<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
EDUCATION MANAGEMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.: ____________________
(3) Filing Party: __________________________________________
(4) Dated Filed: ___________________________________________
<PAGE> 2
EDUCATION MANAGEMENT CORPORATION
300 SIXTH AVENUE
PITTSBURGH, PA 15222
October 8, 1997
Dear Shareholder,
You are cordially invited to attend the Annual Meeting of Shareholders to
be held commencing at 10:00 a.m. on Thursday, November 6, 1997, at the Rihga
Royal Hotel, 151 West 54th Street, New York, New York.
Regardless of whether you plan to attend, we urge you to participate in the
business of the Annual Meeting by completing and returning the enclosed proxy as
promptly as possible. Your vote is important.
The accompanying Notice of Annual Meeting and Proxy Statement provide
information about the matters to be acted upon by the shareholders. The Proxy
Statement also contains information about the roles and responsibilities of the
Board of Directors and the committees of the Board and provides important
information about each nominee for election as a director.
Sincerely,
/s/ ROBERT B. KNUTSON
Robert B. Knutson
Chairman and Chief Executive Officer
<PAGE> 3
EDUCATION MANAGEMENT CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 6, 1997
The 1997 Annual Meeting of Shareholders of Education Management Corporation
will be held on Thursday, November 6, 1997, commencing at 10:00 a.m., local
time, at the Rihga Royal Hotel, 151 West 54th Street, New York, New York, for
the following purposes:
1. To elect three Class I Directors to serve until the Annual Meeting of
Shareholders to be held in the year 2000.
2. To ratify the selection by the Board of Directors of Arthur Andersen LLP as
independent public accountants for the current fiscal year.
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
All shareholders of record at the close of business on September 29, 1997
will be entitled to vote at the meeting. The stock transfer books of Education
Management Corporation will remain open following the record date.
It is important that your shares be represented at the meeting. Whether or
not you expect to be present, please fill in, date and sign the enclosed proxy
and return it in the accompanying addressed, postage-prepaid envelope. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
/s/ FREDERICK W. STEINBERG
Frederick W. Steinberg
Vice President, General Counsel and
Secretary
October 8, 1997
<PAGE> 4
EDUCATION MANAGEMENT CORPORATION
300 SIXTH AVENUE
PITTSBURGH, PA 15222
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 6, 1997
This Proxy Statement and the accompanying proxy are being furnished to
shareholders on or about October 9, 1997 in connection with the solicitation by
the Board of Directors (the "Board") of Education Management Corporation (the
"Company") of proxies for voting at the Annual Meeting of Shareholders to be
held commencing at 10:00 a.m., local time, on Thursday, November 6, 1997, at the
Rihga Royal Hotel, 151 West 54th Street, New York, New York and at any
adjournments of that meeting (the "Annual Meeting"). Each proxy will be voted in
accordance with the shareholder's instructions set forth therein, although, to
the extent no choice is specified, a proxy will be voted in favor of the matters
set forth in the accompanying Notice of Annual Meeting. Any proxy may be revoked
by a shareholder at any time before its exercise by delivery of a written
revocation or a subsequently dated proxy to the Secretary of the Company or by
voting in person at the Annual Meeting.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JUNE 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED, WITHOUT EXHIBITS, AT NO CHARGE TO A SHAREHOLDER UPON WRITTEN REQUEST
ADDRESSED TO THE INVESTOR RELATIONS DEPARTMENT, EDUCATION MANAGEMENT
CORPORATION, 300 SIXTH AVENUE, PITTSBURGH, PA 15222. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
At the close of business on September 29, 1997, the record date for
determining the shareholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to be voted an aggregate of 14,434,737 shares of Common
Stock, $.01 par value (the "Common Stock"), of the Company. Shareholders are
entitled to one vote per share. The presence in person or by proxy of
shareholders holding a majority of the shares of Common Stock outstanding as of
the record date will constitute a quorum for the transaction of business at the
Annual Meeting. Shares of Common Stock present in person or by proxy (including
shares which are present but are not voted with respect to one or both of the
proposals presented for shareholder approval) will be counted for purposes of
determining whether a quorum is present.
The election of directors and the ratification of the appointment of the
independent public accountants each requires the affirmative vote of the holders
of a majority of the shares of Common Stock voting thereon at the Annual
Meeting. Shares whose holders abstain from voting with respect to a specific
proposal and shares held in "street name" by brokers or nominees who indicate on
their proxies that they do not have discretionary authority to vote such shares
as to a particular proposal will not be counted as having been voted with
respect to such proposal. Accordingly, neither broker non-votes nor abstentions
will have any effect on whether either of the two proposals is approved since
each proposal merely requires the affirmative votes of the holders of a majority
of the shares voting on that proposal.
The Board knows of no matters, other than those set forth below, that are
to be brought before the Annual Meeting. If other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
proxy to vote the shares represented by such proxy in accordance with their
judgment on such matters.
All expenses of the solicitation of proxies will be borne by the Company.
Present and former directors and officers and other employees of the Company may
solicit proxies by telephone, telegram or mail, or by meeting with shareholders
or their representatives. The Company will reimburse brokers, banks and other
custodians, nominees and fiduciaries for their charges and expenses in
forwarding proxy materials to beneficial owners.
<PAGE> 5
PROPOSAL ONE: ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven directors
divided into three classes. The Board is comprised of three Class I Directors,
two Class II Directors and two Class III Directors, with all directors holding
office for staggered terms. Each director will serve (subject to his or her
earlier death, resignation or removal) until the Annual Meeting of Shareholders
held in the year in which his or her term is scheduled to expire or thereafter
until such director's successor is elected and has qualified.
At the Annual Meeting, three directors are to be elected to hold office for
three-year terms scheduled to expire at the Annual Meeting of Shareholders to be
held in the year 2000 (the "2000 Annual Meeting of Shareholders"). Unless there
is a contrary indication, the persons named in the accompanying proxy intend to
vote the shares represented by such proxy for the election to the Board of
Robert H. Atwell, William M. Campbell, III, and Albert Greenstone, the current
Class I Directors whose terms expire this year.
Each of the nominees has consented to serve as a director. If for any
reason a nominee should become unable or unwilling to accept nomination or
election, the persons named in the accompanying proxy intend to vote the shares
represented by such proxy for the election of such other person as the Board may
recommend. Alternatively, the Board may reduce the number of directors to
eliminate the vacancy.
A brief summary of each director's principal occupation and business
affiliations and certain other information follows.
NOMINEES AS DIRECTORS FOR TERMS EXPIRING AT THE 2000 ANNUAL MEETING OF
SHAREHOLDERS
Robert H. Atwell, age 66, has been a director of the Company since 1996. He
is a graduate of the College of Wooster (B.A., Political Science 1953) and of
the University of Wisconsin (M.A., Public Administration 1957). From 1965 to
1970, Mr. Atwell was the vice chancellor for administration, University of
Wisconsin at Madison, and, from 1970 to 1984, he was the president of Pitzer
College. From 1984 until November 1996, Mr. Atwell was the president of the
American Council on Education. On November 1, 1996, he joined A.T. Kearney,
Inc., a global consulting firm.
William M. Campbell, III, age 37, has been a director of the Company since
1996. He is a graduate of Harvard College (B.A., Economics 1982) and Harvard
University Graduate School of Business Administration (M.B.A., 1987). From 1991
to 1995, Mr. Campbell was the senior vice president, drama development, for
Warner Brothers Television. Since 1995, he has been the executive vice president
of CBS Entertainment.
Albert Greenstone, age 70, is the president emeritus of The National Center
for Professional Development, a unit of the Company, and has been a director of
the Company since 1973. He attended the University of Virginia (1946 to 1948)
and graduated from the University of Georgia Law School (J.D., 1950). Mr.
Greenstone joined the Company in 1972 as president and chief executive officer
of The National Center for Paralegal Training and became the president emeritus
of The National Center for Professional Development in 1994.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN THE YEAR
1998
James J. Burke, Jr., age 45, has been a director of the Company since 1986.
He is a graduate of Brown University (B.A., Psychology 1973) and Harvard
University Graduate School of Business Administration (M.B.A., 1979). From 1987
to 1994, he was the president and chief executive officer of Merrill Lynch
Capital Partners, Inc. and a managing director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. He has been a partner of Stonington Partners, Inc., a
private investment firm, since July 1994. Mr. Burke serves on the boards of
directors of Ann Taylor Stores Corporation, Borg-Warner Security Corporation,
Pathmark Stores, Inc., Supermarkets General Holdings Corporation and United
Artists Theatre Circuit, Inc.
Miryam L. Drucker, age 52, is the Vice Chairman of the Company and has been
a director of the Company since 1990. She is a graduate of the Universidad del
Zulia, Venezuela (B.A., Journalism 1965). Ms. Drucker
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<PAGE> 6
joined the Company in 1984. From 1985 to 1987, she was the president of The Art
Institute of Dallas and, from 1987 to 1988, she was the president of The Art
Institute of Fort Lauderdale. From 1988 to 1989, she was the head of The Art
Institutes and, from 1989 to 1996, she was the Company's President and Chief
Operating Officer. Ms. Drucker is the wife of Robert B. Knutson.
TERMS EXPIRING AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN THE YEAR
1999
Robert B. Knutson, age 63, has been the Chairman and Chief Executive
Officer of the Company since 1986 and a director of the Company since 1969. He
is a graduate of the University of Michigan (B.A., Economics 1956) and was a
fighter pilot with the U.S. Air Force from 1957 to 1962. Mr. Knutson joined the
Company as a director in 1969, became its President in 1971 and the Chairman,
President and Chief Executive Officer in 1986. Mr. Knutson is the husband of
Miryam L. Drucker.
James S. Pasman, Jr., age 66, was elected to the Board in July 1997. He is
a graduate of Upsala College (B.B.A., 1956) and the Stern School of Business at
New York University (M.B.A., 1962). From 1987 to 1989, Mr. Pasman was the
chairman and chief executive officer of Kaiser Aluminum and Chemical Corp. and,
prior to that, vice chairman of the Aluminum Company of America. From 1989 to
1991, he was the president and chief operating officer of National Intergroup,
Inc. and chairman of the board of Permian Oil Corp. Since then, Mr. Pasman has
been retired. Mr. Pasman serves on the boards of directors of BEA Income Fund,
Inc., BEA Global Income Fund, Inc., BT Insurance Funds Trust and Tyco
International, Ltd.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board are the Audit Committee, the
Compensation Committee and the Nominating Committee.
The Audit Committee reviews and makes recommendations to the Board with
respect to the selection of the Company's independent public accountants, the
fees to be paid to such accountants, the adequacy of the audit and accounting
procedures of the Company, and such other matters as are specifically delegated
to the Audit Committee by the Board. The Audit Committee held one meeting during
fiscal 1997. The members of the Audit Committee during fiscal 1997 were Mr.
Burke, Ms. Drucker and Harvey Sanford. (Mr. Sanford died in April 1997.) As of
the date of this Proxy Statement, the members of the Audit Committee are Messrs.
Pasman (Chair), Burke and Greenstone.
The Compensation Committee recommends to the Board the management
remuneration policies of the Company, including but not limited to increases in
salary rates and fringe benefits of elected officers, other remuneration plans
such as incentive compensation and deferred compensation, and directors'
compensation and benefits. The Compensation Committee also administers the
Company's stock-based compensation plans, except that the full Board administers
those stock-based compensation plans with respect to their applicability to
directors of the Company. The Compensation Committee held two meetings during
fiscal 1997. The members of the Compensation Committee during fiscal 1997 were
Messrs. Burke, Campbell, Knutson and Sanford. As of the date of this Proxy
Statement, the members of the Compensation Committee are Messrs. Burke (Chair),
Campbell, Greenstone and Pasman.
The Nominating Committee proposes to the full Board nominees for election
to the Board and its standing committees. The Nominating Committee held no
meetings during fiscal 1997. The members of the Nominating Committee during
fiscal 1997 were Mr. Burke, Ms. Drucker and Mr. Sanford. As of the date of this
Proxy Statement, the members of the Nominating Committee are Mr. Knutson
(Chair), Mr. Atwell and Ms. Drucker. In considering persons to nominate for
election as directors, the Nominating Committee will consider recommendations
from shareholders that are submitted in accordance with the following
procedures. Any such recommendation must be received by the Secretary of the
Company on behalf of the Nominating Committee not less than 60 nor more than 90
days in advance of the first anniversary of the previous year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than 30 days from such anniversary date, the shareholder must
deliver such recommendation no later than the close of business on the fifth day
following the date on which public announcement of the date of such meeting is
first made. The letter setting forth a shareholder's recommendation for
nomination must include the name and address of that
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<PAGE> 7
shareholder, a description of any arrangement or understanding between that
shareholder and each person being recommended as a nominee with respect to the
Company or such recommendation and such other information regarding each person
being recommended as a nominee as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission concerning such person as a nominee. In addition, any such letter
must be accompanied by a consent from each person being recommended to serve as
a director if elected.
During fiscal 1997, there were four regular meetings and four special
meetings of the Board. Excluding Mr. Pasman, who did not become a director of
the Company until July 1997, each of the directors named above attended 75% or
more of the aggregate number of meetings of the Board of Directors of the
Company and the standing committees on which he or she served during fiscal
1997.
SECURITY OWNERSHIP
The following table sets forth, as of September 29, 1997, the number of
shares of Common Stock beneficially owned by (i) any person (including any
group) known by management to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each of the
executive officers of the Company named in the Summary Compensation Table and
(iv) all directors and executive officers as a group. Unless otherwise indicated
in a footnote, each individual or group possesses sole voting and investment
power with respect to the shares indicated as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OWNED
--------------------------------------- ---------------- ------------------
<S> <C> <C>
Education Management Corporation Employee
Stock Ownership Trust....................................... 3,495,578 24.2%
Merrill Lynch Entities(2)................................... 971,378 6.7
The Northwestern Mutual Life Insurance Company.............. 1,171,810 8.1
Robert B. Knutson(3)(4)..................................... 2,107,352 14.6
Robert H. Atwell(5)......................................... 11,250 *
James J. Burke, Jr.(6)...................................... 31,979 *
William M. Campbell, III(7)................................. 3,750 *
Miryam L. Drucker(3)(8)..................................... 297,175 2.0
Albert Greenstone(5)........................................ 45,585 *
James S. Pasman, Jr......................................... 2,000 *
Patrick T. DeCoursey(9)..................................... 129,455 *
Robert T. McDowell(10)...................................... 94,791 *
William M. Webster, IV...................................... 37,400 *
All executive officers and directors as a group(11)......... 2,763,953 18.7
</TABLE>
- ---------
* Less than 1%
(1) The address of each listed shareholder, unless noted otherwise, is c/o
Education Management Corporation, 300 Sixth Avenue, Pittsburgh,
Pennsylvania 15222.
(2) Shares of Common Stock beneficially owned by the Merrill Lynch Entities are
owned of record as follows: 619,145 shares by Merrill Lynch Capital
Appreciation Partnership No. IV, L.P.; 15,828 shares by ML Offshore LBO
Partnership No. IV; 28,402 shares by ML IBK Positions, Inc.; 275,273 shares
by Merrill Lynch Capital Corporation; 16,496 shares by ML Employees LBO
Partnership No. I, L.P.; and 16,234 shares by Merrill Lynch KECALP L.P.
1986.
(3) Mr. Knutson and Ms. Drucker, who are husband and wife, disclaim beneficial
ownership of each other's shares.
(4) Includes 15,000 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
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<PAGE> 8
(5) Includes 3,750 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
(6) Mr. Burke is a director of a corporation which is the general partner of a
partnership which in turn is a general partner of certain of the Merrill
Lynch Entities. Mr. Burke disclaims beneficial ownership of any shares held
by any of the Merrill Lynch Entities.
(7) The 3,750 shares of Common Stock are receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
(8) Includes 158,262 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
(9) Includes 87,500 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
(10) Includes 44,631 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
(11) Includes 319,143 shares of Common Stock receivable upon the exercise of
options that are exercisable within 60 days of the date of the table set
forth above.
PROPOSAL TWO: RATIFY THE SELECTION BY THE BOARD OF DIRECTORS OF ARTHUR ANDERSEN
LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR
In accordance with the recommendation of the Audit Committee, the Board has
reappointed Arthur Andersen LLP as independent public accountants of the Company
for fiscal 1998. Although ratification of this reappointment is not legally
required, the Board believes it is appropriate for the shareholders to ratify
such action. In the event that the shareholders do not ratify the selection of
Arthur Andersen LLP as the Company's independent public accountants, the Company
will reconsider such appointment. A representative of Arthur Andersen LLP, which
has served as the Company's independent public accountants for over 20 years,
will attend the Annual Meeting, will have the opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions. The Board reserves the right to replace the independent public
accountants at any time upon recommendation of the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the Company's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Knutson................ 63 Chairman and Chief Executive Officer and Director
Miryam L. Drucker................ 52 Vice Chairman and Director
Patrick T. DeCoursey............. 52 Executive Vice President
Robert T. McDowell............... 43 Senior Vice President, Chief Financial Officer and
Treasurer
Carol J. Viola................... 59 Vice President, Education
</TABLE>
Robert B. Knutson has been the Chairman and Chief Executive Officer of the
Company since 1986 and a director of the Company since 1969. He is a graduate of
the University of Michigan (B.A., Economics 1956) and was a fighter pilot with
the U.S. Air Force from 1957 to 1962. Mr. Knutson joined the Company as a
director in 1969, became its President in 1971 and the Chairman, President and
Chief Executive Officer in 1986. Mr. Knutson is the husband of Miryam L.
Drucker.
Miryam L. Drucker is the Vice Chairman of the Company and has been a
director of the Company since 1990. She is a graduate of the Universidad del
Zulia, Venezuela (B.A., Journalism 1965). Ms. Drucker joined the Company in
1984. From 1985 to 1987, she was the president of The Art Institute of Dallas
and, from 1987 to 1988, she was the president of The Art Institute of Fort
Lauderdale. From 1988 to 1989, she was the head of The
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<PAGE> 9
Art Institutes and, from 1989 to 1996, she was the Company's President and Chief
Operating Officer. Ms. Drucker is the wife of Robert B. Knutson.
Patrick T. DeCoursey is the Executive Vice President of the Company
responsible for the operation of the Company's schools. He is a graduate of
Maryknoll College (B.A., Philosophy, Spanish 1967). Mr. DeCoursey joined the
Company as president of The Art Institute of Dallas in 1991. In 1993 he became
an Executive Vice President of the Company.
Robert T. McDowell is the Senior Vice President, Chief Financial Officer
and Treasurer of the Company. He is a graduate of the University of Pittsburgh
(M.B.A., 1978; B.A., Economics 1977). Mr. McDowell joined the Company in 1988.
From 1990 to 1993, Mr. McDowell was the Treasurer of the Company.
Carol J. Viola is the Vice President, Education of the Company. She is a
graduate of Northern Illinois University (Ed. D., Curriculum and Instruction
1982; C.A.S., Community College Curriculum and Instruction 1975; M.A., Speech
1965; B.A., Speech and English 1960). From 1987 to 1994, Ms. Viola was Provost,
Open Campus, College of DuPage in Illinois. She joined the Company in 1994.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the Nasdaq Stock Market.
Based on a review of the forms it has received, the Company believes that
during the fiscal year ended June 30, 1997 all such Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with by such persons.
CERTAIN TRANSACTIONS
Mr. Knutson is a limited partner, with no managerial authority, in Ocean
World Associates Ltd. The Art Institute of Fort Lauderdale leases one of its
buildings from Ocean World Associates Ltd. for approximately $1.3 million
annually.
Mr. Knutson and Mr. Greenstone are limited partners, with no managerial
authority, in AIPH Limited Partnership, which is a general partner of The Art
Institute of Philadelphia Limited Partnership. The Art Institute of Philadelphia
leases one of its buildings from The Art Institute of Philadelphia Limited
Partnership for approximately $516,000 annually.
In connection with acquiring shares of Common Stock: (i) in July 1995, Mr.
DeCoursey incurred indebtedness to the Company in an aggregate amount of
$133,400; and (ii) in September 1991, February 1992 and July 1995, Mr. McDowell
incurred indebtedness to the Company in the aggregate amount of $179,700. The
largest principal amount of such indebtedness outstanding during the fiscal year
ended June 30, 1997 was approximately $133,400, in the case of Mr. DeCoursey,
and $158,000, in the case of Mr. McDowell. Interest rates on such indebtedness
were 6.28% for Mr. DeCoursey and 9%, 6.28% and 6.75% for Mr. McDowell. As of the
date of this Proxy Statement, Messrs. DeCoursey and McDowell have prepaid all
such indebtedness in full.
On August 9, 1996, the Company redeemed 75,000 shares of its Series A
10.19% Convertible Preferred Stock, $.0001 par value (the "Series A Preferred
Stock"), from the Company's Employee Stock Ownership Plan and Trust (the "ESOP")
at a redemption price of $101.43 per share (the equivalent of $13.14 per share
of Common Stock), plus aggregate accrued and unpaid dividends thereon equal to
$83,750 (or the equivalent of $.14 per share of Common Stock). The Company
financed such redemption with borrowings under its Amended and Restated Credit
Agreement, dated March 16, 1995, as amended.
On August 9, 1996, the ESOP purchased a total of 594,235 shares of Common
Stock from 18 current or former members of the Company's management (including
three executive officers of the Company) at a price of $12.50 per share, or
$7,427,937 in the aggregate. No management shareholder sold more than 20% of the
total number of shares he or she beneficially owned in that transaction.
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<PAGE> 10
In connection with the initial public offering of shares of Common Stock on
October 31, 1996 (the "Offering"), the ESOP converted all the shares of Series A
Preferred Stock it then owned into 1,124,977 shares of Common Stock.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following tables set forth certain information concerning the
compensation of, option grants to, and aggregate options held by, the Company's
Chairman and Chief Executive Officer, the Company's three other most highly
compensated executive officers during fiscal 1997 and one other individual who
is a former executive officer.
SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)(2)
- ---------------------------- ---- --------- --------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson........... 1997 $ 325,000 $ 300,000 -- 60,000 $ 6,143
Chairman and 1996 310,340 225,000 -- -- 44,312
Chief Executive Officer
Miryam L. Drucker........... 1997 250,000 200,000 -- 50,000 5,482
Vice Chairman 1996 239,664 160,000 -- -- 64,362
Patrick T. DeCoursey........ 1997 200,000 185,000 -- 50,000 6,855
Executive Vice President 1996 191,672 110,000 -- -- 37,632
Robert T. McDowell.......... 1997 166,664 120,000 -- 40,000 5,211
Senior Vice President, Chief 1996 150,000 65,000 -- -- 36,604
Financial Officer and
Treasurer
William M. Webster, IV(1)... 1997 158,333 50,000 -- 50,000 4,440
Executive Vice President 1996 21,141 -- -- 75,000 --
</TABLE>
- ---------
(1) Mr. Webster resigned effective May 1, 1997. The salary and bonus shown
represents the compensation earned from July 1, 1996 through May 1, 1997.
Effective upon his resignation, the options granted him in fiscal 1997 were
forfeited.
(2) Such amounts represent the Company's contributions to the ESOP (in 1996
only), its profit-sharing retirement plan (in both years) and its deferred
compensation plan (in 1996 only) and the dollar value of life insurance
premiums paid by the Company with respect to term life insurance for the
benefit of certain executive officers of the Company (in both years).
OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson............. 33,336 5.30% $15.00 10/29/06 $314,358 $ 797,064
26,664 4.20 16.50 10/29/01 121,552 268,598
Miryam L. Drucker............. 50,000 7.90 15.00 10/29/06 471,500 1,195,500
Patrick T. DeCoursey.......... 50,000 7.90 15.00 10/29/06 471,500 1,195,500
Robert T. McDowell............ 40,000 6.30 15.00 10/29/06 377,200 956,400
William M. Webster, IV(1)..... 50,000 7.90 15.00 10/29/06 471,500 1,195,500
</TABLE>
- ---------
(1) Mr. Webster resigned effective May 1, 1997. Effective upon his resignation,
the options granted him in fiscal 1997 were forfeited.
7
<PAGE> 11
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND JUNE 30, 1997 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
NUMBER VALUE OF SECURITIES VALUE OF
OF SECURITIES UNEXERCISED, UNDERLYING UNEXERCISED,
SHARES UNDERLYING EXERCISABLE UNEXERCISED AND UNEXERCISABLE
ACQUIRED UNEXERCISED & IN-THE-MONEY UNEXERCISABLE IN-THE-MONEY
ON VALUE EXERCISABLE OPTIONS OPTIONS AT OPTIONS AT OPTIONS AT
NAME EXERCISE(#) REALIZED($) AT JUNE 30, 1997(#) JUNE 30, 1997($) JUNE 30, 1997(#) JUNE 30, 1997($)
---- ----------- ----------- ------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson.......... -- -- -- -- 60,000 $620,003
Miryam L. Drucker.......... -- -- 145,762 $3,333,106 50,000 550,000
Patrick T. DeCoursey....... -- -- 75,000 1,522,500 50,000 550,000
Robert T. McDowell......... -- -- 34,631 790,523 40,000 440,000
William M. Webster, IV..... 18,750 $ 229,687 -- -- 14,063 210,945
</TABLE>
- ---------
(1) In August 1996, the Board provided for the vesting of the approximately 11%
of the then-outstanding options that had not previously vested in accordance
with their terms (other than Mr. Webster's).
(2) Based on the closing price of the Common Stock on June 30, 1997 of $26.00
per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPANTS
The Company's Compensation Committee reviews and acts on matters relating
to compensation levels and benefit plans for key executives of the Company. The
Compensation Committee during fiscal 1997 consisted of Mr. Burke, Mr. Campbell,
Mr. Knutson and Harvey Sanford, who died in April 1997. Mr. Knutson serves as
the Chairman and Chief Executive Officer of the Company.
EMPLOYMENT AGREEMENT
The Company and Mr. Knutson have entered into an amended and restated
employment agreement, dated as of August 15, 1996, with an initial term ending
June 30, 2000 (the "Employment Agreement"). The Employment Agreement is subject
to successive, automatic one-year extensions unless either party gives written
notice of non-extension to the other party at least 270 days prior to the
then-current expiration date. Under the terms of the Employment Agreement, Mr.
Knutson will serve as Chairman and Chief Executive Officer of the Company and is
to receive a base salary at an annual rate of $325,000, subject to adjustment,
and incentive compensation and other employee benefits under the various benefit
plans and programs maintained by the Company.
The Employment Agreement will terminate prior to the scheduled expiration
date in the event of the death or disability of Mr. Knutson. In addition, the
Company may terminate the Employment Agreement with or without cause (as defined
therein) and Mr. Knutson may resign upon 30 days' advance written notice to the
Company. If Mr. Knutson is discharged from his employment by the Company without
cause or if he resigns with good reason (as defined therein), he will continue
to receive payment of his base salary, average incentive compensation and other
benefits for the remainder of the term of the Employment Agreement, or a period
of one year following the date of termination, whichever is longer. In addition,
all of Mr. Knutson's stock options will become fully vested and exercisable. The
Employment Agreement contains non-competition, non-interference and
confidentiality covenants on the part of Mr. Knutson.
DIRECTORS' COMPENSATION
The Company provides each non-employee director with the following
compensation: (i) a $12,000 annual retainer and reimbursement for out-of-pocket
expenses, (ii) a $1,000 fee for each Board meeting attended, (iii) a $500 fee
for each committee meeting attended that is not held on the same day as a Board
meeting, (iv) pursuant to the Company's 1996 Stock Incentive Plan, a
non-discretionary grant of an option to purchase 7,500 shares of Common Stock,
such grant to be made on the date that a non-employee director is first elected
to the Board, which option vests 50% on the first anniversary and 50% on the
second anniversary of such grant, and (v) pursuant to the Company's 1996 Stock
Incentive Plan, an annual non-discretionary grant of an option to
8
<PAGE> 12
purchase 2,500 shares of Common Stock, such grant to be made on the date of each
annual meeting of the Company's shareholders while such director remains a
director, which option will vest 50% on the first anniversary and 50% on the
second anniversary of that meeting. The exercise price for each such
non-employee director stock option will be the fair market value on the date of
grant of the shares subject to the option. All such options will have a ten-year
term. Directors who are employees of the Company receive no additional
compensation for serving on the Board.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND PROGRAMS
The Compensation Committee of the Board (the "Committee") is responsible
for, among other things, reviewing and administering the Company's policies
governing compensation, employee benefits and incentive plans for its executive
officers. During fiscal 1997, the Committee was comprised of three non-employee
directors, Harvey Sanford (who died in April 1997), James J. Burke, Jr., and
William M. Campbell, III, and one employee director, Robert B. Knutson. Mr.
Knutson did not participate in any discussions concerning his compensation,
employee benefits or stock option grants during fiscal 1997. The Committee met
two times during fiscal 1997. As of the date of this Proxy Statement, the
members of the Committee are Messrs. Burke (Chair), Campbell, Greenstone and
Pasman.
Prior to the Offering, the Committee discussed and made recommendations to
the full Board with respect to the compensation to be paid and benefits to be
provided to executive officers of the Company, although neither the Board nor
the Committee had established specific policy guidelines concerning those
matters. In that regard, the compensation arrangements for the Company's senior
executives through the end of fiscal 1997 were affected by the Company's history
as a private company until the consummation of the Offering in November 1996. In
the future, the compensation and benefits of the Company's officers will be
determined in accordance with the policies set forth below.
The key objectives of the Committee's policies on compensation and benefits
will be to enhance the Company's ability to attract and retain highly qualified
executives, to establish and maintain compensation and benefit programs that are
fair and competitive with those of comparable organizations, and to develop and
maintain executive compensation programs that link compensation to the
short-term and long-term performance of the Company and the interests of its
shareholders.
The primary elements in the Company's compensation program for its
executive officers will be an annual base salary, an annual cash bonus and
long-term incentive grants, which at the present time are likely to be in the
form of stock options.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), restricts the deductibility for federal income tax purposes of the
compensation paid to the chief executive officer and each of the four other most
highly compensated executive officers of an entity for any fiscal year to the
extent that such compensation exceeds $1,000,000 and does not qualify as
"performance-based" as defined under the Code. The Committee intends to obtain
the fullest compensation deduction possible without sacrificing the flexibility
needed to recognize and reward desired performance. The Committee believes that
all compensation provided to the Company's executive officers in fiscal 1997 is
fully deductible.
BASE SALARIES
The annual base salaries for the Company's executive officers for fiscal
1998 were established by the Committee based, in part, upon information
available to it concerning the salaries paid to similar officers at comparable,
publicly-traded, postsecondary education companies, which were all of the
companies included in the peer group index for purposes of the performance graph
set forth below other than Strayer Education, Inc. The Committee expects to
adjust salaries periodically to take into account competitive market conditions,
individual and corporate performance, and changes in job responsibilities.
9
<PAGE> 13
ANNUAL CASH BONUS
The Company provides annual incentives to its executive officers and other
key employees in the form of cash bonuses. At the beginning of each fiscal year,
performance objectives and corporate goals are established for each eligible
individual, although no specific amount is payable on account of the
accomplishment of any particular objective or goal. Each bonus payment is based
on an individual's achievement of both corporate and personal objectives, with
greater emphasis generally placed on the achievement of corporate objectives,
although the Company has no set formula to rank those objectives. The amounts of
individual bonuses could be limited by the overall amount allocated by the
Company for cash bonuses.
LONG-TERM INCENTIVES
The Committee administers the Education Management Corporation 1996 Stock
Incentive Plan (the "Incentive Plan"), which was adopted by the Company to
attract and retain key personnel and non-employee directors. Under the Incentive
Plan, the Committee is authorized to grant officers and key employees of the
Company and its subsidiaries non-statutory stock options, incentive stock
options, stock appreciation rights, limited stock appreciation rights,
performance shares and restricted stock with respect to up to 1,250,000 shares
of Common Stock.
The Committee's primary objectives when making grants under the Incentive
Plan are to allow key employees to participate in the success of the Company
through stock ownership, to provide a strong and direct link between employee
compensation and the interests of shareholders, and to encourage recipients to
focus on the long-term performance of the Company. The number of shares of
Common Stock that are the basis of an award to any individual is determined by
the individual's position in and level of responsibility at the Company, which,
to a great extent, reflect that individual's ability to influence the Company's
long-term performance. The size of the grants previously made to and then held
by an individual will be considered by the Committee when determining what
number of shares of Common Stock will be the basis of the award to that
individual in the then-current year, but will not be an important factor.
Incentive stock options granted to any holder of more than 10% of the total
combined voting power of all classes of stock of the Company on the date of
grant must be exercised not later than five years from the date of grant of the
options. All other options granted under the Incentive Plan must be exercised
within a period fixed by the Committee, which may not exceed ten years from the
date of any such grant. Additionally, in the case of incentive stock options
granted to any holder of more than 10% of the total combined voting power of all
classes of stock of the Company on the date of grant, the exercise price may not
be less than 110% of the market value per share of the Common Stock on the date
of grant. In all other cases, the exercise price must be not less than the fair
market value per share on the date of grant as determined pursuant to the
methods and procedures established by the Committee. The Committee sets the
exercise price for options granted under the Incentive Plan and is authorized to
grant stock appreciation rights, which authorize payments of cash and/or stock
to holders of such rights in an amount based on the appreciation in the value of
the Common Stock from the date of grant to the date of exercise. Limited stock
appreciation rights are stock appreciation rights that become exercisable only
upon a Change in Control (as defined in the Incentive Plan) of the Company.
The Committee also may grant performance shares, the number and value of
which are determined by the extent to which the grantee meets performance goals
and other terms and conditions set by the Committee. In addition, the Committee
is authorized to grant shares of Common Stock subject to restrictions on
transferability and other restrictions it may impose, including time-based and
performance-based forfeiture restrictions. Such restricted stock is subject to
forfeiture upon termination of employment during the restriction period.
Options and awards granted under the Incentive Plan are not transferable by
the grantee other than by will or the laws of descent and distribution, except
that the Committee may grant non-statutory stock options that are transferable
to immediate family members or trusts or partnerships for such family members.
If a Change in Control occurs, all outstanding options and awards will become
fully exercisable and all restrictions on outstanding options and awards will
lapse. The Incentive Plan also provides that, in the event of changes in the
corporate structure of the Company affecting the Common Stock, the Committee
will make adjustments in the number, class and/or price of the shares of capital
stock subject to awards granted under the Incentive Plan to
10
<PAGE> 14
preserve the proportionate interests of participants in awards and to prevent
dilution or enlargement of rights. The number of shares available for future
awards will also be adjusted.
During fiscal 1997, the Company issued options to purchase 609,500 shares
of Common Stock under the Incentive Plan to 62 key employees and four
non-employee directors. Generally, those options were granted with an exercise
price equal to the fair market value per share of the Common Stock on the date
of grant, vest on a pro rata basis over four years and expire ten years from the
date of grant.
The Committee also administers the Education Management Corporation
Management Incentive Stock Option Plan (the "1993 Option Plan"), which was
adopted by the Company to attract and retain talented management and other key
employees. The 1993 Option Plan authorizes the grant of non-statutory stock
options to officers of the Company or its subsidiaries and certain other key
executive and management employees of the Company to purchase up to 200,000
shares of Common Stock. The exercise price of an option granted under the 1993
Option Plan is the fair market value of the subject shares determined as of the
date of grant. No option will be granted to a participant who, upon exercise of
such option, would own more than 5% of the total combined voting power of all
classes of stock of the Company. During fiscal 1997, the Company issued an
option to purchase 21,500 shares of Common Stock under the 1993 Option Plan to
one key employee. This option was granted with an exercise price equal to the
fair market value per share of the Common Stock on the date of grant, vests on a
pro rata basis over four years and expires ten years from the date of grant.
COMPENSATION OF MR. KNUTSON
Pursuant to a prior version of the Employment Agreement, Mr. Knutson's
annual base salary was increased to $325,000 effective November 1995. This
amount represented an increase of 15% over the annual base salary of $281,000
previously in effect. In fiscal 1997, Mr. Knutson's annual base salary was not
increased. Of the three other executive officers who were executive officers of
the Company during fiscal 1995, 1996 and 1997, two received approximately 14%
increases in their annual base salaries in fiscal 1996 and none in fiscal 1997
and the other received no increase in fiscal 1996 and an approximately 17%
increase in annual base salary in fiscal 1997.
The annual bonus component of Mr. Knutson's compensation has been and will
continue to be based upon the Company's overall financial performance and his
achievement of individual performance goals, as is the case for all of the
Company's executive officers. The Committee also took into account, when
determining Mr. Knutson's bonus, information provided by surveys concerning the
overall compensation and bonuses paid to executive officers of selected
publicly-traded companies with revenues of approximately $150 million, other
publicly-traded, postsecondary education companies, and colleges and
universities. During fiscal 1997, Mr. Knutson received a bonus payment of
$225,000 in respect of fiscal 1996. With respect to fiscal 1997, Mr. Knutson was
awarded a bonus of $300,000 in September 1997.
Effective October 30, 1996, Mr. Knutson was granted under the Incentive
Plan a non-qualified option to purchase 33,336 shares of Common Stock at $15 per
share, which was the initial public offering price of the Common Stock, and an
incentive option to purchase 26,664 shares of Common Stock at $16.50 per share.
These grants were made by the Committee to bring Mr. Knutson's long-term
incentive compensation in line with the long-term incentive compensation
opportunities provided to chief executive officers in comparable,
publicly-traded, postsecondary education companies, as well as to recognize Mr.
Knutson's increased level of responsibilities following the Offering.
The Committee believes that the Company's compensation and benefit programs
for its executive officers effectively accomplish the objectives stated above.
COMPENSATION COMMITTEE
James J. Burke, Jr. (Chair)
William M. Campbell, III
Albert Greenstone
James S. Pasman, Jr.
11
<PAGE> 15
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return on the Common Stock with the Nasdaq Stock Market (U.S.) Index
and a Peer Group Index for the period from October 31, 1996 through June 30,
1997. The graph assumes the investment of $100 at the close of trading on
October 31, 1996 in the Common Stock, the Nasdaq Stock Market (U.S.) Index and
the Peer Group Index and assumes re-investment of all dividends, if any. The
peer group consists of the following companies selected on the basis of their
similar businesses: Apollo Group, Inc., Computer Learning Centers, Inc., DeVry
Inc., ITT Educational Services, Inc., and Strayer Education, Inc. The Company
believes that, including itself, these companies represent a substantial portion
of the market value of publicly traded companies whose primary business is
postsecondary education. The Common Stock commenced trading on the Nasdaq Stock
Market on October 31, 1996.
<TABLE>
<CAPTION>
Education
Measurement Period Management Nasdaq Stock
(Fiscal Year Covered) Corporation Peer Group Market (U.S.)
<S> <C> <C> <C>
10/96 100 100 100
6/97 173 126 119
</TABLE>
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN 1998
The date by which shareholder proposals must be received by the Company for
inclusion in proxy material relating to the Annual Meeting of Shareholders to be
held in 1998 is September 7, 1998.
By Order of the Board of Directors
Frederick W. Steinberg
Vice President, General Counsel and
Secretary
October 8, 1997
12
<PAGE> 16
EXHIBIT A
P R O X Y
EDUCATION MANAGEMENT CORPORATION
300 Sixth Avenue, Pittsburgh, Pennsylvania 15222
Proxy for Annual Meeting of Shareholders on November 6, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert T. McDowell and Frederick W.
Steinberg and each or either of them as proxies, each with power to appoint his
substitute and hereby authorizes either of them to represent and to vote all
shares of Common Stock of Education Management Corporation, a Pennsylvania
corporation (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on November 6, 1997, commencing at 10:00 A.M., local time, at the Rihga Royal
Hotel, Majestic West Room, 151 West 54th Street, New York, New York 10019, or
any adjournment or postponement thereof, as designated on the reverse side of
this proxy card.
PLEASE DATE AND SIGN ON REVERSE SIDE
o FOLD AND DETACH HERE o
<PAGE> 17
Mark
your votes as
indicated in [ X ]
this example
<TABLE>
<CAPTION>
<S> <C> <C>
The election of three directors, each for a term of three years: NOMINEES: Robert H. Atwell
FOR WITHHOLD William M. Campbell, III
all nominees listed AUTHORITY
to the right to Albert Greenstone
(except as marked to vote for
the contrary). all nominees
(INSTRUCTIONS: To withhold authority to
[ ] [ ] vote for any nominee, draw a line through
such nominee's name.)
</TABLE>
2. The proposal to ratify the selection by the Board
of Directors of Arthur Andersen LLP as independent
public accountants for the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1 AND 2.
DATED , 1997
----------------------------------------------
- ---------------------------------------------------------
(Signature)
- ---------------------------------------------------------
(Signature)
NOTE: Please sign exactly as name or names appear hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized partner.
o FOLD AND DETACH HERE o
