2. 0 © 2005 BERA Before the beginning...

3. 1 © 2005 BERA Equity Compensation for Key Executives – Appreciation Rights Versus Stock Options. BERA 2004 A Presentation to the Ladies and Gentlemen of BERA Carl B. Barney Chairman and CEO Stevens-Henager Colleges CollegeAmerica California College

4. 2 © 2005 BERA BERA 2004

5. 3 © 2005 BERA 1. How can I hire a key executive accustomed to stock options? The Problem Key executive: Someone who by his or her position, ability, and diligence is able to make important contributions to the success and growth of the company 2. How can I incentivize key executives without stock options? 3. I hadn’t put it in writing which was a mistake.

6. 4 © 2005 BERA How can you pay key executives sums which cost you little? So, the Question Is... And in so doing: Motivate them, Keep them and therefore, Reduce cost of turnover, and Compete for the best talent. $ big

7. 5 © 2005 BERA Public companies have the magic bullet of stock options. Public Companies If (and only if) the stock goes up, executives clean up. Executives share in the appreciated value of the company. This is a powerful incentive. The same thing happens with appreciation rights.

8. 6 © 2005 BERA Stock options versus appreciation rights. Privately Held Companies We can do essentially the same thing with appreciation rights. Appreciation rights act just like stock options. Just like stock options, appreciation rights are a powerful incentive. What is an appreciation right? ? ? =

9. Year EBITDA Goal Company Value 2 EBITDA Increase 3 Increased Value 4 % to Employee 5 Employee $ Value 6 Yearly Vesting 7 Cumulative Vested 8 Dollar Value 9 20040100 1 600------- 20051120720201201%1.210% $12,000 20062144864442641%2.615%25%$65,000 200731731,038734381%4.420%45%$198,000 200842071,2421076421%6.425%70%$448,000 200952491,4941498941%8.930%100%$890,000 201062991,7941991,1941%11.9--$1,190,000 201173582,1482581,5481%15.5--$1,550,000 7 © CASI 2004 BERA Appreciation 1 This is the initial EBITDA from which the initial value is derived. 2 The Company Value is 6 x EBITDA. 3 Increase in EBITDA over the Initial EBITDA. 4 Increased Value is the "EBITDA Increase" x the multiple of 6 to give the increase in value of the company. 5 This is the percentage of the increased value that the employee will earn. 6 The Employee $ Value is the projected amount of $ appreciation due to employee if fully vested. 7 This is the percentage vested each year. 8 This is the cumulative amount vested to the employee. 9 This is the employee’s actual dollar value. Appreciation Rights Proforma Example EBITDA is: Net income.....................................$55 Add back: Interest expense..............................$ 5 (net of interest income) Income taxes...................................$20 Depreciation....................................$ 5 Amortization....................................$ 5 Recast expenses...............................$10 Recast EBITDA……… $100 What is EBITDA? (With apologies to CPAs and those in the audience who know this better than I do.) 2 The Company Value is 6 x EBITDA. 3 Increase in EBITDA over the Initial EBITDA. 4 Increased Value is the "EBITDA Increase" x the multiple of 6 to give the increase in value of the company. 5 This is the percentage of the increased value that the employee will earn. 1 This is the initial EBITDA from which the initial value is derived. 6 The Employee $ Value is the projected amount of $ appreciation due to employee if fully vested.

10. 8 © 2005 BERA 1.Termination and Amendment 2.Termination for Cause 3.Determination Date 4.The Payout 5. Successors 6.It’s Confidential 7.The Percentage Granted 8.No Shareholder Rights — No Voting Rights The Appreciation Rights Agreement (ARA) Some key clauses:

11. 9 © 2005 BERA A Final Word You don’t have to pay $ big sums to retain, motivate, and attract key executives. Retain them, and therefore, Reduce $ turnover, and Compete for talent. With appreciation rights you can: Motivate key executives