<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of Commission Only (as
/X/ Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
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.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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) Date Filed:
------------------------------
<PAGE> 2
EDUCATION MANAGEMENT CORPORATION
300 SIXTH AVENUE
PITTSBURGH, PA 15222
October 5, 1998
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 5, 1998, at The
Waldorf-Astoria, 301 Park Avenue, 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 5, 1998
The 1998 Annual Meeting of Shareholders of Education Management Corporation
will be held on Thursday, November 5, 1998, commencing at 10:00 a.m., local
time, at The Waldorf-Astoria, 301 Park Avenue, New York, New York, for the
following purposes:
1. To elect two Class II Directors to serve until the Annual Meeting of
Shareholders to be held in the year 2001.
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 18, 1998
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/ FREDRICK W. STEINBERG
Frederick W. Steinberg
Vice President, General Counsel and
Secretary
October 5, 1998
<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 5, 1998
This Proxy Statement and the accompanying proxy are being furnished to
shareholders on or about October 5, 1998 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 5, 1998, at The
Waldorf-Astoria, 301 Park Avenue, 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, 1998 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 18, 1998, 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 14,592,530 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 vote 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. Under the applicable rules of the Securities and
Exchange Commission, those persons would have that discretionary authority with
respect to any proposal brought before the Annual Meeting if the Company did not
have notice of the proposal by September 7, 1998.
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, two 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 2001 (the "2001 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 James
J. Burke, Jr. and Miryam L. Drucker, the current Class II 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 2001 ANNUAL MEETING OF
SHAREHOLDERS
James J. Burke, Jr., age 46, 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 53, 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 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. Ms. Drucker intends to retire from her
position as the Vice Chairman of the Company during November 1998 and become a
part-time employee of the Company.
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
1999
Robert B. Knutson, age 64, 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 and 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 67, has been a director of the Company since
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,
2
<PAGE> 6
Mr. Pasman has been retired. Mr. Pasman serves on the boards of directors of BEA
Income Fund, Inc., BEA Global Strategic Income Fund, Inc., BT Insurance Funds
Trust, and Tyco International, Ltd.
TERMS EXPIRING AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN THE YEAR
2000
Robert H. Atwell, age 67, 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 38, 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. From 1995 to 1998, he was the executive vice
president of CBS Entertainment. Since 1998, he has been the president of Miramax
Television.
Albert Greenstone, age 71, 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 NCPT and became the president emeritus of The National Center for
Professional Development in 1994.
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 two meetings
during fiscal 1998. The members of the Audit Committee during fiscal 1998 were
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 one meeting during
fiscal 1998. The members of the Compensation Committee during fiscal 1998 were
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 1998. The members of the Nominating Committee during
fiscal 1998 were 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
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
3
<PAGE> 7
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 1998, there were four regular meetings and four special
meetings of the Board. 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 1998.
SECURITY OWNERSHIP
The following table sets forth, as of September 18, 1998, 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
OUTSTANDING
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OWNED OWNED
- --------------------------------------- ------------ -----
<S> <C> <C>
Education Management Corporation Employee Stock Ownership
Trust..................................................... 3,300,723 22.6%
Putnam Investments, Inc.(2)................................. 2,028,252 13.9%
Baron Capital Group, Inc.(3)................................ 1,031,000 7.1%
Robert B. Knutson(4)(5)..................................... 1,767,650 12.1%
Robert H. Atwell(6)......................................... 8,750 *
James J. Burke, Jr.(7)...................................... 53,151 *
William M. Campbell, III(8)................................. 9,750 *
Miryam L. Drucker(4)(9)..................................... 255,306 1.7%
Albert Greenstone(8)........................................ 24,338 *
James S. Pasman, Jr.(6)..................................... 7,000 *
Robert P. Gioella(10)....................................... 18,661 *
Robert T. McDowell(11)...................................... 106,290 *
Carol J. Viola(6)........................................... 5,874 *
All executive officers and directors as a group(12)......... 2,256,770 15.1%
</TABLE>
- ---------------
* Less than 1%
(1) The address of each listed shareholder, unless otherwise noted, is c/o
Education Management Corporation, 300 Sixth Avenue, Pittsburgh,
Pennsylvania 15222.
(2) The address of Putnam Investments, Inc. and its affiliates, Putnam
Investment Management, Inc., The Putnam Advisory Company, Inc., and Putnam
OTC & Emerging Growth Fund, is One Post Office Square, Boston,
Massachusetts 02109. These persons share both voting and dispositive power
over some or all of the shares set forth opposite the name "Putnam
Investments, Inc." in the table.
(3) The address of Baron Capital Group, Inc. and its affiliates, BAMCO, Inc.,
Baron Capital Management, Inc., Baron Asset Fund, and Ronald Baron, is 767
Fifth Avenue, New York, New York 10153. These persons share both voting and
dispositive power over some or all of the shares set forth opposite the
name "Baron Capital Group, Inc." in the table.
(4) Mr. Knutson and Ms. Drucker, who are husband and wife, disclaim beneficial
ownership of each other's shares.
(5) Includes 30,000 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.
(6) Includes 5,000 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.
4
<PAGE> 8
(7) Includes 1,250 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.
(8) Includes 8,750 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.
(9) Includes 170,762 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 17,500 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.
(11) Includes 54,631 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.
(12) Includes 306,643 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 1999. 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 Company's 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>
Chairman and Chief Executive Officer and
Robert B. Knutson............................ 64 Director
Miryam L. Drucker............................ 53 Vice Chairman and Director
Robert P. Gioella............................ 50 Senior Vice President, Operations
Senior Vice President and Chief Financial
Robert T. McDowell........................... 44 Officer
Carol J. Viola............................... 60 Senior 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 and 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 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. Ms. Drucker intends to retire from her
position as the Vice Chairman of the Company during November 1998 and become a
part-time employee of the Company.
5
<PAGE> 9
Robert P. Gioella is the Senior Vice President, Operations of the Company
responsible for the operation of the Company's schools. He is a graduate of the
University of Steubenville (B.A., Political Science 1970) and Duquesne
University (M.A., Political Science 1976). From 1993 to 1997, Mr. Gioella was
the president of The Art Institute of Philadelphia and, from 1996 to 1998, he
was the Vice President, New School Operations of the Company.
Robert T. McDowell is the Senior Vice President and Chief Financial Officer
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 Senior 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. From October 1994 to June 1998, Ms. Viola was the Vice President,
Education of the Company.
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,
the Nasdaq Stock Market and the Company.
Based on a review of the forms it has received, the Company believes that
during the fiscal year ended June 30, 1998 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; except that a Form 3 was
not filed for Mr. Gioella (although the required information was set forth in a
subsequent Form 5); two Form 4's were filed late for Mr. Greenstone; and Mr.
Pasman's Form 5 was amended after its due date to reflect the prior grant of
options to him.
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 $516,000 annually.
6
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following tables set forth certain information concerning the
compensation of, and aggregate options held by, the Company's Chairman and Chief
Executive Officer, the Company's four other most highly compensated executive
officers during fiscal 1998 and one individual who is a former executive
officer.
SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- ---- --------- -------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson........... 1998 $325,000 $350,000 -- -- 14,124
Chairman and 1997 325,000 300,000 -- 60,000 6,143
Chief Executive Officer 1996 310,340 225,000 -- -- 44,312
Miryam L. Drucker........... 1998 250,000 $225,000 -- -- 15,168
Vice Chairman 1997 250,000 200,000 -- 50,000 5,482
1996 239,664 160,000 -- -- 64,362
Robert P. Gioella........... 1998 142,667 $100,000 -- -- 5,096
Senior Vice President,
Operations
Robert T. McDowell.......... 1998 175,000 $110,000 -- -- 10,387
Senior Vice President and 1997 166,664 120,000 -- 40,000 5,211
Chief Financial Officer 1996 150,000 65,000 -- -- 36,604
Carol J. Viola.............. 1998 122,917 -- -- -- 7,968
Senior Vice President,
Education
Patrick T. DeCoursey(1)..... 1998 188,333 $ 80,000 -- -- 14,612
Executive Vice President 1997 200,000 185,000 -- 50,000 6,855
1996 191,672 110,000 -- -- 32,632
</TABLE>
- ---------------
(1) In April 1998, Mr. DeCoursey resigned as the Executive Vice President of the
Company and was elected the president of The Art Institute of Dallas.
(2) Such amounts represent, to the extent applicable, the Company's
contributions to the Company's Employee Stock Ownership Plan and Trust
("ESOP"), its profit-sharing retirement plan and its deferred compensation
plan 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. For fiscal 1998, the amounts paid are as follows:
<TABLE>
<CAPTION>
DEFERRED GROUP LIFE
RETIREMENT COMPENSATION INSURANCE
ESOP PLAN PLAN PREMIUMS
---- ---- ---- --------
<S> <C> <C> <C> <C>
Robert B. Knutson.......................... $2,132 $5,948 $5,612 $432
Miryam L. Drucker.......................... 2,132 6,000 6,604 432
Robert P. Gioella.......................... 4,484 -- 180 432
Robert T. McDowell......................... 3,752 4,156 2,047 432
Carol J. Viola............................. 3,523 4,094 -- 351
Patrick T. DeCoursey....................... 4,484 5,225 4,471 432
</TABLE>
7
<PAGE> 11
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND JUNE 30, 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES VALUE OF SECURITIES
UNDERLYING UNEXERCISED, UNDERLYING
UNEXERCISED & EXERCISABLE UNEXERCISED AND
SHARES EXERCISABLE IN-THE-MONEY UNEXERCISABLE
ACQUIRED ON VALUE OPTIONS AT OPTIONS AT OPTIONS AT
NAME EXERCISE(#) REALIZED($) JUNE 30, 1998(#) JUNE 30, 1998($)(1) JUNE 30, 1998(#)
- ---- ----------- ----------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert B. Knutson....... -- -- 15,000 258,126 45,000
Miryam L. Drucker....... -- -- 158,262 4,558,658 37,500
Robert P. Gioella....... -- -- 12,500 281,938 15,000
Robert T. McDowell...... -- -- 44,631 1,207,361 30,000
Carol J. Viola.......... -- -- 2,500 44,688 7,500
Patrick T. DeCoursey.... -- -- 87,500 2,261,563 37,500
<CAPTION>
VALUE OF
UNEXERCISED,
UNEXERCISABLE
IN-THE-MONEY
OPTIONS AT
NAME JUNE 30, 1998($)(1)
- ---- -------------------
<S> <C>
Robert B. Knutson....... 774,378
Miryam L. Drucker....... 670,313
Robert P. Gioella....... 268,125
Robert T. McDowell...... 536,250
Carol J. Viola.......... 134,063
Patrick T. DeCoursey.... 670,313
</TABLE>
- ---------------
(1) Based on the closing price of the Common Stock on June 30, 1998 of $32.875
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 1998 consisted of Mr. Burke, Mr. Campbell,
Mr. Greenstone and Mr. Pasman who are all not employed by the Company. Mr.
Greenstone was the president and chief executive officer of The National Center
for Paralegal Training, a unit of the Company, from 1972 to 1994. In addition,
Mr. Greenstone is a limited partner, 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 latter partnership for approximately $516,000
annually.
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 Education Management Corporation 1996 Stock
Incentive Plan (the "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-
8
<PAGE> 12
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 Incentive Plan, an annual non-discretionary grant of an option
to 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 1998, the Committee was comprised of four non-employee
directors, James J. Burke, Jr., William M. Campbell, III, Albert Greenstone and
James S. Pasman, Jr. The Committee met one time during fiscal 1998.
The key objectives of the Committee's policies on compensation and benefits
are 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 are an annual base salary, an annual cash bonus and long-term
incentive grants, which at the present time are 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 1998 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 the
comparable, publicly-traded, postsecondary education companies included in the
peer group index for purposes of the performance graph set forth below. The
Committee expects to adjust salaries periodically to take into account
competitive market conditions, individual and corporate performance, and changes
in job responsibilities.
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. Bonus payments are based on the attainment of these objectives and
goals. Effective beginning with fiscal 1999, the Company has established an
incentive bonus plan for executive officers and other key employees that is more
formula-driven than the arrangements that were in place in prior years. The new
plan provides that bonuses are to be paid based on the attainment of certain
earnings and revenue targets and placement rates and average starting salaries
for graduates of the Company's schools, as well as the achievement of individual
performance objectives.
9
<PAGE> 13
LONG-TERM INCENTIVES
The Committee administers 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 grants previously made to and then held by an
individual may also be taken into account by the Committee when determining the
size of the award to that individual in the then-current year.
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 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 1998, no options were granted to key employees during that
year. Generally, options given to key employees are 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.
COMPENSATION OF MR. KNUTSON
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. In establishing that compensation, the Committee applied the
factors described above, which are applicable to all executive officers of the
Company.
10
<PAGE> 14
The Committee also took into account information concerning the overall
compensation and bonuses paid to chief executive officers of other
publicly-traded, postsecondary education companies, including those companies
that were included in the peer group index for purposes of the performance graph
set forth below.
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.
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,
1998. 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.
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN*
AMONG EDUCATION MANAGEMENT COPRORATION
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
<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
6/98 219 180 157
</TABLE>
*$100 INVESTED ON 10/31/96 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
11
<PAGE> 15
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN 1999
The latest date by which shareholder proposals must be received by the
Company for inclusion in the Company's proxy materials relating to the Annual
Meeting of Shareholders to be held in 1999 is September 6, 1999.
By Order of the Board of Directors,
/S/ FREDRICK W. STEINBERG
Frederick W. Steinberg
Vice President, General Counsel and
Secretary
October 5, 1998
12
<PAGE> 16
PROXY
EDUCATION MANAGEMENT CORPORATION
300 Sixth Avenue, Pittsburgh, Pennsylvania 15222
Proxy for Annual Meeting of Shareholders on November 5, 1998
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 the 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 5, 1998, commencing at 10:00 a.m., local time, at
the Waldorf Astoria Hotel, 301 Park Avenue, New York, New York 10022,
or any adjournment or postponement thereof, as designated on the
reverse side of this proxy card.
PLEASE DATE AND SIGN ON REVERSE SIDE
<PAGE> 17
[ X ] Please mark your
votes as in this
example
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR both proposals.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. The election of two directors, each for a term of three years:
FOR all nominees listed at [ ] Nominees: James J. Burke, Jr.
right (except as marked to Miryam L. Drucker
the contrary below).
WITHHOLD AUTHORITY to vote [ ]
for all nominees listed at
right.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, draw a line through such nominee's name.)
FOR AGAINST ABSTAIN
2. The proposal to ratify the selection by [ ] [ ] [ ]
the Board of Directors of Arthur Andersen LLP
as independent public accountants for the
Company:
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.
SIGNATURE DATED , 1998
----------------------------------------------------- -----------------------------------
SIGNATURE DATED , 1998
----------------------------------------------------- -----------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
