SETTLEMENT AGREEMENT This Settlement Agreement (“Agreement”) is entered into among the United States of America, acting through the United States Department of Justice and on behalf of the Department of Education (collectively the “United States”); the States of California, Florida, Illinois, Indiana, and Minnesota (collectively the “Intervened States”); the Commonwealth of Massachusetts, the Commonwealth of Kentucky, the District of Columbia and the States of Montana, New Jersey, New Mexico, New York, and Tennessee (collectively the “Non-Intervened States”); Education Management Corporation and its subsidiaries and affiliates, including but not limited to Education Management Holdings II LLC, Education Management II LLC, Education Finance III LLC, the Argosy Education Group, Inc., Argosy University of California LLC, the Art Institutes International II LLC, Brown Mackie Education II LLC, the Institute of Post- Secondary Education, Inc., and South University LLC (collectively “EDMC”); and the Relators as identified in Recital Paragraphs B through E of this Agreement (“Relators”) (hereafter collectively referred to as “the Parties”), each through their authorized representatives. RECITALS A. Education Management Holdings II LLC, Education Management II LLC, Education Finance III LLC, the Argosy Education Group, Inc., Argosy University of California LLC, the Art Institutes International II LLC, Brown Mackie Education II LLC, the Institute of Post-Secondary Education, Inc., and South University LLC are subsidiaries of Education Management Corporation, a Pennsylvania corporation with its principal place of business in the Commonwealth of Pennsylvania. EDMC operates proprietary institutions of higher education through over 100 ground campuses, and also offers online education programs. EDMC operates under four primary school brand names, including Argosy University, The Art Institutes, Brown Mackie College, and South University. EDMC’s campuses are located throughout the United States, including in each of the Intervened States, Pennsylvania, and Tennessee. EDMC’s schools participate in federal student financial assistance programs authorized pursuant to Title IV of the Higher Education Act of 1965, as amended, 20 U.S.C. §§ 1070 et seq. B. On April 5, 2007, Lynntoya Washington (“Relator Washington”) filed a qui tam action in the United States District Court for the Western District of Pennsylvania captioned United States of America ex rel. Lynntoya Washington v. Education Management LLC et al., Civil Action No. 07-461, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(b) (the “Washington Civil Action”). Relator Washington subsequently filed a First Amended Complaint on October 29, 2007, and a Second Amended Complaint on May 2, 2011. Relator Michael T. Mahoney (“Relator Mahoney”) also filed suit pursuant to the qui tam provisions of the False Claims Act, and joined in Relator Washington’s Second Amended Complaint. The United States intervened in the Washington Civil Action on April 29, 2011. The Intervened States intervened in the Washington Civil Action on April 29, 2011 (California and Illinois), May 27, 2011 (Florida), June 9, 2011 (Indiana), and September 22, 2011 (Minnesota). The United States, California, Florida, Illinois and Indiana filed their Joint Complaint in Intervention on August 8, 2011. The State of Minnesota filed its Complaint in Intervention on September 22, 2011. (The Joint Complaint in Intervention filed by the United States, California, Florida, Illinois and Indiana, together with Minnesota’s 2 Complaint in Intervention, are collectively referred to hereinafter as the “Complaints in Intervention.”). The Commonwealth of Massachusetts, the States of Montana, New Jersey, New Mexico, New York, Tennessee, and the District of Columbia were also named as real parties in the action. The District of Columbia intervened in the action on October 27, 2011 and its Complaint in Intervention was dismissed with prejudice by the Court on May 11, 2012. The Commonwealth of Kentucky also moved to intervene in the action on August 8, 2011. Kentucky’s Motion to Intervene was denied on October 24, 2011. C. On January 28, 2010, Jason Sobek (“Relator Sobek”) filed a qui tam action in the United States District Court for the Western District of Pennsylvania captioned United States of America ex rel. Jason Sobek v. Education Management, LLC et al., Civil Action No. 10-131, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(b) (the “Sobek Civil Action”). Relator Sobek subsequently filed a First Amended Complaint on June 8, 2010. The United States filed a Notice That it is Not Intervening at This Time on February 9, 2012. Relator Sobek then filed a Second Amended Complaint on February 10, 2012. D. On May 6, 2011, Michael Laukaitis, Gregory Carter, and Oksana Hiser filed a qui tam action in the United States District Court for the Western District of Pennsylvania captioned United States of America ex rel. Michael Laukaitis, Gregory Carter, and Oksana Hiser v. The Art Institute Online, Inc. and Education Management Corporation, Civil Action No. 11-601, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(b) (the “Laukaitis Civil Action”). Subsequently, a First Amended Complaint was filed on May 1, 2012, a Second Amended Complaint was filed 3 on March 1, 2013, and a Third Amended Complaint was filed on October 22, 2013. Relators Garland Richie, Sean A. Lardo, Jack Boring, and Chanel Dennis (together, with Relators Laukaitis, Carter, and Hiser, “Relator Laukaitis”) joined in the aforementioned October 22, 2013 Third Amended Complaint. The United States filed a Notice That it is Not Intervening at This Time on December 8, 2014. E. On October 2, 2012, Dr. Mara Rainwater (“Relator Rainwater”) filed a qui tam action in the United States District Court for the Middle District of Tennessee captioned United States of America ex rel. Dr. Mara Rainwater v. Education Management Corporation et al., Civil Action No. 12-1008, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(b) (the “Rainwater Civil Action”). The United States has not submitted an election decision in this case. (Collectively, the four lawsuits described in Recital Paragraphs B-E will be referred to as the “Civil Actions,” and the individuals referred to in Recital Paragraphs B-E collectively will be referred to as the “Relators.”) F. The United States and the Intervened States contend that they have certain civil claims against EDMC for engaging in the conduct alleged in the Washington Civil Action Complaints in Intervention. The United States additionally contends that it has certain claims against EDMC for engaging in the conduct alleged in the Sobek Civil Action Second Amended Complaint; the Laukaitis Civil Action Third Amended Complaint; and the Rainwater Civil Action. The Commonwealth of Massachusetts and the States of Montana, New Jersey, New Mexico, New York and Tennessee, through Relators Washington and Mahoney, contend that they are the real parties in interest for certain claims against EDMC for engaging in the conduct alleged in Relator 4 Washington’s Second Amended Complaint. The District of Columbia contends that it has certain claims against EDMC for engaging in the conduct alleged in its Complaint in Intervention. The Commonwealth of Kentucky contends that it has certain claims against EDMC for engaging in conduct alleged in its Complaint in Intervention, which was attached as Exhibit 2 to its Motion to Intervene in the Washington Civil Action (The civil claims described in Paragraph F constitute, and are collectively hereinafter referred to as, the “Covered Conduct”). G. The District of Columbia and the States and/or Commonwealths of Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming (“Consumer Protection Consortium States”) also contend that each of them have certain civil claims against EDMC. The Consumer Protection Consortium States are contemporaneously entering into separate settlement agreements with EDMC to resolve the Consumer Protection Consortium States’ claims. Those agreements are hereinafter referred to as the “Consumer Protection Consortium Agreements.” H. This Agreement is neither an admission of liability by the EDMC Releasees (hereinafter defined) nor a concession by the United States or the Intervened States or the Non-Intervened States that their claims are not well founded. 5 I. Relators claim entitlement under 31 U.S.C. § 3730(d) to a share of the proceeds of this Agreement and to Relators’ reasonable expenses, attorneys’ fees and costs. To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, and in consideration of the mutual promises and obligations of this Agreement, the Parties agree and covenant as follows: 6 TERMS AND CONDITIONS 1. EDMC shall pay to the United States $95,500,000 (Ninety-Five and a Half Million Dollars (“Settlement Amount”). On the Effective Date of this Agreement, this sum shall constitute a debt due and immediately owing collectively to the United States, the Intervened States and the Non-Intervened States. The Settlement Amount shall be paid as follows: a. EDMC shall pay to the United States the Settlement Amount in accordance with the payment schedule attached hereto as Exhibit A. Within fourteen (14) business days after the Effective Date of this Agreement, EDMC shall pay the United States the initial payment in the amount of $45,500,000 (Forty-Five and a Half Million Dollars) and thereafter make payments according to the schedule in Exhibit A. All payments shall be made to the United States by electronic funds transfer pursuant to written instructions to be provided by the United States Attorney’s Office for the Western District of Pennsylvania. The entire balance of the face amount of the Settlement Amount, or any portion thereof, may be prepaid without penalty. b. If EDMC sells or otherwise transfers to an unaffiliated third party all or substantially all of the assets or operations of one or more of its subsidiaries, divisions, campuses, or school brands (including but not limited to Argosy University, The Art Institutes, Brown Mackie College, or South University), EDMC shall give the United States notice within seven (7) days of the execution of a definitive sales agreement, and payment of the remaining unpaid balance of the Settlement Amount shall be accelerated as follows: (i) If EDMC or substantially all of EDMC’s assets or operations is sold or otherwise transferred to an unaffiliated third party, the remaining unpaid balance of the 7 Settlement Amount shall become accelerated and due and payable within ten (10) business days of the Receipt of Proceeds (as hereinafter defined) by EDMC from the sale or transfer; (ii) If EDMC sells or otherwise transfers to an unaffiliated third party all or substantially all of the assets or operations of a particular subsidiary, division, school brand, or campus, a percentage of the remaining settlement balance that is equal to any such subsidiary, division, school brand, or campus’s percentage of EDMC’s net revenue for the previous fiscal year or the average of the three previous fiscal years, whichever is higher (“Accelerated Percentage”) shall become accelerated and due and payable within ten (10) business days of the Receipt of Proceeds by EDMC from the sale or transfer. For purposes of Paragraph 1.b., “Receipt of Proceeds” means the receipt of cash proceeds by EDMC from a sale or transfer subject to Paragraph 1.b. Exclusively for the purposes of clarification, in the event that EDMC agrees to an “earn-out” provision or receives a note or other security in connection with a sale or transfer, the payment of the accelerated amount related to such earn-out provision or security, if any, shall not be payable by EDMC until receipt of cash proceeds by EDMC from such earn-out provision or security. There shall be no acceleration of the Settlement Amount pursuant to this Paragraph in the event that a sale or transfer to an unaffiliated third party involves a sale or transfer involving gross proceeds of less than $1,500,000. Following payment of the Accelerated Percentage, the accelerated amount shall be applied to the final scheduled payment or payments set forth in Exhibit A that are still owed at the time of the acceleration. 8 c. The Settlement Amount is allocated among the matters being settled as follows: Washington Civil Action (total): $80,375,000 Washington Civil Action (United States) $47,625,000 Washington Civil Action (Intervened States) $13,750,000 Washington Civil Action (Non-Intervened States) $500,000 Sobek Civil Action: $3,250,000 Laukaitis Civil Action: $1,675,000 Rainwater Civil Action: $1,450,000 Consumer Protection Consortium States $8,750,000 Each payment (“Specific Installment Payment”) shall be made to the United States as provided in Exhibit A. EDMC has no responsibility for the distribution of such payments to other parties, as provided for in this agreement. Subject to Paragraphs 2 and 3 of this Agreement, funds paid to the Intervened States and the Non-Intervened States may be used or expended in any way permitted by applicable state law at each State’s individual discretion. 2. Conditioned upon the United States receiving the Settlement Amount payments, the United States agrees that it shall pay to Relators as soon as feasible after receipt of the payment by electronic funds transfer the amounts set forth in Exhibit B as their shares of the proceeds pursuant to 31 U.S.C. § 3730(d) (the “Relators’ Share”), pursuant to written instructions to be provided to the United States Attorney’s Office for the Western District of Pennsylvania by each Relator’s counsel. The Relators expressly understand and agree that the United States and/or the Intervened States and/or the Non- 9 Intervened States are only liable to the Relators for funds actually received or collected by the United States from any source being used to fund EDMC’s obligations under this settlement agreement. 3. The Parties have allocated $19,875,000 of the Settlement Amount as expenses, and attorneys’ fees and costs (the “Attorneys’ Fees and Costs Settlement Amount”). Conditioned upon the United States receiving the Settlement Amount payments, the United States agrees that it shall pay to Relators and/or Relators’ counsel as soon as feasible after receipt of the payment by electronic funds the amounts set forth in Exhibit C as their portion of the Attorneys’ Fees and Costs Settlement Amount, pursuant to written instructions to be provided to the United States Attorney’s Office for the Western District of Pennsylvania by each Relator’s counsel. The Relators and Relators’ counsel expressly understand and agree that the United States and/or the Intervened States and/or the Non-Intervened States are only liable to the Relators and/or Relators’ counsel for funds actually received or collected by the United States from any source being used to fund EDMC’s obligations under this settlement agreement. 4. In the event that EDMC informs the United States in writing, at least seven (7) calendar days in advance of the date upon which a Specific Installment Payment called for in Exhibit A, as set forth in Paragraph 1, is due, that EDMC will not timely pay the full amount of the Specific Installment Payment (“Future Missed Payment”), EDMC agrees that for purposes of this Agreement, the Future Missed Payment will constitute liabilities owing to the Secretary arising from acts or omissions of the Institution, and that the Department of Education may draw on any letter of credit it may possess from EDMC to secure the amount owing on behalf of the United States, 10