Management Finance Corp. (a wholly-owned subsidiary of EM LLC) consisting of senior notes due 2014 and senior subordinated notes due 2016. The obligations under the new senior secured credit facility are guaranteed by Education Management Holdings LLC, a wholly-owned subsidiary of the Company, and all of EM LLC’s existing direct and indirect domestic subsidiaries, other than any subsidiary that directly owns or operates a school or any inactive subsidiary that has less than $100,000 of assets. The notes are

F-40

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

fully and unconditionally guaranteed by all of EM LLC’s direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets.

Seasonality

The Company’s quarterly net revenues and income fluctuate primarily as a result of the pattern of student enrollments. Student enrollment at The Art Institute schools has typically peaked in the fall academic quarter, when the largest number of recent high school and college graduates traditionally begin post-secondary education programs. The Company’s first quarter is typically its lowest revenue recognition quarter due to student vacations. The seasonality of the Company’s business has decreased over the last several years due to an increased percentage of students enrolling in online programs.

Reclassifications

Certain reclassifications of September 30, 2006 data have been made to conform to the September 30, 2007 presentation.

2.	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.

Since the Company recorded a net loss in each of the periods presented below, diluted EPS is the same in each period as basic EPS. All stock options at June 30, 2007 were contingently issuable as defined by SFAS No. 128, ‘‘Earnings Per Share’’. As none of the thresholds that would cause share dilution under this standard were met, none of the Company’s outstanding stock options during the Successor periods were dilutive.

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

			For the three months ended September 30,
			2007						2006
Net loss				$	(5,559	)				$	(9,814	)
Weighted average number of shares outstanding
Basic					26,772						26,000
Effect of stock options					—						—
Dilutive					26,772						26,000
Loss per share:
Basic				$	(0.21	)				$	(0.38	)
Diluted				$	(0.21	)				$	(0.38	)

3.	ACCOUNTING STANDARDS NOT YET ADOPTED

On September 15, 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, ‘‘Fair Value Measurements’’. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company’s fiscal year beginning July 1, 2008. The Company is in the process of evaluating the potential impact of SFAS No. 157, if any.

F-41

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

New Accounting Pronouncements — In December 2007, the FASB issued SFAS No. 141R, ‘‘Business Combinations’’ (‘‘SFAS No. 141R’’), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The requirements of SFAS No. 141R are effective for the Company beginning July 1, 2009. The Company is in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS No. 141R will have on the Company’s financial position or results of operations upon adoption, if any.

In December 2007, the FASB issued SFAS No, 160, ‘‘Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51’’ (‘‘SFAS No. 160’’), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. The requirements of SFAS 160 are effective for the Company beginning July 1, 2009. The Company is in the process of evaluating this guidance and therefore has not yet determined the impact that SFAS No. 160 will have on the Company’s financial position or results of operations upon adoption, if any.

4.	SHARE-BASED PAYMENT

2006 Stock Option Plan

The 2006 Stock Option Plan, as amended (the ‘‘Option Plan’’), authorizes equity awards to be granted for up to 1,845,171 shares of the Company’s common stock. Under the Option Plan, certain management and key employees of the Company have been or will be granted a combination of time-based options and performance-based options to purchase common stock issued by the Company. 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 occur 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. No outstanding options were exercised prior to September 30, 2007.

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 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 expire ten years from the date of grant. At September 30, 2007, the Company considered the conditions entitling the option holders to fair value for their shares to be less than probable in accordance with SFAS No. 5, ‘‘Accounting for Contingencies’’ as defined by SFAS No. 123R, ‘‘Share-Based Payment’’. Under SFAS No. 123R, compensation expense on the grants is not recognized until one of the conditions entitling these participants to fair value for their shares becomes probable. Accordingly, the Company has not recognized compensation expense related to any of these grants during the three month periods ended September 30, 2007 or 2006. The total amount of unrecognized compensation cost over the vesting periods of all options, net of expected forfeitures, is $32.3 million at September 30, 2007.

F-42

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

Long Term Incentive Compensation Plan

The Company also adopted the Long-Term Incentive Compensation Plan (the ‘‘LTIC Plan’’) during fiscal 2007. Pursuant to the terms of the plan, a bonus pool will be created based on returns to certain of our shareholders after the occurrence of a ‘‘realization event’’ under the terms of the plan. Employees of the Company were granted a total of approximately 760,000 units, of a total of 1,000,000 authorized, under the LTIC Plan, which represent 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 not probable to occur at September 30, 2007, no compensation expense has been recognized by the Company during the quarter ended September 30, 2007 related to these units. The LTIC Plan is currently being accounted for as a liability-plan as the units must be settled in cash if a realization event were to occur prior to an initial public offering. Upon an initial public offering, the units may be settled in shares or cash at the discretion of the Company. Accordingly, the LTIC Plan will then be treated as a performance-based equity plan and the Company will determine the fair value of each unit. Then upon a subsequent realization event, the units’ estimated fair value as determined at the initial public offering date will be recorded in the Company’s statement of operations.

5.	BUSINESS COMBINATIONS

In June 2007, the Company completed the acquisition of two schools in Tucson, Arizona — Tucson Design College and Chaparral College. The acquisition included $0.8 million of cash held by the acquired schools. The total amount paid for these entities was $9.7 million, of which $0.4 million was paid in the first quarter of fiscal 2008. The majority of the purchase price was allocated to goodwill. These schools are included within the Company’s existing Art Institute and Brown Mackie College education systems, respectively. The Company made no changes to the purchase price allocation related to this acquisition in the three month period ended September 30, 2007.

6.	LONG-LIVED ASSETS

Goodwill

As a result of the Transaction, the Company recorded approximately $2.6 billion of goodwill. As defined in SFAS No. 141, ‘‘Business Combinations’’, goodwill is recognized as an asset in the financial statements and initially measured as the excess of the cost of the acquired company over the sum of the amounts assigned to assets acquired less liabilities assumed. In connection with the Transaction, the Company obtained the fair values of property and equipment and intangible assets other than goodwill from an independent third party. The remaining value assigned to goodwill represents the intrinsic value of the Company beyond its tangible and identifiable intangible assets as represented by the excess of the amount paid to acquire the Company over the value of these respective assets.

The following table summarizes the effect the Company’s adoption of FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109’’, (‘‘FIN 48’’) (Note 9) had on goodwill during the quarter ended September 30, 2007 (in thousands):

Goodwill at June 30, 2007				$	2,576,055
Effect of adoption of FIN 48					10,154
Goodwill at September 30, 2007				$	2,586,209

F-43

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

Intangible Assets

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

			September 30, 2007												June 30, 2007												September 30, 2006
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Tradename – Art Institute				$	330,000					$	—					$	330,000					$	—					$	330,000					$	—
Tradename – Argosy University					3,000						(444	)					3,000						(361	)					3,000						(111	)
Licensing, accreditation and Title IV program participation					112,179						—						112,179						—						114,205						—
Curriculum and programs					20,418						(5,908	)					19,507						(4,835	)					17,434						(1,453	)
Student contracts, applications & relationships					39,511						(14,593	)					39,511						(11,856	)					39,000						(3,648	)
Favorable leases and other					16,421						(5,817	)					16,391						(3,969	)					16,229						(1,571	)
Total intangible assets				$	521,529					$	(26,762	)				$	520,588					$	(21,021	)				$	519,868					$	(6,783	)

Amortization of intangible assets for the three months ended September 30, 2007 and 2006 was $5.7 million and $5.1 million, respectively. Amortization for the three months ended September 30, 2007 includes an impairment charge of $1.0 million as discussed below.

Total estimated amortization of the Company’s intangible assets for the remainder of the year ended June 30, 2008 and for each of the years ended June 30, 2009 through 2012 and thereafter is as follows (in thousands):

Fiscal years			Amortization Expense
2008 (remainder)				$	12,828
2009					16,333
2010					6,850
2011					5,517
2012					4,452
Thereafter					6,608

Property and Equipment

The Company evaluates the recoverability of property and equipment whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable in accordance with SFAS No. 144 ‘‘Accounting for Impairment or Disposal of Long-Lived Assets’’. During the quarter ended September 30, 2007, the Company recorded an impairment charge of $3.8 million in educational services expense in the consolidated statement of operations related to property and equipment as anticipated future cash flows at one of the Company’s schools could not support the carrying value of its property, equipment and identifiable intangible assets. The total impairment charge of $4.8 million adjusted the property, equipment and intangible asset values at the school to their respective estimated fair values, as calculated using a traditional discounted cash flow model.

F-44

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

7.	DEBT AND DERIVATIVE INSTRUMENTS

Debt consisted of the following at September 30, 2007, June 30, 2007 and September 30, 2006 (in thousands):

			September 30, 2007						June 30, 2007						September 30, 2006
Revolving credit facility				$	—					$	90,000					$	—
Senior secured term loan facility, due 2013					1,173,150						1,176,113						1,182,038
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					2,093						2,244						2,882
Mortgage debt of consolidated entities					1,552						1,622						1,864
Total debt					1,936,795						2,029,979						1,946,784
Less current portion, including revolving credit facility					38,140						128,121						12,797
Total long term debt, less current portion				$	1,898,655					$	1,901,858					$	1,933,987

On February 13, 2007, EM LLC amended and restated the senior secured term loan facility to decrease the interest rate on the outstanding indebtedness to LIBOR plus an applicable margin of 2.0% from LIBOR plus an applicable margin spread of 2.5%. The amended and restated senior secured term loan facility also includes a provision that requires EM LLC to pay a premium equal to 1% of the outstanding loan balance in connection with any future re-pricing that results in an additional margin reduction prior to February 13, 2008. The applicable margin spread was further reduced to 1.75% on May 18, 2007 as a result of EM LLC’s leverage ratio falling below 5.5x at March 31, 2007. The interest rate on the senior secured term loan facility was 7.125% at September 30, 2007 and June 30, 2007 and 9.75% at September 30, 2006.

There were no outstanding borrowings under the $300.0 million revolving credit facility at September 30, 2007 or September 30, 2006. Outstanding borrowings on the revolving credit facility at June 30, 2007 totaled $90.0 million, all of which was classified as short-term debt. EM LLC borrowed in order to satisfy certain year-end regulatory financial ratios at June 30, 2007 and repaid all borrowings on July 2, 2007.

Other indebtedness

The Company has a 1% general partnership interest in a consolidated entity that has an outstanding mortgage on one of the Company’s leased facilities in the amount of $1.5 million at September 30, 2007. The Company would be required to perform under these guarantees if the subsidiary could not satisfy the obligations. The Company has no guarantees for any unconsolidated entities.

EM LLC has issued letters of credit totaling $92.4 million at September 30, 2007, which reduces the Company’s availability to borrow funds under its $300.0 million revolving credit facility. Letters of credit issued to the U.S. Department of Education totaled $89.4 million at September 30, 2007, including an $87.9 million letter of credit due to the Company’s failure to satisfy certain regulatory financial ratios after giving effect to the Transaction.

Derivative instruments

EM LLC recorded an unrealized after-tax loss of $10.9 million and $10.1 million in other comprehensive income (loss) related to the change in market value on the swap agreements for the

F-45

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

three months ended September 30, 2007 and September 30, 2006, respectively. Additionally, at September 30, 2007, there was a cumulative unrealized loss of $12.0 million, net of tax, related to these swaps included in accumulated other comprehensive loss on EM LLC’s consolidated balance sheet, which may be immediately recognized in the consolidated statement of operations if future events cause the loss of treatment as cash flow hedges as required by SFAS No. 133 ‘‘Accounting for Derivative Instruments and Hedging Activities.’’

8.	FAIR VALUE OF FINANCIAL INSTRUMENTS

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

			September 30, 2007												June 30, 2007												September 30, 2006
			Carrying Value						Fair Value						Carrying Value						Fair Value						Carrying Value						Fair Value
Fair value of interest rate swaps				$	(19,128	)				$	(19,128	)				$	(1,890	)				$	(1,890	)				$	(13,491	)				$	(13,491	)
Variable rate debt					1,173,150						1,132,090						1,176,113						1,163,045						1,182,038						1,178,771
Fixed rate debt					763,645						782,894						763,866						785,804						764,746						774,309

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liabilities will be settled in cash, approximated carrying values because of the short-term nature of these instruments. The derivative financial instruments are carried at fair value, which is based on the amount EM LLC would pay to terminate the agreements. The fair values of the EM LLC’s debt were determined based on valuations provided by qualified third parties.

9.	INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109, ‘‘Accounting for Income Taxes’’, which requires the use of 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. SFAS No. 109 also requires that deferred income tax assets be reduced by 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 38.6% for the quarter ended September 30, 2007 and 38.7% for the quarter ended September 30, 2006. The effective rates differed from the combined federal and state statutory rates primarily due to valuation allowances and expenses that are non-deductible for tax purposes.

On July 13, 2006, the FASB issued FIN 48, which clarifies the accounting for income taxes in an enterprise’s financial statements. FIN 48 prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Under FIN 48, the tax benefit associated with a position taken on a tax return may be recognized in the financial statements when the tax position is at least more-likely-than-not to be sustained upon examination by a taxing authority. The amount of the tax benefit that may be recognized in the financial statements is then measured as the largest amount of benefit that is more-likely-than-not to be realized upon effective settlement. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The recognition and measurement of tax benefits associated with uncertain income tax positions under FIN 48 requires the use of judgment and estimates by management, which are inherently

F-46

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

subjective. Changes in judgment about uncertain tax positions taken in previous periods may result from new information concerning an uncertain tax position, completion of an audit, or the expiration of statutes of limitation. These changes may create volatility in the Company’s effective tax rate in future periods.

The Company adopted the provisions of FIN 48 on July 1, 2007. As a result of adopting FIN 48, the Company increased its liability for uncertain tax benefits by $18.5 million, which resulted in a charge to retained earnings of $1.3 million that was recorded as a cumulative effect adjustment for a change in accounting principle to shareholders’ equity as of July 1, 2007, an increase in goodwill of $10.2 million, and an increase in deferred tax assets of $7.8 million. The Company’s total liability for uncertain tax benefits as of July 1, 2007 was $29.0 million, excluding the indirect benefits associated with state taxes and interest that were recorded as deferred tax assets. This liability includes $1.8 million of interest on uncertain tax positions. The Company did not accrue any penalties on uncertain tax positions. The amount of unrecognized tax benefits as of the date of adoption that, if recognized in fu ture periods, would impact the Company’s effective tax rate is $1.8 million.

The Company classifies interest expense and penalties accrued in connection with unrecognized tax benefits as income tax expense in its consolidated statement of operations. This classification is consistent with the Company’s past accounting policy for interest and penalties related to tax liabilities.

The Company’s liability for uncertain tax positions increased by $0.6 million in the first quarter of fiscal 2008, including interest. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by $4.9 million within the next twelve months due to the expiration of statutes of limitation and anticipated changes in certain methods of tax accounting.

The statutes of limitation for the Company’s U.S. income tax returns are closed for years through fiscal 2003. The Internal Revenue Service (IRS) has concluded its examination of the Company’s U.S. income tax returns for fiscal years 2004 and 2005. The IRS accepted the fiscal 2004 and 2005 tax returns as filed. While the IRS has completed its examination of the Company’s fiscal 2004 and 2005 U.S. income tax returns the statutes of limitation remain open with respect to those years through March 15, 2008, and March 15, 2009, respectively.

The statutes of limitation for the Company’s state and local income tax returns for prior periods varies by jurisdiction. However, the statutes of limitation with respect to the major jurisdictions in which the Company files state and local tax returns are generally closed for years through fiscal 2002.

10.	OTHER LONG-TERM LIABILITIES

The following table presents the balances in other long-term liabilities (in thousands):

			September 30, 2007						June 30, 2007						September 30, 2006
Interest rate swap				$	19,128					$	1,890					$	13,491
Deferred compensation plan					6,438						5,483						4,890
Uncertain tax positions					27,063						—						—
Other					1,212						1,212						363
Total other long-term liabilities				$	53,841					$	8,585					$	18,744

11.	CONTINGENCIES

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

F-47

Table of Contents

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

Attorney General’s investigation concerning NEIA’s participation in Massachusetts state financial aid programs and student lending and marketing practices engaged in by the school and its students’ lenders. NEIA responded to the request for information in August 2007 and intends to fully cooperate with the Attorney General’s office in connection with its investigation.

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, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

12.	RELATED PARTY TRANSACTIONS

In connection with the Transaction and under the terms of an agreement between EM LLC and the Sponsors, EM LLC agreed to pay the Sponsors advisory fees of $5.0 million annually. Other current assets includes $1.3 million, $2.5 million and $1.3 million at September 30, 2007, June 30, 2007 and September 30, 2006, respectively, relating to prepaid advisory fees and general and administrative expenses includes $1.3 million related to these advisory fees in each of the three months ended September 30, 2007 and 2006. This agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.

F-48

Table of Contents

             Shares

Education Management Corporation

Common Stock

Goldman, Sachs & Co.

Through and including, 2008 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

The following table sets forth the expenses (other than compensation to the underwriters) expected to be incurred in connection with this offering. All such amounts (except the SEC registration fee, the NASD filing fee and the Nasdaq Global Market listing fee) are estimated.

SEC registration fee				$	15,350
NASD filing fee					50,500
Nasdaq listing fee			*
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Blue Sky fees and expenses			*
Transfer Agent and Registrar fees			*
Miscellaneous			*
Total			$

(1) To be furnished by amendment.

Item 14.    Indemnification of Directors and Officers.

Sections 1741-1750 of the Pennsylvania Business Corporation Law provide for indemnification of the Registrant’s directors and officers against certain liabilities under certain circumstances. Sections 1741-1750 also provide that the indemnification provided for therein shall not be deemed exclusive of any other rights to which those seeking indemnification may otherwise be entitled.

Article Thirteen of the Registrant’s Amended and Restated Articles of Incorporation require the Registrant to promptly indemnify, to the fullest extent permitted by law or Section A(ii) of Article Thirteen, each director or officer (including each former director or officer) (hereafter, an ‘‘indemnitee’’) of the Registrant 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 or proceeding, whether civil, criminal, administrative or investigative and whether external or internal to the Registrant, by reason of the fact that the indemnitee is or was an authorized representative of the Registrant, against all expenses (including attorneys’ fees, disbursements and other charges), judgments, fines (including excise taxes and penalties) and amounts paid in settlement actually and reasonably incurred by the indemnitee in connection with such proceeding.

Indemnification pursuant to 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 Section A of Article Thirteen shall be made in every case described in Section A(i) hereof except (i) in connection with a proceeding (or any claim, issue or matter therein or any part thereof) initiated by the indemnitee, unless such initiation was authorized by the Board of Directors of the Registrant; (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; (iii) with respect to any benefit or advantage gained by the indemnitee to which the indemnitee was not legally entitled; (iv) in connection with a proceeding by or for the benefit of the Regist rant 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; or (v) to the extent that the indemnitee actually receives payment under any policy of insurance or is otherwise reimbursed.

II-1

Table of Contents

Notwithstanding the other provisions of Section A of 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 Registrant against expenses (including attorneys’ fees, disbursements and other charges) actually and reasonably incurred by the indemnitee in connection therewith.

Except as specifically provided in Section A of Article Thirteen, such indemnification shall be made by the Registrant without any requirement that any determination be made or any action be taken by the Board of Directors, shareholders, or legal counsel.

The Registrant shall promptly pay all expenses (including attorneys’ fees, disbursements and other charges) actually and reasonably incurred by an indemnitee in defending or appearing in any proceeding described in Section A of 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 Registrant and (ii) an irrevocable assignment to the Registrant of all payments to which the indemnitee may be or become entitled, under any policy of insurance or otherwise, in reimbursement of any such expenses paid by the Registrant pursuant to Section B of Article Thirteen. Notwithstanding the foregoing, no advance payment shall be made by the Registrant pursuant to Section B of 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) or Section A(ii)(d) of Article Thirteen or the indemnitee’s actions were of the kind described in Section A(ii)(b) or Section A(ii)(c) of Article Thirteen.

Article VII of the Amended and Restated Bylaws of the Registrant require, as described below, that the Registrant indemnify directors and officers to the maximum extent permitted by law and also provide for the mandatory advancement of expenses to directors in most circumstances.

Section 7.1 of the Amended and Restated Bylaws provides that the Registrant shall indemnify, to the fullest extent now or hereafter permitted by law, each director or officer (including each former director or officer) of the Registrant 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 or proceeding, whether civil, criminal, administrative or investigative and whether external or internal to the registrant, by reason of the fact that the indemnitee is or was an authorized representative of the registrant, against all expenses (including attorneys’ fees, disbursements and other charges), judgments, fines (including excise taxes and penalties) and amounts paid in settlement actually and reasonably incurred by the indemnitee in connection with such action, suit or proceeding.

Section 7.2 of the Amended and Restated Bylaws further provides that the Registrant shall pay all expenses (including attorneys’ fees, disbursements and other charges) actually and reasonably incurred by an indemnitee referred to in Section 7.1 of the Amended and Restated Bylaws in defending or appearing in any action, suit or proceeding described in Section 7.1 of the Amended and Restated Bylaws in advance of the final disposition of such action, suit or proceeding. The expenses incurred by such director or officer shall be paid by the Registrant in advance of the final disposition of such action, suit or proceeding only upon receipt of an undertaking by or on behalf of the indemnitee to repay all amounts advanced if it shall ultimately specifically be determined by a final, unappealable adjudication that the indemnitee is not entitled to be indemnified by the Registrant, and an irrevocable assignment to the Registrant of all payments to which the indemni tee may be or become entitled, under any policy of insurance or otherwise, in reimbursement of any such expenses paid by the registrant.

The Amended and Restated Bylaws provide that the rights of indemnification and advancement of expenses provided for therein shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may otherwise be entitled.

II-2

Table of Contents

Section 7.9 of the Amended and Restated Bylaws provides that the Registrant may purchase and maintain insurance on behalf of each director and officer against any liability asserted against or incurred by such officer or director in any capacity, or arising out of such director’s or officer’s status as such, whether or not the Registrant would have the power to indemnify such person against such liability under the provisions of Article VII of the Amended and Restated Bylaws.

The registrant maintains directors’ and officers’ liability insurance covering its directors and officers with respect to liabilities, including liabilities under the Securities Act of 1933, as amended, which they may incur in connection with their serving as such. Such insurance provides coverage for the directors and officers against certain liabilities even though such liabilities may not be covered by the indemnification provisions of the Amended and Restated Bylaws.

As permitted by Pennsylvania Business Coropration Law (the ‘‘PBCL’’) Section 1713, the Amended and Restated Bylaws provide that no director shall be personally liable for monetary damages for any action taken, or failure to take any action, except to the extent that such elimination or limitation of liability is expressly prohibited by the PBCL as in effect at the time of the alleged action or failure to take action by the director. The PBCL states that this exculpation from liability does not apply where the director has breached or failed to perform the duties of his office and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness, and does not apply to the responsibility or liability of a director pursuant to any criminal statute or the liability of a director for payment of taxes pursuant to federal, state or local law. It may also not apply to liabilities imposed upon directors by the federal s ecurities laws.

The Registrant also has policies of directors’ and officers’ liability insurance to indemnify its directors and officers against certain liabilities incurred in their capacities as such.

Item 15.    Recent Sales of Unregistered Securities.

During the three years preceding the filing of this registration statement, Education Management Corporation issued the following securities which were not registered under the Securities Act of 1933, as amended:

On June 1, 2006, EM Acquisition Corp. issued an aggregate of 26,000,000 shares of its common stock as consideration for the merger through which it was acquired by a consortium of private investors by merging an acquisition company into Education Management Corporation, with Education Management Corporation surviving the merger.

On October 30, 2006, Education Management Corporation sold an aggregate of 190,000 shares of its common stock to certain members of senior management and a director for an aggregate of $9.5 million pursuant to a voluntary executive common stock purchase plan.

On October 30, 2006, Education Management Corporation sold 400,000 shares of its common stock to GE Capital Equity Investments, Inc. at a price of $50.00 per share.

In March 2007, Education Management Corporation sold 181,818 shares of its common stock to Todd S. Nelson at a price per share of $55.00 pursuant to the terms of Mr. Nelson’s employment agreement.

No underwriters were involved in the foregoing sales of securities. The issuances listed above were deemed exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Securities Act or Rule 701 thereunder. In accordance with Rule 701, the shares that were issued in transactions deemed exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 were completed pursuant to a written compensatory benefit plan, and the issuances did not, during any consecutive 12-month period, exceed 15% of the outstanding shares of Education Management Corporation’s common stock, calculated in accordance with the provisions of Rule 701.

II-3

Table of Contents

Item 16.    Exhibits.

The following Exhibits are filed as part of this Registration Statement:

Exhibit Number											Description
	*						1.1				Form of Underwriting Agreement.
	*						3.1				Form of Amended and Restated Articles of Incorporation
	*						3.2				Form of Amended and Restated By-Laws
	*						4.1				Form of Common Stock Certificate
							4.2				Indenture, dated as of June 1, 2006, among Education Management LLC, Education Management Finance Corp., the Guarantors named therein and The Bank of New York, as Trustee, governing the 8¾% Senior Notes due 2014 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006)
							4.3				Form of 8¾% Senior Note due 2014 (included as part of Exhibit 4.2)
							4.4				Indenture, dated as of June 1, 2006, among Education Management LLC, Education Management Finance Corp., the Guarantors named therein and The Bank of New York, as Trustee, governing the 10¼% Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006)
							4.5				Form of 10¼% Senior Subordinated Note due 2016 (included as part of Exhibit 4.4)
	*						5.1				Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP
							10.1				Amended and Restated Credit and Guaranty Agreement dated February 13, 2007 among Education Management LLC, Education Management Holdings LLC, certain Subsidiaries of Education Management Holdings LLC, the designated Subsidiary Borrowers referred to therein, each lender thereto, Credit Suisse Securities (USA) LLC, as Syndication Agent, and BNP Paribas, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007).
							10.2				Employment Agreement dated February 8, 2007 among Education Management LLC, Education Management Corporation and Todd S. Nelson (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007).
							10.3				Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Joseph A. Charlson (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.4				Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John M. Mazzoni (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)

II-4

Table of Contents

Exhibit Number											Description
							10.5				Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Stacey R. Sauchuk (incorporated by reference to Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.6				Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John T. South, III (incorporated by reference to Exhibit 10.04 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.7				Letter Agreement, dated as of December 7, 2006, between Education Management LLC and John T. South, III (incorporated by reference to Exhibit 10.05 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.8				Letter Agreement, dated March 30, 2007, between Education Management LLC and John T. South, III (incorporated by reference Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on April 5, 2007)
							10.9				Employment Agreement, dated as of June 1, 2006, between Education Management Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on September 24, 2006)
							10.10				Letter Agreement, dated February 13, 2007, between Education Management Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007)
							10.11				Letter Agreement, dated June 28, 2007, between Education Management Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on July 5, 2007)
							10.12				Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Stephen J. Weiss (incorporated by reference to Exhibit 10.06 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.13				Employment Agreement, dated as of June 1, 2006, between Education Management Corporation and Edward H. West (incorporated by reference to Exhibit 10.16 the Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on September 24, 2006)
							10.14				Form of Executive Time Vested Stock Option Agreement (incorporated by reference to Exhibit 10.07 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.15				Form of Executive Performance Vested Stock Option Agreement (incorporated by reference to Exhibit 10.08 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
							10.16				Fiscal 2007 Management Incentive Stock Option Plan (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K filed of Education Management LLC on December 11, 2006)

II-5

Table of Contents

Exhibit Number											Description
							10.17				EDMC Stock Option Plan, effective August 1, 2006, as amended (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006), amendments filed as Exhibit 10.01 to the Current Report on Form 8- K of Education Management LLC filed on March 15, 2007, Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on April 5, 2007 and Exhi bit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on July 5, 2007)
							10.18				Education Management LLC Retirement Plan, as amended and restated as of January 1, 2006 (previously filed as Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on December 29, 2006)
							10.19				Education Management Corporation Long-Term Incentive Compensation Plan (previously filed as Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on March 2, 2007)
							10.20				Amended and Restated Shareholders’ Agreement, dated as of October 30, 2006, between EDMC and each of the Shareholders named therein, as amended (previously filed as Exhibit 10.7 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006), amendment filed as Exhibit 10.02 to the Current Report on Form 8-K filed by Education Management LLC on April 5, 2007)
	*						10.21				Form of Second Amended and Restated Shareholders’ Agreement
	*						21.1				List of Subsidiaries of the Registrant
	+						23.1				Consent of Ernst & Young LLP
							23.2				Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (included as part of Exhibit 5.1).
							24.1				Powers of Attorney (included on signature page).

* To be filed by amendment.

+ Filed herewith.

Item 17.    Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

II-6

Table of Contents

We hereby undertake that:

	(i)	for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

	(ii)	for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on December 21, 2007.

			EDUCATION MANAGEMENT CORPORATION
			By:			/s/ Edward H. West

						Name:			Edward H. West
						Title:			Executive Vice President and Chief Financial Officer

POWER OF ATTORNEY

Each of the undersigned directors and officers of Education Management Corporation, a Delaware corporation, do hereby constitute and appoint Edward H. West and J. Devitt Kramer, or either one of them, the undersigned’s true and lawful attorneys and agents, with full power of substitution and resubstitution in each, to do any and all acts and things in our name and on our behalf in our respective capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or either one of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indi cated below, any and all amendments (including post-effective amendments, whether pursuant to Rule 462(b) or otherwise) hereto, and each of the undersigned does hereby ratify and confirm all that said attorneys and agents, or either one of them or any substitute, shall do or cause to be done by virtue hereof. This Power of Attorney may be executed in any number of counterparts.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE		TITLE		DATE
/s/ Todd S. Nelson		President and Chief Executive Officer and Director (Principal Executive Officer)		December 21, 2007
Todd S. Nelson
/s/ Edward H. West		Executive Vice President and Chief Financial Officer (Principal Financial Officer)		December 21, 2007
Edward H. West
/s/ Christopher M. Lynne		Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)		December 21, 2007
Christopher M. Lynne
/s/ John R. McKernan, Jr.		Executive Chairman and Chairman of the Board of Directors		December 21, 2007
John R. McKernan, Jr.
/s/ Adrian M. Jones		Director		December 21, 2007
Adrian M. Jones
/s/ Jeffrey T. Leeds		Director		December 21, 2007
Jeffrey T. Leeds
/s/ Leo F. Mullin		Director		December 21, 2007
Leo F. Mullin
/s/ Paul J. Salem		Director		December 21, 2007
Paul J. Salem
/s/ Peter O. Wilde		Director		December 21, 2007
Peter O. Wilde

Table of Contents

EXHIBIT INDEX

Exhibit Number								Description
	*				1.1			Form of Underwriting Agreement.
	*				3.1			Form of Amended and Restated Articles of Incorporation
	*				3.2			Form of Amended and Restated By-Laws
	*				4.1			Form of Common Stock Certificate
					4.2			Indenture, dated as of June 1, 2006, among Education Management LLC, Education Management Finance Corp., the Guarantors named therein and The Bank of New York, as Trustee, governing the 8¾% Senior Notes due 2014 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006)
					4.3			Form of 8¾% Senior Note due 2014 (included as part of Exhibit 4.2)
					4.4			Indenture, dated as of June 1, 2006, among Education Management LLC, Education Management Finance Corp., the Guarantors named therein and The Bank of New York, as Trustee, governing the 10¼% Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006)
					4.5			Form of 10¼% Senior Subordinated Note due 2016 (included as part of Exhibit 4.4)
	*				5.1			Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP
					10.1			Amended and Restated Credit and Guaranty Agreement dated February 13, 2007 among Education Management LLC, Education Management Holdings LLC, certain Subsidiaries of Education Management Holdings LLC, the designated Subsidiary Borrowers referred to therein, each lender thereto, Credit Suisse Securities (USA) LLC, as Syndication Agent, and BNP Paribas, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007).
					10.2			Employment Agreement dated February 8, 2007 among Education Management LLC, Education Management Corporation and Todd S. Nelson (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007).
					10.3			Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Joseph A. Charlson (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.4			Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John M. Mazzoni (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.5			Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Stacey R. Sauchuk (incorporated by reference to Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.6			Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John T. South, III (incorporated by reference to Exhibit 10.04 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)

Table of Contents

Exhibit Number								Description
					10.7			Letter Agreement, dated as of December 7, 2006, between Education Management LLC and John T. South, III (incorporated by reference to Exhibit 10.05 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.8			Letter Agreement, dated March 30, 2007, between Education Management LLC and John T. South, III (incorporated by reference Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on April 5, 2007)
					10.9			Employment Agreement, dated as of June 1, 2006, between Education Management Corporation and John R,. McKernan, Jr. (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on September 24, 2006)
					10.10			Letter Agreement, dated February 13, 2007, between Education Management Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit 10.03 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007)
					10.11			Letter Agreement, dated June 28, 2007, between Education Management Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on July 5, 2007)
					10.12			Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Stephen J. Weiss (incorporated by reference to Exhibit 10.06 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.13			Employment Agreement, dated as of June 1, 2006, between Education Management Corporation and Edward H. West (incorporated by reference to Exhibit 10.16 the Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on September 24, 2006)
					10.14			Form of Executive Time Vested Stock Option Agreement (incorporated by reference to Exhibit 10.07 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.15			Form of Executive Performance Vested Stock Option Agreement (incorporated by reference to Exhibit 10.08 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)
					10.16			Fiscal 2007 Management Incentive Stock Option Plan (incorporated by reference to Exhibit 10.01 to the Current Report on Form 8-K filed of Education Management LLC on December 11, 2006)
					10.17			EDMC Stock Option Plan, effective August 1, 2006, as amended (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006), amendments filed as Exhibit 10.01 to the Current Report on Form 8- K of Education Management LLC filed on March 15, 2007, Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on April 5, 2007 and Exhibit 10.01 to the Current Report on Form 8-K of Educati on Management LLC filed on July 5, 2007)
					10.18			Education Management LLC Retirement Plan, as amended and restated as of January 1, 2006 (previously filed as Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on December 29, 2006)

Table of Contents

Exhibit Number								Description
					10.19			Education Management Corporation Long-Term Incentive Compensation Plan (previously filed as Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on March 2, 2007)
					10.20			Amended and Restated Shareholders’ Agreement, dated as of October 30, 2006, between EDMC and each of the Shareholders named therein, as amended (previously filed as Exhibit 10.7 to Amendment No. 1 to the Registration Statement on Form S-4/A of Education Management LLC and Education Management Finance Corp. (File No. 333-137605) filed on November 8, 2006), amendment filed as Exhibit 10.02 to the Current Report on Form 8-K filed by Education Management LLC on April 5, 2007)
	*				10.21			Form of Second Amended and Restated Shareholders’ Agreement
	*				21.1			List of Subsidiaries of the Registrant
	+				23.1			Consent of Ernst & Young LLP
					23.2			Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (included as part of Exhibit 5.1).
					24.1			Powers of Attorney (included on signature page).

* To be filed by amendment.

+ Filed herewith.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 18, 2007, in the Registration Statement (Form S-1) and related Prospectus of Education Management Corporation and Subsidiaries for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

December 18, 2007