8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): March 2, 2006

PLATO Learning, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Delaware	0-20842	36-3660532
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
10801 Nesbitt Avenue South, Bloomington, Minnesota		55437
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 952-832-1000

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On March 2, 2006, our stockholders approved the PLATO Learning, Inc. 2006 Stock Incentive Plan and our Board of Directors approved a revised compensation plan for our non-employee directors. Descriptions of these plans are attached hereto as Exhibits 10.29, 10.30, and 10.51.

Item 9.01 Financial Statements and Exhibits.

Exhibit 10.29 PLATO Learning, Inc. 2006 Stock Incentive Plan.
Exhibit 10.30 Policies and Forms of Awards under the PLATO Learning, Inc. 2006 Stock Incentive Plan.
Exhibit 10.51 Directors Compensation Plan.

SIGNATURES

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

	PLATO Learning, Inc.
March 8, 2006	By:	Laurence L. Betterley
		Name: Laurence L. Betterley
		Title: Senior Vice President and Chief Financial Officer

Exhibit Index

Exhibit No.	Description
10.29	PLATO Learning, Inc. 2006 Stock Incentive Plan.
10.30	Policies and Forms of Awards under the PLATO Learning, Inc. 2006 Stock Incentive Plan.
10.51	Directors Compensation Plan

EX-10.29

PLATO LEARNING, INC. 2006 STOCK INCENTIVE PLAN

Article 1. Establishment, Objectives and Duration

1.1 Establishment of the Plan. PLATO Learning, Inc., a Delaware corporation, hereby establishes this PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”) as set forth herein. Capitalized terms used but not otherwise defined herein will have the meanings given to them in Article 2. The Plan permits the grant of Nonstatutory Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, and other Stock Awards. In addition, the Plan provides the opportunity for the deferral of the payment of salary, bonuses and other forms of incentive compensation in accordance with Code Section 409A.

The Board of Directors of the Company approved the Plan on December 8, 2005. The Plan shall become effective upon its ratification by an affirmative vote at the annual meeting of stockholders of the Company to be held on March 2, 2006, and will remain in effect as provided in Section 1.3 hereof.

1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of Company shareholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants upon whose judgment, interest, and special effort the successful conduct of its business is largely dependent.

1.3 Duration of the Plan. The Plan will commence on the Effective Date, as described in Article 2, and will remain in effect, subject to the right of the Committee to amend or terminate the Plan at any time pursuant to Article 15, until all Shares subject to it pursuant to Article 4 have been issued or transferred according to the Plan’s provisions. In no event may an Award be granted under the Plan on or after the tenth annual anniversary of the Effective Date.

Article 2. Definitions

Whenever used in the Plan, the following terms have the meanings set forth below, and when the meaning is intended, the initial letter of the word is capitalized:

“Affiliates” means (a) for purposes of Incentive Stock Options, any corporation that is a Parent or Subsidiary of the Company, and (b) for all other purposes hereunder, an entity that is (directly or indirectly) controlled by, or controls, the Company.

“Award” means, individually or collectively, a grant under this Plan to a Participant of Nonstatutory Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares or other Stock Awards.

“Award Agreement” means an agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award or Awards granted to the Participant or the terms and provisions applicable to an election to defer compensation under Section 8.2.

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

“Cause” shall have the meaning set forth in any employment, consulting, or other written agreement between the Participant and the Company or an Affiliate. If there is no employment, consulting, or other written agreement between the Participant and the Company or an Affiliate, or if such agreement does not define “Cause,” then “Cause” shall have the meaning specified by the Committee in connection with the grant of any Award; provided, that if the Committee does not so specify, “Cause” shall mean the Participant’s:

(a) willful neglect of or continued failure to substantially perform his or her duties with or obligations for the Company or an Affiliate in any material respect (other than any such failure resulting from his or her incapacity due to physical or mental illness);

(b) commission of a willful or grossly negligent act or the willful or grossly negligent omission to act that causes or is reasonably likely to cause material harm to the Company or an Affiliate; or

(c) commission or conviction of, or plea of nolo contendere to, any felony or any crime materially injurious to the Company or an Affiliate.

An act or omission is “willful” for this purpose if it was knowingly done, or knowingly omitted, by the Participant in bad faith and without reasonable belief that the act or omission was in the best interest of the Company or an Affiliate. Determination of Cause shall be made by the Committee in its sole discretion, and may be applied retroactively if, after the Participant terminates Service, it is discovered that Cause occurred during Participant’s Service.

“Change in Control” means the occurrence of any one or more of the following:

(a) Any person or persons acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of securities of the Company representing fifty percent (50%) or more of the voting power of the Company’s then outstanding stock; provided, however, that a Change in Control shall not be deemed to occur by virtue of any of the following acquisitions: (i) by the Company or any Affiliate, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, or (iii) by any underwriter temporarily holding securities pursuant to an offering of such securities;

(b) Any person or persons acting as a group acquires beneficial ownership of stock that, together with stock held by such person or group, constitutes more than fifty (50%) of the total fair market value or voting power of the Company’s then outstanding stock. The acquisition of Company stock by the Company in exchange for property, which reduces the number of outstanding Stock and increases the percentage ownership by any person to more than 50% of Company stock will be treated as a Change in Control;

(c) Individuals who constitute the Board immediately after the Effective Date (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board during any 12-month period, provided that any person becoming a Director subsequent thereto whose election or nomination for election was approved by a vote of a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without written objection to such nomination) shall be an Incumbent Director, provided, however, that no individual initially elected or nominated as a Director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

(d) Any person or persons acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of at least forty percent (40%) of the total gross fair market value of all the assets of the Company immediately prior to such acquisition. For purposes of this section, gross fair market value means the value of the assets of the Company, or the value of the assets being disposes of, without regard to any liabilities associated with such assets. The event described in this paragraph (d) shall not be deemed to be a Change in Control if the assets are transferred to (i) any owner of Company stock in exchange for or with respect to the Company’s stock, (ii) an entity in which the Company owns, directly or indirectly, at least fifty percent (50%) of the entity’s total value or total voting power, (iii) any person that owns, directly or indirectly, fifty percent (50%) of the Company stock, (iv) an entity in which a person described in (d)(3) above owns at least fifty percent (50%) of the total value or voting power. For purposes of this section, and except as otherwise provided, a person’s status is determined immediately after the transfer of the assets; or

(e) Upon the happening of any other event(s) designated in the Code, or regulations or guidance thereunder, as a Change in Control for purposes of Section 409A of the Code.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person owning more that fifty (50%) of the Company stock acquires additional Company stock. In no event will a Change in Control be deemed to have occurred, with respect to the Participant, if an employee benefit plan maintained by the Company or an Affiliate or the Participant is part of a purchasing group that consummates the transaction that would otherwise result in a Change in Control. The employee benefit plan or the Participant will be deemed “part of a purchasing group” for purposes of the preceding sentence if the plan or the Participant is an equity participant in the purchasing company or group, except where participation is: (i) passive ownership of less than two percent (2%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group that is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing directors.

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

“Committee” shall mean the Compensation Committee of the Board of Directors, the composition of which shall at all times satisfy the provisions of Code Section 162(m) and shall consist of at least two directors who are “independent directors” within the meaning of the NASDAQ marketplace rules, and “nonemployee directors” within the meaning of Exchange Act Rule 16b-3.

“Company” means PLATO Learning, Inc., a Delaware corporation, and any successor thereto as provided in Article 19.

“Consultant” means any person, including an advisor, engaged by the Company or an Affiliate to render services to such entity and who is not a Director or an Employee.

“Director” means any individual who is a member of the Board of Directors.

“Disability” shall mean:

(a) A physical or mental condition that would qualify a Participant for a disability benefit under the long-term disability plan of the Company applicable to him or her;

(b) If the Participant is not covered by such a long-term disability plan, disability as defined for purposes of eligibility for a disability award under the Social Security Act;

(c) When used in connection with the exercise of an Incentive Stock Option following termination of employment, disability within the meaning of Code Section 22(e)(3); or

(d) Such other condition as may be determined by the Committee to constitute “disability” under Code Section 409A.

“Effective Date” means March 2, 2006 subject to the Plan’s adoption by the Board and approval of the Plan by the Company’s shareholders.

“Employee” means any person employed by the Company or an Affiliate in a common law employee-employer relationship. A Participant shall not cease to be an Employee for purposes of this Plan in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or among the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred and eighty-first (181st) day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

“Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.

“Fair Market Value” of a Share on any given date shall be determined by the Committee as follows:

(a)  If the Share is listed for trading on the National Association of Securities Dealers, Inc. (NASDAQ) National Market System or one or more national securities exchanges, the last reported sales price on the NASDAQ or such principal exchange on the date in question, or if such Share shall not have been traded on such principal exchange on such date, the last reported sales price on the NASDAQ or such principal exchange on the first day prior thereto on which such Share was so traded;

(b) If the Share is not listed for trading, by any means determined fair and reasonable by the Committee, which determination shall be final and binding on all parties; or

(c) Where the Participant pays the Exercise Price and/or any related withholding taxes to the Company by tendering Shares issuable to the Participant upon exercise of an Option, the actual sale price of the Shares.

“Incentive Stock Option” or “ISO” means an option to purchase Shares granted under Article 6 that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422.

“Nonstatutory Stock Option” or “NQSO” means an option to purchase Shares granted under Article 6 that is not intended to meet the requirements of Code Section 422.

“Option” means an Incentive Stock Option or a Nonstatutory Stock Option, as described in Article 6.

“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).

“Participant” means an Employee, Consultant or Director whom the Committee has selected to participate in the Plan pursuant to Section 5.2 and who has an Award outstanding under the Plan.

“Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Code Section 162(m) and any regulations promulgated thereunder.

“Performance Period” means the time period during which performance objectives must be met in order for a Participant to earn Performance Shares granted under Article 9.

“Performance Share” means an Award of Shares with an initial value equal to the Fair Market Value of a Share on the date of grant, which is based on the Participant’s attainment of certain performance objectives specified in the Award Agreement, as described in Article 9.

“Personal Leave” means a leave of absence as described in Section 5.3.

“Plan” means the PLATO Learning, Inc. 2006 Stock Incentive Plan, as set forth in this document, and as amended from time to time.

“Prior Plans” means the following equity incentive plans maintained by the Company: (i) TRO Learning, Inc. 1997 Stock Incentive Plan; (ii) TRO Learning, Inc. 1997 Non-Employee Directors Stock Option Plan; (iii) PLATO Learning, Inc. 2000 Stock Incentive Plan; (iv) PLATO Learning, Inc. 2000 Nonemployee Directors Stock Option Plan; and (v) PLATO Learning, Inc. 2002 Stock Plan, as amended and including its sub-plan, the PLATO Learning United Kingdom Share Option Plan.

“Restriction Period” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance objectives, or the occurrence of other events as determined by the Committee, in its sole discretion) or the Restricted Stock is not vested.

“Restricted Stock” means a contingent grant of Shares awarded to a Participant pursuant to Article 8. The Shares awarded to the Participant will vest over the Restricted Period and according to the time-based or performance-based criteria, specified in the Award Agreement.

“Restricted Stock Unit” or “RSU” means a notional account established pursuant to an Award granted to a Participant, as described in Article 8, that is (a) valued solely by reference to Shares, (b) subject to restrictions specified in the Award Agreement, and (c) payable only in Shares. The RSUs awarded to the Participant will vest according to the time-based or performance-based criteria specified in the Award Agreement.

“Retirement” means Normal Retirement or Early Retirement. For purposes of this Plan, “Normal Retirement” means retirement from active employment with the Company and any Affiliate of the Company on or after age 65; or termination of employment on or after (a) reaching the age established by the Company as the normal retirement age in any employment agreement between the Participant and the Company or an Affiliate, or, in the absence of such an agreement (b) reaching age sixty-two with ten years of service with the Company or an Affiliate, provided the retirement is approved by the Chief Executive Officer of the Company, unless the Participant is an officer subject to Section 16 of the Exchange Act, in which case the retirement must be approved by the Committee. For purposes of this Plan, “Early Retirement” means retirement, with consent of the Committee at the time of retirement, from active employment with the Company and any Affiliate of the Company, when a minimum of 70 is determined by totaling the age of the employee and the number of years of service as an active employee with the Company.

“Service” means the provision of services to the Company or its Affiliates in the capacity of (i) an Employee, (ii) a Director, or (iii) a Consultant. For purposes of this Plan, the transfer of an Employee from the Company to an Affiliate, from an Affiliate to the Company or from an Affiliate to another Affiliate shall not be a termination of Service. However, if the Affiliate for which an Employee, Director or Consultant is providing services ceases to be an Affiliate of the Company due to a sale, transfer or other reason, and the Employee, Director or Consultant ceases to perform services for the Company or any Affiliate, the Employee, Director or Consultant shall incur a termination of Service.

“Shares” means the shares of common stock, $0.01 par value, of the Company, or any successor or predecessor equity interest in the Company.

“Stock Appreciation Right” or “SAR” means an Award of the contingent right to receive Shares or cash, as specified in the Award Agreement, in the future, based on the value, or the appreciation in the value, of Shares, pursuant to the terms of Article 7.

“Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Code Section 424(f).

“Vested” means, with respect to an Option, that such Option has become fully or partly exercisable; provided, however, that notwithstanding its status as a Vested Option, an Option shall cease to be exercisable pursuant to (and while exercisable shall be subject to) such terms as are set forth herein and in the relevant Award Agreement. Similarly, terms such as “Vest,” “Vesting,” and “Unvested” shall be interpreted accordingly.

Article 3. Administration

3.1 The Committee. The Plan will be administered by the Committee, or by any other committee appointed by the Board whose composition satisfies the “nonemployee director” requirements of Rule 16b-3 under the Exchange Act and the regulations of Rule 16b-3 under the Exchange Act, the “independent director” requirements of the NASDAQ marketplace rules, and the “outside director” provisions of Code Section 162(m), or any successor regulations or provisions.

3.2 Authority of the Committee. Except as limited by law and subject to the provisions of this Plan, the Committee will have full power to: select Employees, Directors and Consultants to participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 16) amend the terms and conditions of any outstanding Award to the extent they are within the discretion of the Committee as provided in the Plan. Further, the Committee will make all other determinations that may be necessary or advisable to administer the Plan. As permitted by law and consistent with Section 3.1, the Committee may delegate some or all of its authority under the Plan, including to an officer of the Company to designate the Employees (other than such officer himself or herself) to receive Options and to determine the number of Shares subject to the Options such Employees will receive.

The duties of the Committee or its delegatee shall also include, but shall not be limited to, making disbursements and settlements of Awards, creating trusts, and determining whether to defer or accelerate the vesting of, or the lapsing of restrictions or risk of forfeiture with respect to, Options, Restricted Stock and Restricted Stock Units, and Stock Appreciation Rights. Subject only to compliance with the express provisions of the Plan, the Committee or its delegatee may act in its sole and absolute discretion in performing the duties specifically set forth in the preceding sentence and other duties under the Plan.

3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan will be final, conclusive and binding on all persons, including, without limitation, the Company, its Board of Directors, its shareholders, all Affiliates, Employees, Participants and their estates and beneficiaries.

3.4 Change in Control. In the event of a Change in Control, the Committee shall have the discretion to accelerate the vesting of Awards, eliminate any restrictions applicable to Awards, deem the performance measures to be satisfied, or take such other action as it deems appropriate, in its sole discretion.

Article 4.
4.1 Shares Subject to the Plan and Maximum Awards
Number of Shares Available for Awards.

(a) Subject to adjustment as provided below and in Sections 4.2 and 4.3, the maximum number of Shares that may be issued or transferred to Participants under the Plan will be 1,794,904 Shares, which represents the number of Shares available for the grant of future awards under the Company’s Prior Plans as of the Effective Date. No additional awards will be made under any Prior Plan on or after the Effective Date. Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. Notwithstanding anything to the contrary contained herein: (i) all Shares covered by a SAR or Option shall be considered issued or transferred pursuant to the Plan to the extent it is exercised and without regard to whether Shares are actually issued to the Participant upon such exercise; and (ii) the aggregate plan limit above shall not be increased by Shares tendered in payment of an Option Exercise Price, Shares withheld by the company to satisfy a tax withholding obligation, or Shares repurchased by the Company with Exercise Price proceeds from the Participant.

(b) The total number of Shares that may be issued or transferred in connection with the Awards of Restricted Stock, Restricted Stock Units, Performance Shares or other full value Stock Awards shall not exceed 750,000. The maximum number of Shares that may be issued or transferred to Participants as Incentive Stock Options is 100,000. The maximum number of Shares and Share equivalent units that may be granted during any calendar year to any one Participant under all types of Awards available under the Plan is 250,000 (on an aggregate basis); provided, however, that (i) the foregoing limit will apply whether the Awards are paid in Shares or in cash; and (ii) the Participant in connection with his or her first year of Service may be granted an additional Award covering not more than an additional 200,000 Shares, which shall not count against the limits set forth initially in this sentence. All limits described in this Section 4.1(b) are subject to adjustment as provided in Section 4.3.

4.2 Lapsed Awards. Any Shares subject to an Award under the Plan or the Prior Plan that, on or after the Effective Date, are forfeited, canceled, settled or otherwise terminated without a distribution of Shares to a Participant will revert to the Plan and thereafter be deemed to be available again for Award.

4.3 Adjustments in Authorized Shares.

(a) In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, split-up, share combination, or other such change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights and provided that the number of Shares subject to any Award shall always be a whole number.

(b) Fractional Shares resulting from any adjustment in Awards pursuant to this section may be settled in cash or otherwise as the Committee determines. The Company will give notice of any adjustment to each Participant who holds an Award that has been adjusted and the adjustment (whether or not that notice is given) will be effective and binding for all Plan purposes.

Article 5. Eligibility and Participation

5.1 Eligibility. An Employee shall be deemed eligible for participation upon such Employee’s first day of employment. Additionally, non-Employee Directors and Consultants and/or their representatives who are chosen from time to time at the sole discretion of the Company to receive one or more Awards are also eligible to participate in the Plan.

5.2 Actual Participation. Subject to the provisions of the Plan, the Committee will, from time to time, select those Employees, non-Employee Directors and Consultants to whom Awards will be granted, and will determine the nature and amount of each Award.

5.3 Personal Leave Status.

(a) Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, reserves the right to designate a Participant’s leave of absence as “Personal Leave.” No Options shall be granted to a Participant during Personal Leave. A Participant’s Unvested Options shall remain Unvested during such Personal Leave and the time spent on such Personal Leave shall not count towards the Vesting of such Options. A Participant’s Vested Options that may be exercised pursuant to Section 6.6 hereof shall remain exercisable upon commencement of Personal Leave until the earlier of (i) a period of one year from the date of commencement of such Personal Leave; or (ii) the remaining exercise period of such Options. Notwithstanding the foregoing, if a Participant returns to the Company from a Personal Leave of less than one year and the Participant’s Options have not lapsed, the Options shall remain exercisable for the remaining exercise period as provided at the time of grant and subject to the conditions contained herein.

(b) The Committee, in its sole discretion, may waive or alter the provisions of this Section 5.3 with respect to any Participant. The waiver or alteration of such provisions with respect to any Participant shall have no effect on any other Participant.

Article 6. Options

6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Employees, non-Employee Directors and Consultants in the number, and upon the terms, and at any time and from time to time, as determined by the Committee.

6.2 Award Agreement. Each Option grant will be evidenced by an Award Agreement that specifies the Exercise Price, the duration of the Option, the number of Shares to which the Option pertains, the manner, time and rate of exercise or Vesting of the Option, and such other provisions as the Committee determines. The Award Agreement will also specify whether the Option is intended to be an ISO or an NQSO.

6.3 Exercise Price. The Exercise Price for each Share subject to an Option will be determined by the Committee; provided, however, that the exercise price of Incentive Stock Options shall in all cases be equal or greater to the Fair Market Value on the date the Option is granted.

6.4 Duration of Options. Each Option will expire at the time determined by the Committee at the time of grant, but no later than the tenth anniversary of the date of its grant.

6.5 Dividend Equivalents. The Committee may, but will not be required to, provide under an agreement for payments in connection with Options that are equivalent to dividends declared and paid on the Shares underlying the Options prior to the date of exercise. Such dividend equivalent agreement shall be separate and apart from the Award Agreement and shall be designed to comply separately with Code Section 409A.

6.6 Exercise of Options. Options will be exercisable at such times and be subject to such restrictions and conditions as the Committee in each instance approves, which need not be the same for each Award or for each Participant.

6.7 Payment. The holder of an Option may exercise the Option only by delivering a written notice, or if permitted by the Committee, in its discretion and in accordance with procedures adopted by it, by delivering an electronic notice of exercise to the Company setting forth the number of Shares as to which the Option is to be exercised, together with full payment at the Exercise Price for the Shares and any withholding tax relating to the exercise of the Option.

The Exercise Price and any related withholding taxes will be payable to the Company in full either: (a) in cash, or its equivalent, in United States dollars; (b) if permitted in the governing Award Agreement, by tendering Shares owned by the Participant duly endorsed for transfer to the Company, or Shares issuable to the Participant upon exercise of the Option; or (c) any combination of (a) and (b); or (d) by any other means the Committee determines to be consistent with the Plan’s purposes and applicable law. The Committee, in its discretion, may require that no Shares may be tendered until such Shares have been owned by the Participant for at least six months (or such other period determined by the Committee).

6.8 Special Provisions for ISOs. Notwithstanding any other provision of this Article 6, the following special provisions shall apply to any Award of Incentive Stock Options:

(a) The Committee may award Incentive Stock Options only to Employees.

(b) An Option will not constitute an Incentive Stock Option under this Plan to the extent it would cause the aggregate Fair Market Value of Shares with respect to which Incentive Stock Options are exercisable by the Participant for the first time during a calendar year (under all plans of the Company and its Affiliates) to exceed $100,000. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted.

(c) If the Employee to whom the Incentive Stock Option is granted owns stock possessing more than ten (10%) percent of the total combined voting power of all classes of the Company or any Affiliate, then: (i) the exercise Price for each Share subject to an Option will be at least one hundred ten percent (110%) of the Fair Market Value of the Share on the Effective Date of the Award; and (ii) the Option will expire upon the earlier of (A) the time specified by the Committee in the Award Agreement, or (B) the fifth anniversary of the date of grant.

(d) No Option that is intended to be an Incentive Stock Option may be granted under the Plan until the Company’s shareholders approve the Plan. If such shareholder approval is not obtained within 12 months after the Board’s adoption of the Plan, then no Options may be granted under the Plan that are intended to be Incentive Stock Options. No Option that is intended to be an Incentive Stock Option may be granted under the Plan after the tenth anniversary of the date the Company adopted the Plan or the Company’s shareholders approved the Plan, whichever is earlier.

(e) An Incentive Stock Option must be exercised, if at all, by the earliest of (i) the time specified in the Award Agreement, (ii) three months after the Participant’s termination of Service for a reason other than death or Disability, or (iii) twelve months after the Participant’s termination of Service for death or Disability.

(f) An Option that is intended but fails to be an ISO shall be treated as an NQSO for purposes of the Plan.

6.9 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired through exercise of an Option as it deems necessary or advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which the Shares are then listed or traded, and under any blue sky or state securities laws applicable to the Shares.

6.10 Termination of Service. Unless the applicable Award Agreement provides otherwise and subject to Section 6.8(e):

(a) If a Participant’s Service with the Company and any Affiliate terminates by reason of death, any Option may thereafter be exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the Participant under the will of the Participant, but may not be exercised after twelve months from the date of such death or the expiration of the stated term of the Option, whichever period is shorter. In the event of termination of Service by reason of death, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, the Option will thereafter be treated as a Nonstatutory Stock Option. Options that are not exercisable at the time of Participant’s death shall expire at the close of business on the date of death.

(b) If a Participant’s Service with the Company and any Affiliate terminates by reason of Disability, any Option held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after twelve months from the date of such termination of Service or the expiration of the stated term of the Option, whichever period is the shorter. In the event of termination of Service by reason of Disability, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, the Option will thereafter be treated as a Nonstatutory Stock Option. Options that are not exercisable at the time of such termination of Service shall expire at the close of business on the date of such termination.

(c) If a Participant’s Service with the Company and any Affiliate terminates by reason of Retirement, any Option held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination due to Retirement, but may not be exercised after thirty-six months from the date of such termination of Service or the expiration of the stated term of the Option, whichever period is the shorter. In the event of termination of Service by reason of Retirement, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, the Option will thereafter be treated as a Nonstatutory Stock Option. Options that are not exercisable at the time of such termination of Service by reason of Retirement shall expire at the close of business on the date of such termination.

(d) If a Participant’s Service terminates for any reason other than Death, Disability or Retirement, any Option held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after 90 days after such termination, or the expiration of the stated term of the Option, whichever period is the shorter. In the event of termination of Service by reason other than Death, Disability or Retirement and if pursuant to its terms any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, the Option will thereafter be treated as a Nonstatutory Stock Option. Options that are not exercisable at the time of such termination of Service shall expire at the close of business on the date of such termination. In the event a Participant’s Service with the Company is terminated for Cause, all unexercised Options granted to such Participant shall immediately terminate.

Each Option Award Agreement will set forth the extent to which the Participant has the right to exercise the Option after his or her termination of Service. These terms will be determined by the Committee in its sole discretion, need not be uniform among all Options, and may reflect, among other things, distinctions based on the reasons for termination of Service. However, notwithstanding any other provision herein to the contrary, no additional Options will Vest after a Participant’s Service ceases or has terminated for any reason, whether such cessation or termination is lawful or unlawful.

6.11 Maximum Value Options. The Committee may establish, in an Option Award Agreement, a maximum potential appreciation that may be delivered with respect to the Participant’s Options. In the event a Participant exercises his or her Options when the Fair Market Value of the Shares exceeds the maximum potential appreciation threshold set forth in the Award Agreement, the number of Shares delivered to the Participant upon exercise will be reduced as necessary to effect the maximum value restriction.

Article 7. Stock Appreciation Rights

7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time, as determined by the Committee. Within the limits of Article 4, the Committee will have sole discretion to determine the number of SARs granted to each Participant and, consistent with the provisions of the Plan, to determine the terms and conditions pertaining to SARs.

The grant price for any SAR shall be determined by the Committee, but the grant price for any SAR intended to be exempt from Code Section 409A shall in all cases be equal or greater to the Fair Market Value on the date the Option is granted. If the Committee determines that an SAR shall have a grant price that at any time can be less than the Fair Market Value on the date of grant, such SAR shall be subject to the provisions of Article 13 of the Plan.

7.2 Exercise of SARs. SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes.

7.3 Award Agreement. Each SAR grant will be evidenced by an Award Agreement that specifies the grant price, whether settlement of the SAR will be made in cash or in Shares, the term of the SAR and such other provisions as the Committee determines.

7.4 Term of SAR. The term of a SAR will be determined by the Committee, in its sole discretion, but may not exceed ten years.

7.5 Payment of SAR Amount. Upon exercise of a SAR with respect to a Share, a Participant will be entitled to receive an amount equal to the excess, if any, of the Fair Market Value on the date of exercise of the SAR over the grant price specified in the Award Agreement. At the discretion of the Committee, the payment that may become due upon SAR exercise may be made in cash, in Shares or in any combination of the two.

7.6 Termination of Service. Each SAR Award Agreement will set forth the extent to which the Participant has the right to exercise the SAR after his or her termination of Service. These terms will be determined by the Committee, in its sole discretion, need not be uniform among all SARs issued under the Plan, and may reflect, among other things, distinctions based on the reasons for termination of Service.

Article 8. Restricted Stock and Restricted Stock Units

8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee may, at any time and from time to time, grant Restricted Stock or Restricted Stock Units to Participants in such amounts as it determines.

8.2 Deferral of Compensation into Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee may, at any time and from time to time, allow (or require, as to bonuses) selected Employees and Directors to defer the payment of any portion of their salary or bonuses or both pursuant to this section. A Participant’s deferral under this section will be credited to the Participant in the form of Shares of Restricted Stock Units. The Committee will establish rules and procedures for the deferrals, as it deems appropriate and in accordance with Article 13 of the Plan.

If a Participant’s compensation is deferred under this Section 8.2, he or she will be credited, as of the date specified in the Award Agreement, with a number of Restricted Stock Units no less than the amount of the deferral divided by the Fair Market Value on that date, rounded to the nearest whole unit.

8.3 Award Agreement. Each grant of Restricted Stock or Restricted Stock Units will be evidenced by an Award Agreement that specifies the Restriction Periods, the number of Shares or Share equivalent units granted, and such other provisions as the Committee determines.

8.4 Other Restrictions. Subject to Article 12, the Committee may impose such other conditions or restrictions on any Restricted Stock or Restricted Stock Units as it deems advisable, including, without limitation, restrictions based upon the achievement of specific performance objectives (Company-wide, business unit, individual, or any combination of them), time-based restrictions on vesting, and restrictions under applicable federal or state securities laws. The Committee may provide that restrictions established under this Section 8.4 as to any given Award will lapse all at once or in installments.

The Company will retain the certificates representing Shares of Restricted Stock in its possession until all conditions and restrictions applicable to the Shares have been satisfied.

8.5 Payment of Awards. Except as otherwise provided in this Article 8, Shares covered by each Restricted Stock grant will become freely transferable by the Participant after the last day of the applicable Restriction Period, and Share equivalent units covered by a Restricted Unit will be paid out in Shares to the Participant following the last day of the applicable Restriction Period, or on the date provided in the Award Agreement.

8.6 Voting Rights. During the Restriction Period, Participants holding Shares of Restricted Stock may exercise full voting rights with respect to those Shares.

8.7 Dividends and Other Distributions. During the Restriction Period, Participants awarded Shares of Restricted Stock hereunder will be credited with regular cash dividends paid on those Shares. Dividends on vested Shares shall be paid as soon as practicable as dividends are received by other Company shareholders. Dividends on unvested Shares shall be subject to the same vesting conditions as the underlying Shares, and will be targeted to be paid within 2-1/2 months following the end of the calendar year in which the underlying Shares vest, but shall be paid no later than the end of the calendar year following the year in which the underlying Shares vest unless otherwise deferred pursuant to Article 13.

An Award Agreement may provide that, during the Restriction Period, Participants awarded Restricted Stock Units shall be credited with regular cash dividend equivalents paid with respect to those Share equivalent units. Distribution of such dividend equivalents shall be made at such time as permissible under Code Section 409A and the regulations and guidance issued thereunder.

8.8 Termination of Service. Each Award Agreement will set forth the extent to which the Participant has the right to retain unvested Restricted Stock or Restricted Stock Units after his or her termination of Service. These terms will be determined by the Committee in its sole discretion, need not be uniform among all Awards of Restricted Stock, and may reflect, among other things, distinctions based on the reasons for termination of Service.

Article 9. Performance Shares

9.1 Grant of Performance Shares. Subject to the terms of the Plan, Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as the Committee determines. The Award of Performance Shares may be based on the Participant’s attainment of performance objectives, or the vesting of an Award of Performance Shares may be based on the Participant’s attainment of performance objectives, each as described in this Article 9.

9.2 Value of Performance Shares. Each Performance Share will have an initial value equal to the Fair Market Value on the date of grant. The Committee will set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number or value (or both) of Performance Shares that will be paid out to the Participant. For purposes of this Article 9, the time period during which the performance objectives must be met will be called a “Performance Period” and will be set by the Committee in its discretion.

9.3 Earning of Performance Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares will be entitled to receive payout on the number and value of Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved.

9.4 Award Agreement. Each grant of Performance Shares will be evidenced by an Award Agreement specifying the material terms and conditions of the Award (including the form of payment of earned Performance Shares), and such other provisions as the Committee determines.

9.5 Form and Timing of Payment of Performance Shares. Except as provided in Article 13, the target payment date of earned Performance Shares will be within the first two and one-half (2-1/2) months following the end of the later of the calendar year or tax year of the Company in which the Performance Shares is earned, but in no event later than the end of the calendar year following the calendar year in which the Performance Share is earned. The Committee will pay earned Performance Shares in the form of cash, in Shares, or in a combination of cash and Shares, as specified in the Award Agreement. Performance Shares may be paid subject to any restrictions deemed appropriate by the Committee.

9.6 Termination of Service. Each Award Agreement will set forth the extent to which the Participant has the right to retain Performance Shares after his or her termination of Service. These terms will be determined by the Committee, in its sole discretion, need not be uniform among all Awards of Performance Shares, and may reflect, among other things, distinctions based on the reasons for termination of Service.

Article 10. Other Stock Awards

Subject to the terms of the Plan, other Stock Awards may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as the Committee determines.

Article 11. Performance Measures

Unless and until the Committee proposes and the Company’s shareholders approve a change in the general performance measures set forth in this Article 11, the performance measure(s) to be used for purposes of Awards designed to qualify for the Performance-Based Exception will be chosen from among the following alternatives (or in any combination of such alternatives):

(a) net earnings;

(b) operating earnings or income;

(c) earnings growth;

(d) net income (absolute or competitive growth rates comparative);

(e) net income applicable to Shares;

(f) cash flow, including operating cash flow, free cash flow, discounted cash flow return on investment, and cash flow in excess of cost of capital;

(g) earnings per Share;

(h) return on shareholders’ equity (absolute or peer-group comparative);

(i) stock price (absolute or peer-group comparative);

(j) absolute and/or relative return on common shareholders’ equity;

(k) absolute and/or relative return on capital;

(l) absolute and/or relative return on assets;

(m) economic value added (income in excess of cost of capital);

(n) customer satisfaction;

(o) expense reduction;

(p) ratio of operating expenses to operating revenues;

(q) gross revenue or revenue by pre-defined business segment (absolute or competitive growth rates comparative);

(r) revenue backlog; and

(s) margins realized on delivered services.

The Committee will have the discretion to adjust targets set for preestablished performance objectives; however, Awards designed to qualify for the Performance-Based Exception may not be adjusted upward, except to the extent permitted under Code Section 162(m), to reflect accounting changes or other events.

If Code Section 162(m) or other applicable tax or securities laws change to allow the Committee discretion to change the types of performance measures without obtaining shareholder approval, the Committee will have sole discretion to make such changes without obtaining shareholder approval. In addition, if the Committee determines it is advisable to grant Awards that will not qualify for the Performance-Based Exception, the Committee may grant Awards that do not so qualify.

Article 12. Beneficiary Designation

Each Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case the Participant should die before receiving any or all of his or her Plan benefits. Each beneficiary designation will revoke all prior designations by the same Participant, must be in a form prescribed by the Committee, and must be made during the Participant’s lifetime. If the Participant’s designated beneficiary predeceases the Participant or no beneficiary has been designated, benefits remaining unpaid at the Participant’s death will be paid to the Participant’s estate or other entity described in the Participant’s Award Agreement.

Article 13. Deferrals and Code Section 409A

13.1 Purpose. As provided in an Award Agreement, the Committee may permit or require a Participant to defer receipt of cash or Shares that would otherwise be due to him or her under the Plan or otherwise create a deferred compensation arrangement (as defined in Code Section 409A and the applicable regulations and guidance thereunder) in accordance with this Article 13.

13.2 Initial Deferral Elections. The deferral of an Award or compensation otherwise payable to the Participant shall be set forth in the terms of the Award Agreement or as elected by the Participant pursuant to such rules and procedures as the Committee may establish. Any such initial deferral election by a Participant will designate a time and form of payment and shall be made at such time as provided below:

(a) A Participant may make a deferral election with respect to an Award (or compensation giving rise thereto) at any time in any calendar year preceding the year in which services giving rise to such compensation or Award are rendered.

(b) In the case of the first year in which a Participant becomes eligible to receive an Award or defer compensation under the Plan (aggregating other plans of its type as defined in Section 1.409A-1(c) of the applicable regulations), the Participant may make a deferral election within 30 days after the date the Participant becomes eligible to participate in the Plan; provided, that such election may apply only with respect to the portion of the Award or compensation attributable to services to be performed subsequent to the election.

(c) Where the grant of an Award or payment of compensation, or their vesting is conditioned upon the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months in which the Participant performs Service, a Participant may make a deferral election no later 6 months prior to the end of the applicable performance period.

(d) Where the vesting of an Award is contingent upon the Participant’s continued Service for a period of no less than 13 months, the Participant may make a deferral election within 30 days of receiving an Award.

(e) A Participant may make a deferral election in other circumstances and at such times as may be permitted under Code Section 409A and any regulations or guidance thereunder.

13.3 Distribution Dates. Any deferred compensation arrangement created under the Plan shall be distributed at such times as provided in the Award Agreement, which may be upon the earliest or latest of one or more of the following:

(a) A fixed date as set forth in the Award Agreement or pursuant to a Participant’s election;

(b) the Participant’s death;

(c) the Participant’s Disability;

(d) a Change in Control;

(e) an Unforeseeable Emergency, as defined in Section 409A and implemented by the Committee;

(f) a Participant’s termination of Service, or in the case of a Key Employee (as defined in Code Section 409A) six months following the Participant’s termination of Service; or

(g) such other events as permitted under Code Section 409A and the regulations and guidance thereunder.

13.4 Restrictions on Distributions. No distribution may be made pursuant to the Plan if the Committee reasonably determines that such distribution would (i) violate Federal securities laws or other applicable law; (ii) be nondeductible pursuant to Code Section 162(m); or (iii) violate a loan covenant or similar contractual requirement of the Company causing material harm to the Company. In any such case, distribution shall be made at the earliest date at which Company determines such distribution would not trigger clauses (i), (ii) or (iii) above.

13.5 Redeferrals. The Company, in its discretion, may permit Executive to make a subsequent election to delay a distribution date, or, as applicable, to change the form distribution payments, attributable to one or more events triggering a distribution, so long as (i) such election may not take effect until at least twelve (12) months after the election is made, (ii) such election defers the distribution for a period of not less than five years from the date such distribution would otherwise have been made, and (iii) such election may not be made less than twelve (12) months prior to the date the distribution was to be made.

13.6 Termination of Deferred Compensation Arrangements. In addition, the Company may in its discretion terminate the deferred compensation arrangements created under this Plan subject to the following:

(a) the arrangement may be terminated within the 30 days preceding, or 12 months following, a Change in Control provided that all payments under such arrangement are distributed in full within 12 months after termination;

(b) the arrangement may be terminated in the Company’s discretion at any time provided that (i) all deferred compensation arrangements of similar type maintained by the Company are terminated, (ii) all payments are made at least 12 months and no more than 24 months after the termination, and (iii) the Company does not adopt a new arrangement of similar type for a period of five years following the termination of the arrangement;

(c) the arrangement may be terminated within 12 months of a corporate dissolution taxed under Code Section 331 or with the approval of a bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A) provided that the payments under the arrangement are distributed by the latest of the (i) the end of the calendar year of the termination, (ii) the calendar year in which such payments are fully vested, or (iii) the first calendar year in which such payment is administratively practicable.

Article 14. Rights of Participants

14.1 Employment and Service. Nothing in the Plan will confer upon any Participant any right to continue in the employ or Service of the Company or any Affiliate, or interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or Service at any time.

14.2 Participation. No Employee, Consultant or Director will have the right to receive an Award under this Plan, or, having received any Award, to receive a future Award.

Article 15. Amendment, Modification and Termination

15.1 Amendment, Modification and Termination. The Committee may at any time and from time to time, alter, amend, modify or terminate the Plan in whole or in part. The Committee will not, however, increase the number of Shares that may be issued or transferred to Participants under the Plan, as described in the first sentence of Section 4.1 (and subject to adjustment as provided in Sections 4.2 and 4.3).

Subject to the terms and conditions of the Plan, the Committee may modify, extend or renew outstanding Awards under the Plan, or accept the surrender of outstanding Awards (to the extent not already exercised) and grant new Awards in substitution of them (to the extent not already exercised). The Committee will not, however, modify any outstanding Option so as to specify a lower Exercise Price, without the approval of the Company’s shareholders. Notwithstanding the foregoing, no modification of an Award will materially alter or impair any rights or obligations under any Award already granted under the Plan, without the prior written consent of the Participant.

15.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. In recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.3) affecting the Company or its financial statements, or in recognition of changes in applicable laws, regulations, or accounting principles, and, whenever the Committee determines that adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, the Committee may, using reasonable care, make adjustments in the terms and conditions of, and the criteria included in, Awards. In case of an Award designed to qualify for the Performance-Based Exception, the Committee will take care not to make an adjustment that would disqualify the Award.

15.3 Awards Previously Granted. No termination, amendment or modification of the Plan will adversely affect in any material way any Award already granted, without the written consent of the Participant who holds the Award.

15.4 Compliance with Code Section 162(m). Awards will comply with the requirements of Code Section 162(m), if the Committee determines that such compliance is desired with respect to an Award available for grant under the Plan. In addition, if changes are made to Code Section 162(m) to permit greater flexibility as to any Award available under the Plan, the Committee may, subject to this Article 15, make any adjustments it deems appropriate.

Article 16. Nontransferability of Awards.

Except as otherwise provided in a Participant’s Award Agreement, no Option, SAR, Performance Share, Restricted Stock, or Restricted Stock Unit granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, or pursuant to a domestic relations order (as defined in Code Section 414(p)). All rights with respect to Performance Shares, Restricted Stock and Restricted Stock Units will be available during the Participant’s lifetime only to the Participant or his or her guardian or legal representative. Except as otherwise provided in a Participant’s Award Agreement or in paragraph (a) below, all Options and SARs will be exercisable during the Participant’s lifetime only by the Participant or his or her guardian or legal representative. The Participant’s beneficiary may exercise the Participant’s rights to the extent they are exercisable under the Plan following the Participant’s death. The Committee may, in its discretion, require a Participant’s guardian, legal representative or beneficiary to supply it with the evidence the Committee deems necessary to establish the authority of the guardian, legal representative or beneficiary to act on behalf of the Participant.

(a) Notwithstanding the foregoing, with respect to any Nonstatutory Stock Options, each Participant shall be permitted at all times to transfer any or all of the Options, or, in the event the Options have not yet been issued to the Participant, the Company shall be permitted to issue any or all of the Options, to certain trusts designated by the Participant as long as such transfer or issuance is made as a gift (i.e., a transfer for no consideration, with donative intent), whether during lifetime or to take effect upon (or as a consequence of) his or her death, to his or her spouse or children. Gifts in trust shall be deemed gifts to every beneficiary and contingent beneficiary, and so shall not be permitted under this paragraph (a) if the beneficiaries or contingent beneficiaries shall include anyone other than such spouse or children. Transfers to a spouse or child for consideration, regardless of the amount, shall not be permitted under this Section.

(b) Any Options issued or transferred under this Article 16 shall be subject to all terms and conditions contained in the Plan and the applicable Award Agreement. If the Committee makes an Option transferable, such Option shall contain such additional terms and conditions, as the Committee deems appropriate.

Article 17. Withholding

17.1 Tax Withholding. The Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum amount necessary to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising under this Plan.

17.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, the Company may satisfy the minimum withholding requirement for supplemental wages, in whole or in part, by withholding Shares having a Fair Market Value (determined on the date the Participant recognizes taxable income on the Award) equal to the minimum withholding tax required to be collected on the transaction. The Participant may elect, subject to the approval of the Committee, to deliver the necessary funds to satisfy the withholding obligation to the Company, in which case there will be no reduction in the Shares otherwise distributable to the Participant.

Article 18. Indemnification

Each person who is or has been a member of the Committee or the Board, and any officer or Employee to whom the Committee has delegated authority under Section 3.1 or 3.2 of the Plan, will be indemnified and held harmless by the Company from and against any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or as a result of any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken, or failure to act, under the Plan. Each such person will also be indemnified and held harmless by the Company from and against any and all amounts paid by him or her in a settlement approved by the Company, or paid by him or her in satisfaction of any judgment, of or in a claim, action, suit or proceeding against him or her and described in the previous sentence, so long as he or she gives the Company an opportunity, at its own expense, to handle and defend the claim, action, suit or proceeding before he or she undertakes to handle and defend it. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which a person who is or has been a member of the Committee or the Board may be entitled under the Company’s Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify him or her or hold him or her harmless.

Article 19. Successors

All obligations of the Company under the Plan or any Award Agreement will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business or assets of the Company or both, or a merger, consolidation, or otherwise.

Article 20. Breach of Restrictive Covenants

An Award Agreement may provide that, notwithstanding any other provision of this Plan to the contrary, if the Participant breaches any competition, nonsolicitation or nondisclosure provisions contained in the Award Agreement, whether during or after termination of Service, the Participant will forfeit:

(a) any and all Awards granted or transferred to him or her under the Plan, including Awards that have become Vested; and

(b) the profit the Participant has realized on the exercise of any Options, which is the difference between the Exercise Price of the Options and the applicable Fair Market Value of the Shares (the Participant may be required to repay such difference to the Company).

Article 21. Legal Construction

21.1 Number. Except where otherwise indicated by the context, any plural term used in this Plan includes the singular and a singular term includes the plural.

21.2 Severability. If any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.

21.3 Requirements of Law. The granting of Awards and the issuance of Share or cash payouts under the Plan will be subject to all applicable laws, rules, and regulations, and to any approvals by governmental agencies or national securities exchanges as may be required.

21.4 Securities Law Compliance. As to any individual who is, on the relevant date, an officer, director or ten percent beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act, or any successor rule. To the extent any provision of the Plan or action by the Committee fails to so comply, it will be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

If at any time the Committee determines that exercising an Option or SAR or issuing Shares pursuant to an Award would violate applicable securities laws, the Option or SAR will not be exercisable, and the Company will not be required to issue Shares. The Company may require a Participant to make written representations it deems necessary or desirable to comply with applicable securities laws. No person who acquires Shares under the Plan may sell the Shares, unless he or she makes the offer and sale pursuant to an effective registration statement under the Exchange Act, which is current and includes the Shares to be sold, or an exemption from the registration requirements of the Exchange Act.

21.5 Awards to Foreign Nationals and Employees Outside the United States. To the extent the Committee deems it necessary, appropriate or desirable to comply with foreign law or practice and to further the purposes of this Plan, the Committee may, without amending the Plan, (i) establish rules applicable to Awards granted to Participants who are foreign nationals or are employed outside the United States, or both, including rules that differ from those set forth in this Plan, and (ii) grant Awards to such Participants in accordance with those rules.

21.6 Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments or deliveries of Shares not yet made to a Participant by the Company, the Participant’s rights are no greater than those of a general creditor of the Company. The Committee may authorize the establishment of trusts or other arrangements to meet the obligations created under the Plan, so long as the arrangement does not cause the Plan to lose its legal status as an unfunded plan.

21.7 Governing Law. To the extent not preempted by federal law, the Plan and all agreements hereunder will be construed in accordance with and governed by the laws of the State of Minnesota.

21.8 Electronic Delivery and Evidence of Award. The Company may deliver by email or other electronic means (including posting on a web site maintained by the Company or by a third party) all documents relating to the Plan or any Award hereunder (including, without limitation, any Award Agreement and prospectus required by the SEC) and all other documents that the Company is required to deliver to its securities holders (including, without limitation, annual reports and proxy statements). In addition, evidence of an Award may be in electronic form, may be limited to notation on the books and records of the Company and, with the approval of the Board, need not be signed by a representative of the Company or a Participant. Any Shares that become deliverable to the Participant pursuant to the Plan may be issued in certificate form in the name of the Participant or in book entry form in the name of the Participant.

21.9 No Limitation on Rights of the Company. The grant of the Award does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.

21.10 Participant to Have No Rights as a Shareholder. Before the date as of which he or she is recorded on the books of the Company as the holder of any Shares underlying an Award, a Participant will have no rights as a shareholder with respect to those Shares.

POLICIES

RESOLVED, that the Board of Directors approve the following rules for equity awards granted under the 2006 Stock Incentive Plan, once the plan is approved by shareholders.

Change in Control. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:

(i) any and all outstanding Options granted to the Chief Executive Officer, Chief Financial Officer and any other position that the Committee approves in advance and which approval is stated in their respective option agreements, will become immediately exercisable, after a Change in Control and upon the individual’s termination for any reason other than cause after a Change in Control, and will remain exercisable throughout their entire term; and

(ii) any Restriction Periods or other restrictions imposed on Restricted Stock, granted to the Chief Executive Officer, Chief Financial Officer and any other position that the Committee approves in advance, and which approval is stated in their respective restricted stock agreements, will lapse, after a Change in Control and upon the individual’s termination for any reason other than cause after a Change in Control.

Grants of Stock Options to Section 16 Employees. Upon termination of a Section 16 Employee’s service with the Company for any reason other than Death, Disability or Retirement, any Option held by such Section 16 Employee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after one year after such termination, or the expiration of the stated term of the Option, whichever period is the shorter. Options that are not exercisable at the time of such termination of Service shall expire at the close of business on the date of such termination. In the event a Section 16 Employee’s Service with the Company is terminated for Cause, all unexercised Options granted to such Section 16 Employee shall immediately terminate.

Grants of Stock Options to Non-Employee Directors. Each Non-Employee Director upon termination of such Director’s service as a Director of the Company after the Director has served more than five years on the Board of the Company, the unexercised portion of an Option held by such Director shall be exercisable through the original term of the option. Upon termination of such Director’s service as a Director of the Company before the Director has served more than five years on the Board of Directors, the unexercised portion of an Option held by such Director shall be exercisable for a period of one year after termination. Any Options granted to a Non-Employee Director shall be administered in accordance with the terms of the Plan solely by the Board of Directors and not by the Committee. Nothing herein shall limit the right of the Board of Directors to issue Stock Options to any Non-Employee Director under the terms of the Plan. A director year starts as of the annual meeting date and ends the day before the next year’s annual meeting date.

Awards to Non-Employee Directors. Any Restricted Stock or RSUs awarded to a Non-Employee Director shall be administered in accordance with the terms of this Plan solely by the Board of Directors and not by the Committee. As applied to Non-Employee Directors, the terms “Service” as used in the Plan shall mean service on the Board of Directors.

Non-Employee Directors. For purposes of these rules, the term “Non-Employee Director” means “non-employee director as defined in Rule 16b-3 adopted puruant to the Securities Exchange Act of 1934, as amended.

FORM OF EMPLOYEE STOCK OPTION AGREEMENT

PLATO LEARNING, INC.
EMPLOYEE STOCK OPTION AGREEMENT

PLATO Learning, Inc., a Delaware corporation (the “Company”), hereby grants to [Name of Optionee] (the “Employee”) on this [day] day of [month], [year] (the “Option Date”), pursuant to the provisions of the PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”), a non-qualified stock option (the “Option”) to purchase from the Company [shares] shares of its Common Stock, $.01 par value (“Stock”), at the price of [$price] per share upon and subject to the terms and conditions set forth below.

1. Option Subject to Acceptance of Agreement.

The Option shall be forfeited unless the Employee shall accept this Agreement by executing it in the space provided below and return it to the Company within 60 days following the Option Date.

2. Time and Manner of Exercise of Option.

2.1 Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after 5:00 p.m., Minneapolis time, on the date, which is eight (8) years after the Option Date (the “Expiration Date”).

2.2 Exercise of Option. Except as otherwise provided in the Plan, the Option shall become exercisable with respect to (i) 25% of the aggregate number of shares of Stock subject to the Option on [date] (the “First Exercise Date”); (ii) with respect to 50% of the aggregate number of shares subject to the Option on [date] (the “Second Exercise Date”); (iii) with respect to 75% of the aggregate number of shares subject to the Option on [date] (the “Third Exercise Date”); and (iv) with respect to 100% of the aggregate number of shares subject to the Option on [date] (the “Fourth Exercise Date”) (the First Exercise Date, the Second Exercise Date, the Third Exercise Date, and the Fourth Exercise Date each being referred to herein as an “Exercise Date”).

2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised (i) by giving written notice to the Secretary of the Company or the Secretary’s designee, specifying the number of whole shares to be purchased and accompanied by the payment therefore in full in cash or, if permitted by the Compensation Committee, (A) in previously owned whole shares of Stock (for which the Employee has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (B) in cash by a broker-dealer to whom the Employee has submitted an irrevocable notice of exercise, or (C) a combination of cash and Stock as described in this Section; and (ii) by executing such documents as the Company may reasonably request. No shares shall be issued until the full purchase price and all applicable taxes have been paid.

2.4 Termination of Option. In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate on its Expiration Date, or earlier to the extent not exercised pursuant to Section 2.2 and pursuant to Section 6.10 of the Plan. In the event that the Employee shall forfeit rights to purchase all or a portion of the shares to which this Option relates, the Employee shall, within 10 days of the date of the Company’s written request, return this Agreement to the Company for cancellation.

3. Additional Terms and Conditions of Option.

3.1 Withholding Taxes. As a condition precedent to any exercise of the Option, the Employee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares such amount of cash as the Company may be required to withhold, under all applicable federal, state or local laws or regulations. The employee will recognize ordinary income at the time of exercise in an amount equal to the excess, if any, of the fair market value of a share of Common Stock at the time of exercise over the option price, multiplied by the number of shares as to which the option is exercised. The Employee may elect, by written notice to the Company, to satisfy part or all of the withholding tax requirements associated with the exercise by delivering to the Company from shares of Stock already owned by the Employee, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the Employee under this Section 3.1. Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

3.2 Agreement Subject to Plan. This Agreement is subject to the provisions of the Plan, and shall be interpreted in accordance therewith, except where specifically provided otherwise in this Agreement. The Employee hereby acknowledges receipt of a copy of the Plan.

PLATO LEARNING, INC.

By:

[Company Executive]

Accepted this      day of

     , 200

[Name of Optionee]

FORM OF EMPLOYEE STOCK OPTION AGREEMENT – SECTION 16

PLATO LEARNING, INC.
EMPLOYEE STOCK OPTION AGREEMENT
SECTION 16 EMPLOYEES

PLATO Learning, Inc., a Delaware corporation (the “Company”), hereby grants to [Name of Optionee] (the “Employee”) on this [day] day of [month], [year] (the “Option Date”), pursuant to the provisions of the PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”), a non-qualified stock option (the “Option”) to purchase from the Company [shares] shares of its Common Stock, $.01 par value (“Stock”), at the price of [$price] per share upon and subject to the terms and conditions set forth below.

1. Option Subject to Acceptance of Agreement.

The Option shall be forfeited unless the Employee shall accept this Agreement by executing it in the space provided below and return it to the Company within 60 days following the Option Date.

2. Time and Manner of Exercise of Option.

2.1 Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after 5:00 p.m., Minneapolis time, on the date, which is eight (8) years after the Option Date (the “Expiration Date”).

2.2 Exercise of Option. Except as otherwise provided in the Plan, the Option shall become exercisable with respect to (i) 25% of the aggregate number of shares of Stock subject to the Option on [date] (the “First Exercise Date”); (ii) with respect to 50% of the aggregate number of shares subject to the Option on [date] (the “Second Exercise Date”); (iii) with respect to 75% of the aggregate number of shares subject to the Option on [date] (the “Third Exercise Date”); and (iv) with respect to 100% of the aggregate number of shares subject to the Option on [date] (the “Fourth Exercise Date”) (the First Exercise Date, the Second Exercise Date, the Third Exercise Date, and the Fourth Exercise Date each being referred to herein as an “Exercise Date”).

2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised (i) by giving written notice to the Secretary of the Company or the Secretary’s designee, specifying the number of whole shares to be purchased and accompanied by the payment therefore in full in cash or, if permitted by the Compensation Committee, (A) in previously owned whole shares of Stock (for which the Employee has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (B) in cash by a broker-dealer to whom the Employee has submitted an irrevocable notice of exercise, or (C) a combination of cash and Stock as described in this Section; and (ii) by executing such documents as the Company may reasonably request. No shares shall be issued until the full purchase price and all applicable taxes have been paid.

2.4 Termination of Option. In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate on its Expiration Date, or earlier to the extent not exercised pursuant to Section 2.2 and pursuant to Section 6.10 of the Plan. Upon termination of such Employee’s service with the Company for any reason other than Death, Disability or Retirement, any Option held by such Employee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after one year after such termination, or the expiration of the stated term of the Option, whichever period is the shorter. Options that are not exercisable at the time of such termination of Service shall expire at the close of business on the date of such termination. In the event an Employee’s Service with the Company is terminated for Cause, all unexercised Options granted to such Employee shall immediately terminate. In the event that the Employee shall forfeit rights to purchase all or a portion of the shares to which this Option relates, the Employee shall, within 10 days of the date of the Company’s written request, return this Agreement to the Company for cancellation.

3. Additional Terms and Conditions of Option.

3.1 Withholding Taxes. As a condition precedent to any exercise of the Option, the Employee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares such amount of cash as the Company may be required to withhold, under all applicable federal, state or local laws or regulations. The employee will recognize ordinary income at the time of exercise in an amount equal to the excess, if any, of the fair market value of a share of Common Stock at the time of exercise over the option price, multiplied by the number of shares as to which the option is exercised. The Employee may elect, by written notice to the Company, to satisfy part or all of the withholding tax requirements associated with the exercise by delivering to the Company from shares of Stock already owned by the Employee, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the Employee under this Section 3.1. Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

3.2 Agreement Subject to Plan. This Agreement is subject to the provisions of the Plan, and shall be interpreted in accordance therewith, except where specifically provided otherwise in this Agreement. The Employee hereby acknowledges receipt of a copy of the Plan.

PLATO LEARNING, INC.

By:

[Company Executive]

Accepted this      day of

     , 200

[Name of Optionee]

FORM OF EMPLOYEE STOCK OPTION AGREEMENT — Double Trigger Change in Control

PLATO LEARNING, INC.
EMPLOYEE STOCK OPTION AGREEMENT
Double Trigger Change in Control

PLATO Learning, Inc., a Delaware corporation (the “Company”), hereby grants to [Name of Optionee] (the “Employee”) on this [day] day of [month], [year] (the “Option Date”), pursuant to the provisions of the PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”), a non-qualified stock option (the “Option”) to purchase from the Company [shares] shares of its Common Stock, $.01 par value (“Stock”), at the price of [$price] per share upon and subject to the terms and conditions set forth below.

1. Option Subject to Acceptance of Agreement.

The Option shall be forfeited unless the Employee shall accept this Agreement by executing it in the space provided below and return it to the Company within 60 days following the Option Date.

2. Time and Manner of Exercise of Option.

2.1 Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after 5:00 p.m., Minneapolis time, on the date, which is eight (8) years after the Option Date (the “Expiration Date”).

2.2 Exercise of Option. Except as otherwise provided in the Plan, the Option shall become exercisable with respect to (i) 25% of the aggregate number of shares of Stock subject to the Option on [date] (the “First Exercise Date”); (ii) with respect to 50% of the aggregate number of shares subject to the Option on [date] (the “Second Exercise Date”); (iii) with respect to 75% of the aggregate number of shares subject to the Option on [date] (the “Third Exercise Date”); and (iv) with respect to 100% of the aggregate number of shares subject to the Option on [date] (the “Fourth Exercise Date”) (the First Exercise Date, the Second Exercise Date, the Third Exercise Date, and the Fourth Exercise Date each being referred to herein as an “Exercise Date”).

2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised (i) by giving written notice to the Secretary of the Company or the Secretary’s designee, specifying the number of whole shares to be purchased and accompanied by the payment therefore in full in cash or, if permitted by the Compensation Committee, (A) in previously owned whole shares of Stock (for which the Employee has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (B) in cash by a broker-dealer to whom the Employee has submitted an irrevocable notice of exercise, or (C) a combination of cash and Stock as described in this Section; and (ii) by executing such documents as the Company may reasonably request. No shares shall be issued until the full purchase price and all applicable taxes have been paid.

2.4 Termination of Option. In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate on its Expiration Date, or earlier to the extent not exercised pursuant to Section 2.2 and pursuant to Section 6.10 of the Plan. Upon termination of such Employee’s service with the Company for any reason other than Death, Disability or Retirement, any Option held by such Employee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after one year after such termination, or the expiration of the stated term of the Option, whichever period is the shorter. Options that are not exercisable at the time of such termination of Service shall expire at the close of business on the date of such termination. In the event an Employee’s Service with the Company is terminated for Cause, all unexercised Options granted to such Employee shall immediately terminate. In the event that the Employee shall forfeit rights to purchase all or a portion of the shares to which this Option relates, the Employee shall, within 10 days of the date of the Company’s written request, return this Agreement to the Company for cancellation.

2.5 Change in Control. Notwithstanding any other provisions as outlined in the Plan, and unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon a Change in Control any and all outstanding Options will become immediately exercisable, after a Change in Control and upon the Employee’s termination for any reason other than cause after a Change in Control, and will remain exercisable throughout their entire term.

3. Additional Terms and Conditions of Option.

3.1 Withholding Taxes. As a condition precedent to any exercise of the Option, the Employee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares such amount of cash as the Company may be required to withhold, under all applicable federal, state or local laws or regulations. The employee will recognize ordinary income at the time of exercise in an amount equal to the excess, if any, of the fair market value of a share of Common Stock at the time of exercise over the option price, multiplied by the number of shares as to which the option is exercised. The Employee may elect, by written notice to the Company, to satisfy part or all of the withholding tax requirements associated with the exercise by delivering to the Company from shares of Stock already owned by the Employee, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the Employee under this Section 3.1. Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

3.2 Agreement Subject to Plan. This Agreement is subject to the provisions of the Plan, and shall be interpreted in accordance therewith, except where specifically provided otherwise in this Agreement. The Employee hereby acknowledges receipt of a copy of the Plan.

PLATO LEARNING, INC.

By:

[Company Executive]

Accepted this      day of

     , 200

[Name of Optionee]

FORM OF NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT

PLATO LEARNING, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT

PLATO Learning, Inc., a Delaware corporation (the “Company”), hereby grants to [Name of Non-Employee Director] (the “Non-Employee Director”) on this [day] day of [month], [year] (the “Option Date”), pursuant to the provisions of the PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”), a non-qualified stock option (the “Option”) to purchase from the Company [shares] shares of its Common Stock, $.01 par value (“Stock”), at the price of [$price] per share upon and subject to the terms and conditions set forth below.

1. Option Subject to Acceptance of Agreement.

The Option shall be forfeited unless the Non-Employee Director shall accept this Agreement by executing it in the space provided below and return it to the Company within 60 days following the Option Date.

2. Time and Manner of Exercise of Option.

2.1 Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after 5:00 p.m., Minneapolis time, on the date, which is eight (8) years after the Option Date (the “Expiration Date”).

2.2 Exercise of Option. Except as otherwise provided in the Plan, the Option shall be immediately exercisable with respect to 100% of the shares subject to the Option.

2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised (i) by giving written notice to the Secretary of the Company or the Secretary’s designee, specifying the number of whole shares to be purchased and accompanied by the payment therefore in full in cash or, if permitted by the Compensation Committee, (A) in previously owned whole shares of Stock (for which the Non-Employee Director has good title, free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (B) in cash by a broker-dealer to whom the Non-Employee Director has submitted an irrevocable notice of exercise, or (C) a combination of cash and Stock as described in this Section; and (ii) by executing such documents as the Company may reasonably request. No shares shall be issued until the full purchase price and all applicable taxes have been paid.

2.4 Termination of Option. In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate on its Expiration Date, or earlier to the extent not exercised pursuant to Section 2.2 and pursuant to Section 6.10 of the Plan. Upon termination of such Non-Employee Director’s service as a Director of the Company after the Non-Employee Director has served more than five years on the Board of the Company, the unexercised portion of an Option held by such Non-Employee Director shall be exercisable through the original term of the option. Upon termination of such Director’s service as a Director of the Company before the Non-Employee Director has served more than five years on the Board of Directors, the unexercised portion of an Option held by such Director shall be exercisable for a period of one-year after termination. A director year starts as of the annual meeting date and ends the day before the next year’s annual meeting date. In the event that the Non-Employee Director shall forfeit rights to purchase all or a portion of the shares to which this Option relates, the Non-Employee Director shall, within 10 days of the date of the Company’s written request, return this Agreement to the Company for cancellation.

2.5 Change in Control. Notwithstanding any other provisions as outlined in the Plan, and unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon a Change in Control and upon the Non-Employee Director’s termination for any reason other than cause after a Change in Control, any and all outstanding Options will remain exercisable throughout their entire term.

3. Additional Terms and Conditions of Option.

3.1 Withholding Taxes. As a condition precedent to any exercise of the Option, the Non-Employee Director shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares such amount of cash as the Company may be required to withhold, under all applicable federal, state or local laws or regulations. The Non-Employee Director will recognize ordinary income at the time of exercise in an amount equal to the excess, if any, of the fair market value of a share of Common Stock at the time of exercise over the option price, multiplied by the number of shares as to which the option is exercised. The Non-Employee Director may elect, by written notice to the Company, to satisfy part or all of the withholding tax requirements associated with the exercise by delivering to the Company from shares of Stock already owned by the Non-Employee Director, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the Non-Employee Director under this Section 3.1. Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

3.2 Agreement Subject to Plan. This Agreement is subject to the provisions of the Plan, and shall be interpreted in accordance therewith, except where specifically provided otherwise in this Agreement. The Non-Employee Director hereby acknowledges receipt of a copy of the Plan.

PLATO LEARNING, INC.

By:

[Company Executive]

Accepted this      day of

     , 200

[Non-Employee Director]

FORM OF NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AGREEMENT

PLATO LEARNING, INC.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AGREEMENT

PLATO Learning, Inc., a Delaware corporation (the “Company”), hereby grants to [Name of Non-Employee Director] (the “Non-Employee Director”) on this [day] day of [month], [year] (the “Option Date”), pursuant to the provisions of the PLATO Learning, Inc. 2006 Stock Incentive Plan (the “Plan”), [shares] shares of Restricted Stock of the Company’s Common Stock, $.01 par value (“Restricted Stock”), with a fair market value of [$price] per share on the Date of Issuance, upon and subject to the terms and conditions set forth below.

1. Restricted Stock Subject to Acceptance of Agreement. The Restricted Stock shall be forfeited unless the Non-Employee Director shall accept this Agreement by executing it in the space provided below and return it to the Company within 60 days following the Restricted Stock Date. The Restricted Stock shall be issued upon acceptance hereof by the Non-Employee Director and upon satisfaction of the conditions of this Agreement.

2. Lapse of Forfeiture Restrictions. The Restricted Stock is immediately vested, but may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of until the earlier of (i) the Non-Employee Director’s death, (ii) the Non-Employee Director’s disability as determined by the Company, (iii) five years from the date of grant, (iv) the Non-Employee Director’s retirement from the Board of Directors, (v) the Non-Employee Director’s resignation from the Board Directors, or (vi) the occurrence of a Change-in-Control (as such terms are defined in the Plan).

3. Stock. A certificate or shares in book entry evidencing the Restricted Stock shall be issued by the Company in the Non-Employee Director’s name, pursuant to which Non-Employee Director shall have voting rights and shall be entitled to receive all dividends unless and until the Restricted Stock are forfeited pursuant to the provisions of this Agreement. The certificate or shares in book entry shall bear a legend evidencing the nature of the Restricted Stock, and the Company will cause the certificate to be delivered upon issuance to the Secretary of the Company or to such other depository as may be designated by the Company as a depository for safekeeping until the forfeiture occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan and this award. The Non-Employee Director shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Stock then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions without forfeiture, the Company shall cause a new certificate or certificates or shares in book entry form to be issued without legend in the name of the Non-Employee Director for the shares upon which Forfeiture Restrictions lapsed. Notwithstanding any other provisions of this Agreement, the issuance or delivery of any shares of Stock (whether subject to restrictions or unrestricted) may be postponed for such period as may be required to comply with applicable requirements of any national securities exchange or any requirements under any law or regulation applicable to the issuance or delivery of such shares. The Company shall not be obligated to issue or deliver any shares of Stock if the issuance or delivery thereof shall constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange.

4. Tax Consequences. The Non-Employee Director has reviewed with the Non-Employee Director’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Non-Employee Director is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Non-Employee Director understands that the Non-Employee Director (and not the Company) shall be responsible for the Non-Employee Director’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. As a condition precedent to the issuance of Restricted Stock, the Non-Employee Director shall, upon request by the Company, deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money or shares of unrestricted stock as the Company may require to meet its withholding obligation under applicable tax laws or regulations, and, if the Non-Employee Director fails to do so, the Company is authorized to withhold from any cash or stock remuneration then or thereafter payable to Non-Employee Director any tax required to be withheld by reason of such resulting compensation income.

5. Status of Restricted Stock. The Non-Employee Director agrees that the Restricted Stock will not be sold or otherwise disposed of in any manner, which would constitute a violation of any applicable federal or state securities laws. Non-Employee Director also agrees (i) that the certificates representing the Restricted Stock may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Restricted Stock on the stock transfer records of the Company if such proposed transfer would be in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Restricted Stock.

6. Agreement Subject to Plan. This Agreement is subject to the provisions of the Plan, and shall be interpreted in accordance therewith, except where specifically provided otherwise in this Agreement. The Non-Employee Director hereby acknowledges receipt of a copy of the Plan.

PLATO LEARNING, INC.

By:

[Company Executive]

Accepted this      day of

     , 200

[Non-Employee Director]

PLATO LEARNING, INC.
BOARD OF DIRECTORS

DIRECTORS COMPENSATION PLAN

At the March 2, 2006 Board of Directors Meeting, the Board approved future compensation for outside Directors as follows.

Stock Option Grant and Cash Payment — New Directors Initiation:

• 15,000 Stock Options Grant @ FMV as of close of business on the date of election to the Board of Directors to vest immediately.

• Prorated Cash payment ($20,000/12 X number of months remaining until the next Annual Meeting).

Restricted Stock Award, Stock Option Grant & Cash Payment — Continuing Directors Annual Retainer & Meeting Preparations:

• 1,000 shares Restricted Stock Award @ FMV as of close of business on the date of the Annual Meeting to vest immediately with restrictions to lapse the earlier of five years, retirement or resignation from the Board of Directors [relates to director year going forward].

• 10,000 Stock Options Grant @ FMV as of close of business on the date of the Annual Meeting to vest immediately [relates to director year going forward].

• $20,000 to be paid as soon as possible after the date of the Annual Meeting (except to Non-Employee Chairman of the Board, see below) [relates to director year going forward].

Cash and Stock Option Grant — for Non-Employee Chairman of the Board:

• 5,000 Stock Options Grant (in addition to the 10,000 grant as listed above) @ FMV as of close of business on the date of the Annual Meeting to vest immediately [relates to director year going forward].

• $30,000 to be paid as soon as possible after the date of the Annual Meeting (in place of the $20,000 as listed above) [relates to director year going forward].

Stock Option Grant — for Committee Chairs:

• 1,500 Stock Options Grant @ FMV as of close of business on the date of the Annual Meeting to vest immediately [relates to director year going forward].

Cash Payment — for Board and Committee Meeting Attendance:

• $1,500 fee for each Board Meeting attended ($750 for each telephonic Board Meeting attended)

• $2,000 fee to the Audit Chair and Nominating & Governance Committee Chair for each Committee Meeting attended (except $1,000 fee for each telephonic Committee Meeting attended)

• $1,250 fee to the Compensation Committee Chair for each Committee Meeting attended, and any other ad-hoc Committee Chair named in the future (except $625 fee for each telephonic Committee Meeting attended).

•	$750 fee to non-Chair Committee Members, for each Committee Meeting attended by each (except $375 fee for each telephonic Committee Meeting attended).
	Other —

• Chairman of the Board has the option to recommend an additional stock option grant based on the Company’s performance and achievement of goals.

• Chairman of the Board has the option to request a prorated refund of stock options granted or cash payments made to a Board Member who elects to resign at a time other than at the Annual Meeting.

• All travel and business expenses relating to meeting attendance or to conduct business on behalf of PLATO Learning are reimbursed.