printer-friendly

Sample Business Contracts

Stock Option Agreement #2 - The Corporate Advisory Board Co. and Michael D'Amato

Sponsored Links

                           STOCK OPTION AGREEMENT #2

                                  PURSUANT TO

                      THE CORPORATE ADVISORY BOARD COMPANY

                    STOCK-BASED INCENTIVE COMPENSATION PLAN

     THIS STOCK OPTION AGREEMENT #2 (this "Option Agreement"), is made effective
as of October 31, 1997 (the "Effective Date"), between The Corporate Executive
Board Company, a Delaware corporation (the "Company"), and Michael D'Amato (the
"Optionee"), granting to the Optionee Options to purchase 2,788 Option Shares at
a purchase price of $35.00 per Option Share, as further described in Section 2
hereinbelow.

                                R E C I T A L S
                                ---------------

     A.  On the Effective Date, the Company adopted the Stock-Based Incentive
Compensation Plan (the "Plan") and, separately, granted the Optionee Options to
purchase         shares of Class B Nonvoting Common Stock of the Company, par
value $0.01 per share (the "Stock").

     B.  The Company and the Optionee now desire to memorialize their
understanding with respect to the grant of Options made as of the Effective
Date.

     C.  The Optionee acknowledges that he is an employee of the Company with
substantial knowledge concerning the performance, operations and future
opportunities relating to the business of the Company.  The Optionee further
acknowledges that he has been briefed on the past and potential future
performance of the Company and that the Optionee has had the opportunity to ask
senior executives of the Company whatever questions the Optionee desired
concerning the financial and operational performance and expectations of the
Company.  Finally, the Optionee acknowledges that all future operating results
are impossible to predict and that no representation is being made by the
Company with respect to the accuracy or completeness of any forecast regarding
the future.

     D.  The Optionee acknowledges and agrees that, as of the Effective Date,
(i) the Company is an S Corporation as defined in Section 1361 of the Internal
Revenue Code of 1986, as amended, and (ii) that the initial capitalization of
the Company is as described below:

     l.   1,000 authorized shares of Class A Common Stock, par value $0.01 per
          share, of which 1,000 shares have been issued to David G. Bradley;

     2.   1,399,000 authorized shares of Class B Nonvoting Common Stock (the
          "Stock"), par value $0.01 per share, of which 726,000 shares have been
          issued to David G. Bradley;
<PAGE>

     3.   The maximum number of shares of Stock that initially may be subject to
          Options granted pursuant to the Plan is 400,000.

     Changes in the above capitalization (including increases or decreases in
the number of authorized shares of capital stock) and available options with
respect to the Company's capital stock may be made in the future.  To the extent
applicable, Sections 8 and 9 of this Option Agreement may apply to further
adjustments to the above capitalization.

                                   AGREEMENTS
                                   ----------

     1.  Definitions.  Capitalized terms used herein shall have the following
         -----------                                                        
meanings:

     "Act" is defined in Section 7(a).

     "Agreement Not to Compete" means the Agreement Concerning Exclusive
Services, Confidential Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product, by and between the Optionee and the Company.

     "Approved Sale" means a transaction or a series of related sale
transactions that result in a bona fide unaffiliated change of economic
                              ---- ----                               
beneficial ownership of the Company (disregarding for this purpose any disparate
voting rights attributable to the outstanding stock of the Company) whether
pursuant to the sale of the stock of the Company, the sale of the assets of the
Company, or a merger or consolidation involving the Company.  However, an
Approved Sale shall not include (i) an issuance by the Company of its own Stock,
or (ii) a gift of the stock of the Company.

     "Base Stock Amount" shall mean the aggregate, on a given date, of (i) the
number of shares of capital stock of the Company issued and outstanding on the
Effective Date, (ii) the number of shares of Stock on a given date subject to
unexpired and unexercised options issued pursuant to the Plan, and (iii) the
number of shares of Stock outstanding on a given date which were issued by the
Company pursuant to the exercise of options granted under the Plan.  Except as
specifically set forth above, Base Stock Amount shall not include any shares or
options to purchase shares issued after the Effective Date.

     "Cash Shortage" is the condition that exists when, in the judgment of the
Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, stockholders' agreement,
agreement not to compete, substitution agreement or liquid markets agreement
entered into by the Company and any other obligation of the Company to its
employees; (ii) maintain sufficient cash reserves to pay unforeseeable costs
that may arise; and at the same time (iii) make payments to Optionee pursuant to
this Option Agreement.

     "Cause" for termination shall mean (i) the commission of an act of fraud,
theft or dishonesty against the company; or (ii) conviction of or pleading
guilty or nolo contendere to any felony or any misdemeanor involving moral
turpitude which, in the Company's reasonable opinion, causes embarrassment to
the Company.

                                       2
<PAGE>

     "Chairman of the Board" means the Chairman of the Board of Directors of the
Company.

     "Change of Control" shall mean a transaction or series of transactions
pursuant to which David G. Bradley, or members of his family, or trusts
generally for the benefit of his family no longer, in the aggregate, own more
than 50% of the Class A Common Stock, par value $0.01 per share of the Company
or otherwise do not own or control over 50% of the voting stock of the Company.

     "Committee" is defined in the Plan.

     "Company" is defined in the preamble.

     "Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work.  The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm the existence of such
incapacity or disability.  The Chairman of the Board reserves the right to
define Disability in a more liberal manner.

     "Distribution" means distributions to Stockholders with respect to the
capital stock of the Company in the form of dividends, redemption payments,
liquidation payments, or other similar payment types.

     "Effective Date" is defined in the preamble.

     "Exercisability Date" is defined in Section 4(a).

     "Exercise Date" is defined in Section 6(a).

     "Exercise Price" is defined in Section 2.

     "Expiration Date" is defined in Section 5(a).

     "Expiration Event" is defined in Section 5.

     "Fair Market Value" means the fair market value determined by an investment
bank selected by the Company, in its sole and absolute discretion.  The
investment bank shall use customary criteria generally employed within the
investment banking community for valuing the assets or capital stock of an
entity similar to the Company.  With respect to the Options and the Option
Shares, Fair Market Value will be determined by applying such minority,
liquidity, or other discounts as may be applicable to minority shares of capital
stock of this type.

     "First Dilution Date" is defined in Section 10(c).

     "Fiscal Year" means the Company's fiscal year ending March 31 of each year
or such other date as shall be designated by the Company in its sole and
absolute discretion.

     "Full Recourse" means the right of the Company to recover against all of
the assets of the Optionee in the event of a default by the Optionee with
respect to the Note.

                                       3
<PAGE>

     "Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of the Company and the
completion of a sale of such stock thereunder, if as a result of such sale (i)
the issuer becomes a reporting company under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and (ii) such stock is traded on
the New York Stock Exchange or the American Stock Exchange, or is quoted on the
NASDAQ National Market System.

     "Majority Shareholder" means a holder of more than fifty percent (50%) of
the outstanding stock of the Company, or if no person holds more than fifty
percent (50%) of the outstanding stock of the Company, the holder of a plurality
of the outstanding stock of the Company.

     "Market Rate" is a floating rate equal to the Prime Rate as quoted in The
Wall Street Journal and as adjusted from time to time but not to exceed 10% per
annum.

     "Net Proceeds" is defined in Section 4(b)(ii).

     "Non-Vested Options" is defined in Section 3(a).

     "Note" is defined in Section 6(a)(iii).

     "Option" or "Options" is defined in Section 2.

     "Option Agreement #1" means the Stock Option Agreement #1 between the
Optionee and the Company.

     "Option Number" is defined in Section 2.

     "Optionee" is defined in the preamble.

     "Option Shares" means Stock subject to the Option.

     "Plan" is defined in Recital A.

     "Redemption Date" is defined in Section 11(a).

     "Redemption Payment" is defined in Section 11(a).

     "Redemption Payment Period" is defined in Section 11(a).

     "Second Dilution Date" is defined in Section 10(c).

     "Stock" is defined in Recitals A and D.

     "Stockholder" means a record holder of one or more shares of capital stock
of the Company.

                                       4
<PAGE>

     "Stockholders' Agreement" means the Stockholders' Agreement of the Company,
setting forth, inter alia, certain rights, preferences and privileges of and
               ----- ----                                                  
restrictions on the Option Shares.  The Optionee must execute a copy of the
Stockholders' Agreement prior to receiving his or her Option Shares pursuant to
the exercise of the Option.

     "Termination Date" means the date on which the Optionee ceases to serve as
an officer of the Company (or act in such other capacity with the Company as the
Chairman of the Board and the Optionee shall later mutually agree) for any
reason other than (i) for Cause, (ii) for death or a Disability, or (iii) upon a
Voluntary Resignation Date.

     "Undistributed Earnings" means, on any given date, the greater of (but not
less than zero): (i) the retained earnings (or similar entry) shown on the
audited financial statements of the Company for the prior Fiscal Year plus an
estimate by the Company of additions to or subtractions from such retained
earnings through such date of computation, and (ii) the "accumulated adjustments
account" (or similar computation) of the Company for the prior taxable year of
the Company pursuant to Section 1368(e) of the Internal Revenue Code of 1986, as
amended, plus an estimate by the Company of additions to or subtractions from
this account through such date of computation.

     "Vested Options" is defined in Section 3(a).

     "Voluntary Resignation Date" means the date on which the Optionee ceases to
serve as an officer of the Company (or act in such other capacity with the
Company as the Chairman of the Board and the Optionee shall later mutually
agree) for voluntary reasons.  Voluntary Resignation Date shall not include the
date on which the Optionee ceases to be an officer of the Company (or act in
such other capacity with the Company as the Chairman of the Board and the
Optionee shall later mutually agree) due to death or a Disability.

     "Withholding Taxes" is defined in Section 12.

     2.  Grant of Option.  The Company grants to the Optionee the right and
         ---------------                                                  
option (the "Option" or "Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate number of Option Shares
as described in the preamble (the outstanding amount of such unexercised and
unexpired Options shall herein be referred to as the "Option Number"), at the
purchase price per Option Share as described in the preamble (as such amount may
be adjusted as herein provided, the "Exercise Price"), on the terms and
conditions set forth herein.  These Options shall be treated as non-qualified
stock options.

     3.  Vesting.
         -------

     (a) Generally.  The Options to purchase Stock of the Company shall vest
         ---------                                                         
according to the following schedule (the amount of unexercised and unexpired
Options vested as of a given date shall herein be referred to as the "Vested
Options"; the amount of unexercised and unexpired Options not vested as of a
given date shall herein be referred to as the "Non-Vested Options"):

                                       5
<PAGE>

<TABLE>
<CAPTION>
           ---------------------------------------------------------
                      DATE                  CUMULATIVE NUMBER
                                            OF OPTIONS VESTED
           ---------------------------------------------------------
             <S>                            <C>
               The Effective Date                 1,952
                  April 1, 1998                   2,230
                 October 1, 1998                  2,509
                  April 1, 1999                   2,778
           ---------------------------------------------------------
</TABLE>

     (b) Effect of an Approved Sale.  Prior to the Exercisability Date and an
         --------------------------                                         
Initial Public Offering, in the event of either an Approved Sale pursuant to
Section 4(b)(i) or a Distribution pursuant to Section 4(b)(ii), the Options
exercisable pursuant to such sections shall, first, be deemed Vested Options and
shall, second, be deemed Non-Vested Options (but only to the extent the number
of Options exercisable pursuant to the application of Sections 4(b)(i) or (ii)
exceed the number of Vested Options).  Any Non-Vested Options that are
exercisable pursuant to the application of Sections 4(b)(i) or (ii) shall be
deemed vested as of the day on which any of the events described in the
foregoing sentence have occurred, and any Non-Vested Options that remain
outstanding as of the end of the day on which any of the events described in the
foregoing sentence have occurred shall vest according to the schedule set forth
in Section 3(a) above as if the Approved Sale or Distribution described in the
foregoing sentence did not occur.

     (c) Change of Control.  Upon a Change of Control, all Non-Vested Options
         -----------------                                                  
shall become Vested Options.

     (d) Effect of Merger, Adjustments and Dilution.  In the event the number of
         ------------------------------------------                            
Options are adjusted pursuant to Sections 9 or 10 below, the schedule set forth
in Section 3(a) above with respect to the cumulative number of Options that vest
on each of certain specified dates shall be proportionately modified to reflect
such adjustment in the number of Options.  More particularly (without limiting
the generality of the foregoing), the percentage of Options vested on each of
the dates specified on the schedule shall be the same before and after any
adjustments required by Sections 9 or 10 below.

     (e) No Additional Rights.  This Section 3 shall not confer on the Optionee
         --------------------                                                 
any right, expressed or implied, other than those rights specifically expressed
in this Option Agreement.

     4.  Exercisability.
         --------------

     (a) Exercisability Date.  Prior to an Initial Public Offering, the Options
         -------------------                                                  
shall be exercisable during the month of April beginning on April 1, 1999 (the
"Exercisability Date") and during every month of July, October, January, and
April thereafter, or at such additional times after the Exercisability Date and
prior to an Initial Public Offering as determined by the Company in its sole and
absolute discretion.  Prior to an Initial Public Offering and notwithstanding
the foregoing, if an investment bank is performing, or has performed,
substantial services for the Company to examine, investigate, and analyze the
possibility, feasibility, or viability of an Initial Public Offering within six
(6) months of a month during which the Options would otherwise become
exercisable pursuant to this Section 4(a), the Chairman of the Board may, in his
sole and absolute discretion, make a reasonable determination that such Options
shall

                                       6
<PAGE>

not be exercisable for such month and may designate some other month (including
the following month of January, April, July, or October, as appropriate) for the
exercise of the Options; provided, however, the Chairman of the Board may not
designate some other month for the exercise of the Options pursuant to this
Section 4(a) any later than the month of April beginning on April 1, 2001.

     (b) Other Exercisable Events.  Notwithstanding anything to the contrary in
         ------------------------                                             
Section 4(a) above, the Options shall be exercisable upon the occurrence of any
of the following events prior to, on, or after the Exercisability Date:

          (i) Approved Sale of Stock.  Prior to an Initial Public Offering, in
              ----------------------                                         
     the event of an Approved Sale by the Majority Shareholder of one hundred
     percent (100%) of the Company's outstanding Stock held by such Majority
     Shareholder, the Options shall be exercisable on the date of such Approved
     Sale.  However, if the Majority Shareholder sells less than one hundred
     percent (100%) of the Company's outstanding stock held by such Majority
     Shareholder pursuant to an Approved Sale, the Optionee shall only be
     entitled to exercise the Options with respect to a number of Option Shares
     equal to the Option Number immediately prior to such Approved Sale
     multiplied by the fraction equal to the number of shares of the Company's
     outstanding Stock sold pursuant to the Approved Sale by such Majority
     Shareholder divided by the total number of shares of the Company's
     outstanding Stock held by such Majority Shareholder immediately prior to
     such Approved Sale.

          (ii) Approved Sale of Assets.  Prior to an Initial Public Offering, in
               -----------------------                                         
     the event of a Distribution by the Company that is funded with one hundred
     percent (100%) of the proceeds, after payment of related expenses (the "Net
     Proceeds") from an Approved Sale of one hundred percent (100%) of the
     Company's assets, the Options shall be exercisable on the date of such
     Distribution.  For purposes of this Section 4(b)(ii), a Distribution made
     by the Company shall not be treated as a Distribution funded with the Net
     Proceeds from an Approved Sale of the Company's assets to the extent of the
     Company's Undistributed Earnings as of the Distribution date.  However, if
     less than one hundred percent (100%) of the Net Proceeds from an Approved
     Sale of one hundred percent (100%) of the Company's assets is so
     distributed, the Optionee shall only be entitled on the date of the
     Distribution to exercise Options with respect to a number of Option Shares
     equal to the Option Number immediately prior to such Distribution
     multiplied by the percentage of the Net Proceeds from such Approved Sale
     that is so distributed by the Company.  If less than one hundred percent
     (100%) of the Company's assets is sold pursuant to an Approved Sale and all
     or some portion of the Net Proceeds from such Approved Sale is so
     distributed, the Optionee shall be entitled on the date of Distribution to
     exercise Options with respect to a number of Option Shares equal to the
     Option Number immediately prior to such Distribution multiplied by the
     product of (A) the percentage, based on Fair Market Value, of the Company's
     assets sold pursuant to such Approved Sale, and (B) the percentage of the
     Net Proceeds from such Approved Sale that is so distributed by the Company.

                                       7
<PAGE>

          (iii)  Initial Public Offering.  In the event of an Initial Public
                 -----------------------                                   
     Offering of the Company's Stock, the Options shall be exercisable as of the
     date one (1) year after the Initial Public Offering or such earlier date(s)
     as the Chairman of the Board shall designate in his sole and absolute
     discretion.

          (iv) Chance of Control.  Upon a Change of Control, all Options shall
               -----------------                                             
     become exercisable.

     (c) Determination of Exercisable Options.  Given the complexity of the
         ------------------------------------                             
mathematical formulas set forth in Sections 4(b)(i) and (ii) above for
determining the number of Options exercisable upon an Approved Sale or a
Distribution, the good faith determination by the Company (reasonably taking
into account the interests of the Optionee) of the number of Options that may be
exercisable by the Optionee pursuant to Sections 4(b)(i) and (ii) above shall be
rebuttably presumed to be correct and accurate.

     5.  Expiration.  The number of Option Shares that the Optionee is entitled
         ----------                                                           
to purchase pursuant to the Options shall be decreased by the number of Option
Shares purchased by the Optionee on any given date.  In addition, as described
below, some or all of the Options shall expire and shall no longer be
exercisable, at the end of the day upon which ANY of the following events occurs
                                              ---                              
(each an "Expiration Event"):

     (a) Expiration Date.  Upon April 30, 2001, (the "Expiration Date"), the
         ---------------                                                   
Options shall expire.  Notwithstanding the foregoing, in the event of an Initial
Public Offering prior to the Expiration Date, the Options shall expire the later
of two (2) years and thirty (30) days after the Initial Public Offering or the
Expiration Date.

     (b) Termination by the Company.  Prior to an Initial Public Offering, (i)
         --------------------------                                          
the Options shall expire as of the date the Optionee is terminated by the
Company for Cause; or (ii) as of the Termination Date, the Options that are Non-
Vested Options as of the Termination Date and will not become Vested Options
within one (1) year after such Termination Date shall expire as of the
Termination Date provided that the Termination Date occurs prior to the
Exercisability Date.  In the event of a Termination Date, the application of
this Section 5(b) shall not accelerate the vesting of any Non-Vested Options
except as expressly provided for in this Option Agreement.

     (c) Voluntary Resignation by the Optionee.  Prior to an Initial Public
         -------------------------------------                            
Offering, (i) the Options shall expire on the Voluntary Resignation Date
provided that the Optionee resigns without providing the Company with three (3)
months prior notice; or (ii) the Options that are Non-Vested Options on the
Voluntary Resignation Date shall expire on the Voluntary Resignation Date
provided that the Voluntary Resignation Date occurs prior to the Exercisability
Date.

     (d) Approved Sale of Stock.  Prior to an Initial Public Offering, the
         ----------------------                                          
Options shall all expire upon an Approved Sale by the Majority Shareholder of
one hundred percent (100%) of the Company's outstanding stock held by such
Majority Shareholder.  However, if the Majority Shareholder sells less than one
hundred percent (100%) of the Company's outstanding stock held

                                       8
<PAGE>

by such Majority Shareholder pursuant to an Approved Sale, the number of Options
that shall expire shall be equal to the amount by which the Option Number
immediately prior to such Approved Sale multiplied by the fraction equal to the
number of shares of the Company's outstanding Stock sold pursuant to the
Approved Sale by such Majority Shareholder divided by the total number of shares
of the Company's outstanding Stock held by such Majority Shareholder immediately
prior to such Approved Sale exceeds the number of Option Shares purchased by the
Optionee on the date of such Approved Sale.

     (e) Approved Sale of Assets.  Prior to an Initial Public Offering, the
         -----------------------                                          
Options shall all expire upon a Distribution by the Company that is funded with
one hundred percent (100%) of the Net Proceeds from an Approved Sale of one
hundred percent (100%) of the Company's assets.  For purposes of this Section
5(e), a Distribution made by the Company shall not be treated as a Distribution
funded with the Net Proceeds from an Approved Sale of the Company's assets to
the extent of the Company's Undistributed Earnings as of the date of the
Distribution.  However, if less than one hundred percent (100%) of the Net
Proceeds from an Approved Sale of one hundred percent (100%) of the Company's
assets is so distributed, the number of Options that shall expire shall be equal
to the amount by which the Option Number immediately prior to such Distribution
multiplied by the percentage of the Net Proceeds from such Approved Sale that is
so distributed by the Company exceeds the number of Option Shares purchased by
the Optionee on the date of such Distribution.  If less than one hundred percent
(100%) of the Company's assets is sold pursuant to an Approved Sale and all or
some portion of the Net Proceeds from such Approved Sale is so distributed, the
number of Options that shall expire shall be equal to the amount by which the
Option Number immediately prior to such Distribution multiplied by the product
of (i) the percentage, based on Fair Market Value, of the Company's assets sold
pursuant to such Approved Sale, and (ii) the percentage of the Net Proceeds from
such Approved Sale that is so distributed by the Company, exceeds the number of
Option Shares purchased by the Optionee on the date of such Distribution.

     (f) Initial Public Offering.  In the event of an Initial Public Offering,
         -----------------------                                             
the Options shall expire as of the Voluntary Resignation Date or the date on
which the Optionee ceases to be employed by the Company for Cause.  Any portion
of the Option that is unexercisable as of the expiration date shall remain
unexercisable and shall also terminate as of such date.  If, within two (2)
years after an Initial Public Offering, the Optionee is terminated by the
Company other than for Cause or ceases employment as a result of death or a
Disability, the Options shall expire as of the date two (2) years and thirty
(30) days after the date of the Initial Public Offering.  Notwithstanding
anything in this subsection (f) to the contrary and except as otherwise provided
in Section 5(a) above, if two (2) years has elapsed since the Initial Public
Offering, the Option shall expire as of the date thirty (30) days after the date
on which the Optionee ceases to be employed by the Company for any reason other
than death or a Disability.

     6.  Exercise of the Option.
         ----------------------

     (a) Prior to the expiration thereof, the Optionee may exercise the Options
from time to time in whole or in part as permitted hereunder (the "Exercise
Date").  On the Exercise Date, the Optionee shall deliver to the Chairman of the
Board the following:

                                       9
<PAGE>

          (i)   A copy of the Stockholders' Agreement duly executed by the
     Optionee;

          (ii)  A written and signed notice of such election setting forth the
     number of Option Shares the Optionee has elected to purchase;

          (iii) Payment in full of the aggregate Exercise Price of such Option
     Shares in one or a combination of the following manner, at the election of
     Optionee:  (A) cash or a cashier's or certified bank check payable to the
     order of the Company, or (B) prior to an Initial Public Offering, a Full
     Recourse promissory note, in a form reasonably determined by the Company in
     its sole and absolute discretion (the "Note"), secured by the number of
     Option Shares the Optionee has elected to purchase, bearing a Market Rate
     of interest, and due and payable the earlier of the date the Optionee
     disposes of all or a portion of his or her Stock securing the Note, or the
     date six (6) months after the Exercise Date or such later date as the
     Company determines in its sole and absolute discretion; and

          (iv)  The amount, if any, required pursuant to Section 12 hereof.

     (b) Notwithstanding anything in Section 6(a) to the contrary, the Committee
may, in its sole and absolute discretion, permit payment of the Exercise Price
in such form or in such manner as may be otherwise permissible under the Plan
and under any applicable law.

     (c) If the Optionee provides payment as provided in Section 6(a)(iii)(B)
above, the Optionee agrees to execute and deliver such other documents as may be
reasonably required by the Company to effectuate and secure the Note.  If a
Voluntary Resignation Date occurs without the Optionee providing the Company
with three (3) months prior notice of his or her intention to resign, the Note,
together with any accrued interest thereon, shall be immediately payable upon
the earlier of the due date of the Note or the Voluntary Resignation Date.

     7.  Compliance with Legal Requirements.
         ----------------------------------

     (a) No Option Shares shall be issued or transferred pursuant to this Option
Agreement unless and until all legal requirements applicable to such issuance or
transfer have, in the opinion of counsel to the Company, been satisfied.  Such
requirements may include, but are not limited to, registering or qualifying such
Option Shares under any state or federal law, satisfying any applicable law
relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Option Shares to the effect that they were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), and
may not be transferred other than in reliance upon Rule 144 or Rule 701
promulgated under the Act, if available, or upon another exemption from the Act,
or obtaining the consent or approval of any governmental regulatory body.

     (b) The Optionee understands that the Company intends for the offering and
sale of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a Form
701 as appropriate, and that the Company is under no obligation to register for
resale the Option Shares issued upon exercise of the Option, subject to the
Stockholders' Agreement.  In connection with any such issuance or transfer, the

                                       10
<PAGE>

person acquiring the Option Shares shall, if requested by the Company, provide
information and assurances satisfactory to counsel to the Company with respect
to such matters as the Company reasonably may deem desirable to assure
compliance with all applicable legal requirements.

     (c) The Option Shares issued pursuant to this Option Agreement may bear
such legends with respect to their transferability that the Committee may deem
appropriate.

     8.  Death or Disability; Nontransferability.
         ---------------------------------------

     (a) Death or Disability.  Except as otherwise provided in this Option
         -------------------                                             
Agreement, in the event of the death or Disability of the Optionee, this Option
Agreement shall continue in full force and effect as if such death or Disability
did not occur and the Optionee continued his or her employment with the Company.

     (b) Nontransferability.  Subject to Sections 9 and 11 hereof, the Option
         ------------------                                                 
shall not be transferable by the Optionee except, after the Optionee's death, to
his or her spouse, child, estate, personal representative, heir or successor.
More particularly (but without limiting the generality of the foregoing), the
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process.  Any assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any attachment or similar process upon
the Option that would otherwise effect a change in the ownership of the Option,
shall terminate the Option; provided, however, that in the case of the
involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates.  This Option Agreement shall
be binding on and enforceable against any person who is a permitted transferee
of the Option pursuant to the first sentence of this Section 8(b) .

     9.  Effect of Merger; Adjustments.
         -----------------------------

     (a) In the event of an Approved Sale that is a merger or other form of
corporate reorganization and notwithstanding any other provisions of this Option
Agreement, provided such terms shall not, in the reasonable opinion of the
Company, diminish the value of the unexpired Options, the unexercised portion of
the Option shall be subject to the terms of the agreement or plan of merger or
reorganization effecting such merger or reorganization and shall be converted,
redeemed, exchanged or otherwise treated as provided in such agreement or plan
of merger or reorganization.

     (b) Subject to Section 9(a) above, if the shares of the Stock are changed
into or exchanged for a different number or kind of shares or securities, as the
result of any one or more reorganizations, recapitalizations, mergers,
acquisitions, stock splits, reverse stock splits, stock dividends or similar
events, an appropriate adjustment shall be made in the number and kind of shares
or other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan.  No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however that in lieu of fractional interests, the
          --------  -------                                                   

                                       11
<PAGE>

Optionee, upon the exercise of the Option in whole or part, shall receive cash
in an amount equal to the amount by which the Fair Market Value of such
fractional interests exceeds the Exercise Price attributable to such fractional
interests.

     10.  Adjustments and Dilution.
          ------------------------

     (a) If the capitalization of the Company changes as the result of one or
more stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications, mergers, consolidations or similar events,
an appropriate adjustment shall be made in the number and kind of shares or
other securities subject to the Option, and the price for each share or other
unit of any securities subject to this Option Agreement, in accordance with
Section 10 of the Plan.  No fractional interests shall be issued on account of
any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
          --------  -------                                                    
upon the exercise of the Option in whole or part, shall receive cash in an
amount equal to the amount by which the Fair Market Value of such fractional
interests exceeds the Exercise Price attributable to such fractional interests.

     (b) Except as specifically provided in Section 10(c) below or another
provision of this Option Agreement, nothing herein shall prohibit or restrict
the Company from taking any corporate action or engaging in any corporate
transaction of any kind, including, without limitation, the issuance and sale of
additional shares of capital stock of the Company, any merger, consolidation,
liquidation or sale of assets, or create in Optionee or his or her permitted
transferee any rights to acquire or receive additional shares of capital stock
of the Company or otherwise be protected against dilution.

     (c) Notwithstanding Section 10 (b) above, (i) upon the date, if ever, (the
"First Dilution Date") that the Base Stock Amount first equals or exceeds one
million one hundred thousand (1,100,000) shares of capital stock of the Company,
the number of Options granted by this Option Agreement shall be increased by ten
percent (10%) of the sum of the number of shares that (A) remain subject to the
Optionee's Options, and (B) have been issued under the Options and continue to
be held by the Optionee; and (ii) upon the date, if ever, (the "Second Dilution
Date") that the Base Stock Amount first equals or exceeds one million two
hundred thousand (1,200,000) shares of capital stock of the Company, the number
of Options granted by this Option Agreement shall be increased by ten percent
(10%) of the sum of the number of shares that (x) remain subject to the
Optionee's Options, and (y) have been issued under the Options and continue to
be held by the Optionee.  The Exercise Price per additional share of Stock on
the First Dilution Date and Second Dilution Date (as appropriate) shall equal
the Fair Market Value of a share of Stock on each such date.  These additional
Options shall vest in accordance with the provisions of Section 3(c) above and
shall otherwise be treated, for purposes of this Option Agreement, as if such
Options were granted by the Company on the Effective Date.

     11.  Right of Redemption of Options.
          ------------------------------

     (a) Prior to an Initial Public Offering of the Stock of the Company and
notwithstanding anything in Section 8 above to the contrary, the Company shall
have the right,

                                       12
<PAGE>

on or after the Exercisability Date and in its sole and absolute discretion, to
redeem, in whole, the Option granted by this Option Agreement, and the Optionee
shall be obligated to sell, in whole, the Option as required by the Company's
exercise of this right. The redemption of the Option shall be effective as of
the date of such redemption (the "Redemption Date"). Payment for the redeemed
Option (the "Redemption Payment") shall be made by means of the payment to the
Optionee by the Company of the Fair Market Value of such Option in cash or by
check as of the date one (1) year after the Redemption Date or such earlier
date(s) as the Company may designate in its sole and absolute discretion (the
"Redemption Payment Period"). For purposes of this Section 11(a), the Fair
Market Value of the redeemed Option shall be determined as of the Redemption
Date and no interest shall accrue on any portion of the Redemption Payment due
and outstanding during the Redemption Payment Period.

     (b) Notwithstanding anything to the contrary in Section 11(a) above, as of
the end of the Redemption Payment Period, payment of any due and outstanding
portion of the Redemption Payment shall be delayed if the Company determines it
is suffering from a Cash Shortage.  Any outstanding portion of a Redemption
Payment that would otherwise be due and payable during a period of Cash Shortage
shall be delayed for a period of six (6) months, after which time the Company
shall either make any payment that has been delayed, or determine that the
Company continues to suffer from a Cash Shortage.  Interest shall accrue at
Market Rate during any period of delay due to this Section 11(b).

     (c) Notwithstanding anything in  Sections 11(a) and (b) above to the
contrary, if a Voluntary Resignation Date occurs without the Optionee providing
the Company with three (3) months prior notice of his or her intention to
resign, then any portion of the Redemption Payment outstanding as of such
Voluntary Resignation Date, together with any accrued and unpaid interest
thereon, shall be forfeited by the Optionee, and the Company shall have no
further liability with respect to such outstanding portion and such accrued
interest, if any.

     (d) Notwithstanding anything in Section 11(a) above to the contrary, if a
Termination Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year
following the Fiscal Year in which the Termination Date occurs, the unexpired
Options (including any Non-Vested Options) granted by this Option Agreement, and
the Optionee shall be obligated to sell, in whole, such Options as required by
the Company's exercise of this right.  The exercise of this right of redemption
shall be made in accordance with the provisions of Section 11(a), (b), and (c)
above.

     (e) Notwithstanding anything in Section 11(a) above to the contrary, if a
Voluntary Resignation Date occurs prior to an Initial Public Offering and the
Exercisability Date, the Company shall have the right, in its sole and absolute
discretion, to redeem, in whole, on or after the end of the Fiscal Year in which
the Voluntary Resignation Date occurs, the unexpired Options (including any Non-
Vested Options) granted by this Option Agreement, and the Optionee shall be
obligated to sell, in whole, such Options as required by the Company's exercise
of this right.  The exercise of this right of redemption shall be made in
accordance with the provisions of Section 11(a), (b), and (c) above.

                                       13
<PAGE>

     12.  Taxes.  The Committee, as defined in the Plan, may, in its discretion,
          -----                                                                
make such provisions and take such steps as it may deem necessary or appropriate
for the withholding of all federal, state, local and other taxes required by law
to be withheld with respect to the exercise of the Option or the redemption of
the Option (the "Withholding Taxes") including, but not limited to, deducting
the amount of any such withholding taxes from any other amount then or
thereafter payable to the Optionee, requiring the Optionee to pay to the Company
the amount required to be withheld or to execute such documents as the Committee
deems necessary or desirable to enable it to satisfy its obligations with
respect to the Withholding Taxes.  With the consent of the Company, the Optionee
may authorize the Company to withhold a sufficient number of the shares of Stock
otherwise issuable to the Optionee on the Exercise Date as payment of his or her
obligation with respect to the Withholding Taxes (such shares to be valued on
the basis of the Fair Market Value of the Stock of the Company on the Exercise
Date).

     13.  No Interest in Shares Subject to Option.  Neither the Optionee
          ---------------------------------------                      
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of Stock allocated or reserved for the purpose of
the Plan or subject to this Option Agreement except as to such Option Shares, if
any, as shall have been issued to such person upon exercise of the Option or
portion thereof.

     14.  Subject to Stockholders' Agreement.  The Optionee acknowledges that
          ----------------------------------                                
the Option Shares are subject to the terms of the Stockholders' Agreement.

     15.  The Plan Controls.  The Option hereby granted is subject to, and the
          -----------------                                                  
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option without
the Optionee's consent insofar as it may adversely affect the Optionee's rights
under this Option Agreement.

     16.  Not an Employment Contract.  Nothing in the Plan, in this Option
          --------------------------                                     
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to continue in the employ of the Company nor shall affect
the right of the Company to terminate the employment of the Optionee with or
without Cause.

     17.  Subject to Agreement Not to Compete.  The Optionee acknowledges that
          -----------------------------------                                
the execution of the Agreement Not to Compete is a condition precedent to the
receipt of any rights or benefits conferred on the Optionee by this Option
Agreement.

     18.  Notices.  All notices, requests, demands and other communications
          -------                                                         
pursuant to this Option Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if the Company at its principal
executive offices addressed to the attention of the Chairman of the Board, and
if to Optionee at his or her address as it appears on the books of the Company
(or at such other address as shall be given in writing by Optionee or his or her
permitted transferee to the Company).

                                       14
<PAGE>

     19.  Binding Effect.  This Option Agreement shall inure to the benefit of
          --------------                                                     
and be binding upon the parties hereto and their respective permitted successors
and assigns.

     20.  Entire Option Agreement.  This Option Agreement, together with the
          -----------------------                                          
Plan, Stockholders' Agreement, the Option Agreement #1, the Agreement Not to
Compete, and the Substitution Agreement between The Advisory Board Company and
the Optionee, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof (including, but not limited to, any
rights of the Optionee to any value or appreciation in value of the Company or
its capital stock) and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any kind or
nature.

     21.  Amendments and Waivers.  This Option Agreement may be amended, and any
          ----------------------                                               
provision hereof may be waived, only by a writing signed by the party to be
charged.

     22.  Further Assurances.  Each party shall cooperate and take such action
          ------------------                                                 
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Option Agreement.

     23.  Actions by the Company.  Any reference within this Option Agreement to
          ----------------------                                               
an action, judgment, conclusion, or determination by the Company shall mean an
action, judgment, conclusion, or determination of the Board of Directors of the
Company or its authorized representative(s).

     24.  Headings.  The headings preceding the text of the sections hereof are
          --------                                                            
inserted solely for convenience of reference, and shall not constitute a part of
this Option Agreement, nor shall they affect its meaning, construction or
effect.

     25.  Governing Law.  All terms of and rights under this Option Agreement
          -------------                                                     
shall be governed by and construed in accordance with the internal law of the
State of Delaware, without giving effect to principles of conflicts of law.

     26.   Arbitration.  The parties shall endeavor to settle all disputes by
           -----------                                                      
amicable negotiations.  Any claim, dispute, disagreement or controversy that
arises among the parties relating to this Option Agreement (excluding
enforcement by the Company of its rights under the Agreement Not to Compete)
that is not amicably settled shall be resolved by arbitration, as follows:

     (a) Any such arbitration shall be heard in the District of Columbia, before
a panel consisting of one (1) to three (3) arbitrators, each of whom shall be
impartial.  Except as the parties may otherwise agree, all arbitrators shall be
appointed in the first instance by the appropriate official in the District of
Columbia office of the American Arbitration Association or, in the event of his
or her unavailability by reason of disqualification or otherwise, by the
appropriate official in the New York City office of the American Arbitration
Association.  In determining the number and appropriate background of the
arbitrators, the appointing authority shall give due consideration to the issues
to be resolved, but his or her decision as to the number

                                       15
<PAGE>

of arbitrators and their identity shall be final. Except as otherwise provided
in this Section 26, all of the arbitration proceedings shall be conducted in
accordance with the rules of the arbitrators.

     (b) An arbitration may be commenced by any party to this Option Agreement
by the service of a written request for arbitration upon the other affected
parties.  Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter.  If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth below.

     (c) All attorneys' fees and costs of the arbitration shall in the first
instance be borne by the respective party incurring such costs and fees, but the
arbitrators shall have the discretion to award costs and/or attorneys' fees as
they deem appropriate under the circumstances.  The parties hereby expressly
waive punitive damages, and under no circumstances shall an award contain any
amount that in any way reflects punitive damages.

     (d) Judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.

     (e) It is intended that controversies or claims submitted to arbitration
under this Section 26 shall remain confidential, and to that end it is agreed by
the parties that neither the facts disclosed in the arbitration, the issues
arbitrated, nor the views or opinions of any persons concerning them, shall be
disclosed to third persons at any time, except to the extent necessary to
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.

                                       16
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Option Agreement to be
effective as of the date set forth above.

                              THE CORPORATE EXECUTIVE BOARD COMPANY



                              By:   /s/ Harold L. Siebert
                                   ------------------------------------
                              Name:  Harold "Rusty" Siebert
                              Title: Chairman of the Board of Directors



                              OPTIONEE

                              Signature:  /s/ Michael D'Amato
                                          -----------------------------

                                       17