<PAGE> 1
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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
</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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 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 Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
----------------------------------------------------
[ X ] No fee required
<PAGE> 2
EDUCATION MANAGEMENT CORPORATION
300 SIXTH AVENUE
PITTSBURGH, PA 15222
October 2, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at 10:00 a.m. on Thursday, November 2, 2000, at the Doubletree Hotel,
1000 Penn Avenue, Pittsburgh, Pennsylvania.
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 2, 2000
The 2000 Annual Meeting of Shareholders of Education Management Corporation
will be held on Thursday, November 2, 2000, commencing at 10:00 a.m., local
time, at the Doubletree Hotel, 1000 Penn Avenue, Pittsburgh, Pennsylvania, 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 2003.
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 5, 2000
will be entitled to vote at the meeting.
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 2, 2000
<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 2, 2000
This Proxy Statement and the accompanying proxy are being furnished to
shareholders on or about October 2, 2000 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 at 10:00 a.m., local time, on Thursday, November 2, 2000 at the Doubletree
Hotel, 1000 Penn Avenue, Pittsburgh, Pennsylvania, 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, 2000 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 5, 2000, 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 29,249,356 shares of Common
Stock, $.01 par value (the "Common Stock"), of the Company. Shareholders are
entitled to one vote per share; shareholders do not have cumulative voting
rights. 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 that are present but are
not voted with respect to any 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 require 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 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 5, 2000.
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
also 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 nine directors
divided into three classes. The Board is comprised of three Class I Directors,
three Class II Directors and three 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 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 2003 (the "2003 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 2003 ANNUAL MEETING OF
SHAREHOLDERS
Robert H. Atwell, age 69, 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 1984 until
1996, Mr. Atwell was the president of the American Council on Education. In
1996, he joined A.T. Kearney, Inc., a global consulting firm, as a senior
consultant. Mr. Atwell serves as a trustee of the TIAA-CREF Institutional Mutual
Funds.
William M. Campbell, III, age 40, 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 1994
to 1998, he was the executive vice president of CBS Television. Since 1998, he
has been the president of Miramax Television.
Albert Greenstone, age 73, 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
2001
James J. Burke, Jr., age 48, 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). He has
been a managing partner of Stonington Partners, Inc., a private investment firm,
since 1994. Mr. Burke serves on the boards of directors of AnnTaylor Stores
Corporation and United Artists Theatre Circuit, Inc.
Miryam L. Knutson, age 55, has been a director of the Company since 1990.
She is a graduate of the Universidad del Zulia, Venezuela (B.A., Journalism
1965). Ms. Knutson joined the Company in 1984 and held a variety of management
positions. From 1989 to 1996, she was the Company's President and Chief
Operating Officer. From 1996 to 1998, she was the Vice Chairman of the Company.
Since 1998, she has worked as a part-
2
<PAGE> 6
time consultant-employee for the Company and has acted as a consultant for
Stonington Partners, Inc. and Arena Capital Partners, L.L.C. Ms. Knutson is the
wife of Robert B. Knutson.
Robert P. Gioella, age 52, has been the President and Chief Operating
Officer of the Company since March 1999 and was appointed a member of the Board
of Directors of the Company in June 1999. From 1998 to March 1999, he was the
Senior Vice President/Operations of the Company, and from 1997 to 1998, he was
the Vice President -- New School Operations of the Company. From 1993 to 1997,
Mr. Gioella was president of The Art Institute of Philadelphia. He is a graduate
of the University of Steubenville (B.A., Political Science 1970) and Duquesne
University (M.A., Political Science 1976).
TERMS EXPIRING AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN THE YEAR
2002
Robert B. Knutson, age 66, 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. Knutson.
John R. McKernan, Jr., age 52, was appointed Vice Chairman of the Company
and a member of the Board of Directors of the Company in June 1999. Mr. McKernan
served as Governor of the State of Maine from 1987 to 1995. Since 1995, he has
been the Chief Executive Officer of McKernan Enterprises, Inc., a consulting and
investment firm. He is a graduate of Dartmouth College (B.A., Government 1970)
and the University of Maine Law School (J.D., 1974).
James S. Pasman, Jr., age 69, 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 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 Credit Suisse Asset Management Corp
Income Fund, Credit Suisse Asset Management Corp. Strategic Global Income Fund,
the Warburg Pincus family of funds, the Deutsche Bank 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, conferring with the independent accountants on
numerous matters including, but not limited to, a discussion of the Company's
annual report on Form 10-K and the quarterly report on Form 10-Q prior to their
filing, and such other matters as are specifically delegated to the Audit
Committee by the Board. The committee has adopted a formal written audit
committee charter, which is attached to this Proxy Statement as Appendix A. The
Committee held two meetings during fiscal 2000 and intends to meet on at least a
quarterly basis with the Company's independent public accountants to monitor
their activities. The members of the Audit Committee during fiscal 2000 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 three meetings during
fiscal 2000. The members of the Compensation Committee during fiscal 2000 were
Messrs. Burke (Chair), Campbell, Greenstone and Pasman.
3
<PAGE> 7
The Nominating Committee proposes to the full Board nominees for election
to the Board and its standing committees. The Nominating Committee held one
meeting during fiscal 2000. The members of the Nominating Committee during
fiscal 2000 were Mr. Knutson (Chair), Mr. Atwell and Ms. Knutson. 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 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. No such nominations were received.
During fiscal 2000, there were four regular meetings and six 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 committees on which he or she served during fiscal 2000.
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 (the
"Incentive Plan"), a non-discretionary grant of an option to purchase 15,000
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 Incentive Plan, an annual non-discretionary grant of an option to purchase
5,000 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.
SECURITY OWNERSHIP
The following table sets forth, as of September 20, 2000, the number of
shares of Common Stock beneficially owned by (i) any person (including any
group) known by management to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee for election as a
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.
4
<PAGE> 8
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OWNED OWNED
--------------------------------------- ------------ -----
<S> <C> <C>
Baron Capital Group, Inc.(2)................................ 5,922,600 20.2%
Education Management Corporation Employee Stock Ownership
Trust(3).................................................. 5,290,843 18.1%
Robert B. Knutson(4)(5)..................................... 3,200,423 10.9%
Miryam L. Knutson(4)(6)..................................... 331,487 1.1%
Robert H. Atwell(7)......................................... 12,500 *
James J. Burke, Jr.(8)...................................... 252,302 *
William M. Campbell, III(9)................................. 29,500 *
Robert P. Gioella(10)....................................... 115,940 *
Albert Greenstone(11)....................................... 37,176 *
Robert T. McDowell(12)...................................... 292,509 *
John R. McKernan, Jr.(13)................................... 46,750 *
James S. Pasman, Jr.(14).................................... 31,500 *
David J. Pauldine(15)....................................... 138,201 *
All executive officers and directors as a group (11
persons)(16).............................................. 4,488,288 15.3%
</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 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. The information provided for
Baron Capital Group, Inc. is based on information provided in a Schedule
13D filed with the Securities and Exchange Commission on November 12, 1999.
(3) These shares are held by the trustee, Fidelity Management Trust Company, 82
Devonshire Street, Boston, Massachusetts 02109, for the benefit of
participants in the Education Management Corporation Employee Stock
Ownership Trust (the "ESOP"). The ESOP is administered by the Company's
Retirement Committee. ESOP participants are entitled to direct the voting
of the shares of Common Stock allocated to their respective accounts.
Allocated shares of Common Stock for which voting instructions are not
given and unallocated shares held by the ESOP are voted by the trustee in
the manner determined by the Retirement Committee.
(4) Mr. Knutson and Ms. Knutson, who are husband and wife, disclaim beneficial
ownership of each other's shares.
(5) Includes 2,859,641 shares of Common Stock held by the Amended and Restated
Revocable Trust of Robert B. Knutson dated October 8, 1996, 150,000 shares
of Common Stock held by Mr. Knutson's grantor retained annuity trust,
169,414 shares receivable upon the exercise of options that are exercisable
within 60 days of the date of the table set forth above and 21,368 shares
allocated to Mr. Knutson under the ESOP.
(6) Includes 291,524 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 and 39,963 shares allocated to Ms. Knutson under the ESOP.
(7) Represents 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.
5
<PAGE> 9
(8) Includes 27,500 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 and 46,000 shares held by trusts of which Mr. Burke is a
trustee.
(9) Includes 27,500 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 103,250 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 and 10,358 shares allocated to Mr. Gioella under the ESOP.
(11) Includes 27,500 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 and 500 shares held by Mr. Greenstone's spouse.
(12) Includes 115,336 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 and 29,892 shares allocated to Mr. McDowell under the ESOP.
(13) Includes 39,000 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.
(14) Includes 27,500 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.
(15) Includes 116,000 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 and 19,063 shares allocated to Mr. Pauldine under the ESOP.
(16) Includes 787,524 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 and 120,644 shares allocated to the accounts of officers and
Ms. Knutson under the ESOP.
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 2001. 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 information concerning the Company's executive officers.
Additional information with respect to Messrs. Knutson, Gioella and McKernan is
set forth above on pages 2-3.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman and Chief Executive Officer and
Robert B. Knutson............................ 66 Director
President and Chief Operating Officer and
Robert P. Gioella............................ 52 Director
John R. McKernan, Jr......................... 52 Vice Chairman and Director
Executive Vice President and Chief Financial
Robert T. McDowell........................... 46 Officer
David J. Pauldine............................ 43 Executive Vice President
</TABLE>
6
<PAGE> 10
Robert T. McDowell is Executive Vice President and Chief Financial Officer
of the Company. From 1994 to September 1999, he was 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.
David J. Pauldine is Executive Vice President of the Company and is
responsible for marketing, student financial services, information technology,
The Art Institute Online and new product development. He is a graduate of The
University of Dayton (B.A., Marketing 1979) and Antioch University (M.A.,
Leadership 1997). From 1990 to 1993 Mr. Pauldine was the president of The Art
Institute of Seattle, from 1994 to 1998 he was the president of The Art
Institute of Fort Lauderdale, and from 1998 to March 1999 he was Senior Vice
President, Marketing 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 directors and executive officers and persons who own more than 10%
of the outstanding Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.
Based on a review of the forms it has received, the Company believes that
during the fiscal year ended June 30, 2000 all Section 16(a) filing requirements
were complied with by such persons, except that one transaction by Mr. McKernan
was reported on a Form 5 rather than on a Form 4.
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 $1.7 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 $500,000 annually.
Mr. McKernan is the chief executive officer of McKernan Enterprises, Inc.
The Company made payments of approximately $119,000 in fiscal 2000 to McKernan
Enterprises, Inc. for the use of office space in Maine and in Washington, D.C.
and for the services of two employees.
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table shows, for the fiscal years 1998 through
2000, the compensation paid or awarded to Mr. Knutson, the Company's Chairman
and Chief Executive Officer, and the Company's next four most highly compensated
executive officers during fiscal 2000.
7
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)(2)
--------------------------- ---- --------- -------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson............ 2000 364,583 450,000 -- 75,000 61,556
Chairman and 1999 325,000 385,000 -- 128,000 37,062
Chief Executive Officer 1998 325,000 350,000 -- 0 14,124
Robert P. Gioella............ 2000 244,792 232,000 -- 65,000 25,903
President and 1999 199,167 160,000 80,000 28,773
Chief Operating Officer 1998 142,667 100,000 0 5,096
John R. McKernan, Jr.(1)..... 2000 207,500 182,000 -- 56,000 288
Vice Chairman 1999 20,833 50,000 -- 100,000 --
Robert T. McDowell........... 2000 195,833 156,000 52,000 36,213
Executive Vice President
and 1999 179,167 130,000 -- 40,000 27,069
Chief Financial Officer 1998 175,000 110,000 -- 0 10,387
David J. Pauldine............ 2000 197,917 162,000 -- 52,000 26,238
Executive Vice President 1999 170,000 100,000 46,000 23,461
1998 126,667 65,000 0 8,994
</TABLE>
---------------
(1) Mr. McKernan was elected Vice Chairman of the Company in June 1999.
(2) Such amounts represent, to the extent applicable, the Company's
contributions to the ESOP, contributions to the Company's profit-sharing
retirement plan and 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
2000, 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........................... $ 506 $7,609 $53,009 $432
Robert P. Gioella........................... 1,336 5,625 18,510 432
John R. McKernan, Jr........................ -- -- -- 288
Robert T. McDowell.......................... 6,381 6,350 23,050 432
David J. Pauldine........................... 7,937 5,065 12,805 432
</TABLE>
OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
NUMBER % OF TOTAL STOCK PRICE
OF SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR PRICE(S) DATE 5% 10%
---- ------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson.......... 75,000 6.1% $10.32 and 11/19/09 $433,979 $1,111,229
$9.38(1)
Robert P. Gioella.......... 65,000 5.3% $9.38 11/19/09 384,800 971,750
John R. McKernan, Jr....... 56,000 4.6% $9.38 11/19/09 331,520 837,200
Robert T. McDowell......... 52,000 4.2% $9.38 11/19/09 307,840 777,400
David J. Pauldine.......... 52,000 4.2% $9.38 11/19/09 307,840 777,400
</TABLE>
---------------
(1) The exercise price for 64,339 shares of Common Stock subject to these
options is $9.38 and for the remaining 10,661 the exercise price is $10.32.
8
<PAGE> 12
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND JUNE 30, 2000 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES VALUE OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED, UNDERLYING UNEXERCISED,
UNEXERCISED & EXERCISABLE UNEXERCISED & UNEXERCISABLE
SHARES EXERCISABLE IN-THE-MONEY UNEXERCISABLE IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
NAME EXERCISE(#) REALIZED($) JUNE 30, 2000(#) JUNE 30, 2000($)(1) JUNE 30, 2000(#) JUNE 30, 2000($)(1)
---- ----------- ----------- ---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Knutson.... -- -- 88,664 $ 663,449 201,000 $1,242,862
Robert P. Gioella.... -- -- 57,000 480,563 135,000 857,338
John R. McKernan,
Jr. ............... -- -- 25,000 -- 131,000 453,408
Robert T. McDowell... 10,000 $111,600 72,336 856,399 50,000 304,925
David J. Pauldine.... 24,000 $308,176 81,500 961,284 96,500 664,841
</TABLE>
---------------
(1) Based on the closing price of the Common Stock on June 30, 2000 of $18.0625
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 2000 consisted of Messrs. Burke, Campbell,
Greenstone and Pasman, none of whom is 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 this partnership for approximately $500,000 annually.
EMPLOYMENT AGREEMENTS
The Company and Mr. Knutson are parties to an employment agreement dated as
of September 8, 1999 (the "Employment Agreement"). The Employment Agreement is
for an initial three-year term ending in September 2002 and is subject to
successive, automatic one-year extensions unless either party gives written
notice of non-extension to the other party at least 180 days prior to any
renewal 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 $375,000, subject to annual cost of living
increases and discretionary increases by the Board, plus incentive compensation
and other employee benefits under the various benefit plans and programs
maintained by the Company.
The Employment Agreement will terminate prior to its then-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) (each referred to as an "eligible termination"), and the termination is
not in anticipation of or two years following a change in control of the Company
(as defined), he will continue to receive payment of his base salary and average
incentive compensation for a period of one year following the date of
termination. During this one-year period, Mr. Knutson will be eligible to
receive certain other fringe benefits, such as health and life insurance. In
addition, the Company will provide outplacement services to Mr. Knutson (or, at
Mr. Knutson's election, payment of the value of such services) and all of Mr.
Knutson's stock options will become vested and exercisable immediately upon the
termination. If an eligible termination occurs in anticipation of or within a
two-year period following a change in control of the Company, he will instead
receive an amount equal to two times his annual base salary and average
incentive compensation, which will be payable in a lump sum within 30 days of
the date of termination, as well as certain other fringe benefits for a period
of two years following the date of termination and immediate vesting and
accelerated distribution of certain supplemental retirement benefits.
9
<PAGE> 13
The Employment Agreement contains non-competition, non-solicitation and
confidentiality covenants on the part of Mr. Knutson. The non-solicitation and
non-competition provisions continue for one year following termination of
employment, except that the non-competition covenant will cease to be applicable
in the event of an eligible termination or a termination in anticipation of or
within two years after a change in control. In addition, the Employment
Agreement entitles Mr. Knutson to receive a tax gross-up bonus to cover, on an
after-tax basis, any change in control excise taxes payable by him as a result
of any payments made under the terms of the Employment Agreement.
The Company has also entered into employment agreements with its other
executive officers, Messrs. Gioella, McDowell, McKernan and Pauldine. Each
agreement is dated as of September 8, 1999 except Mr. McKernan's, which is dated
as of June 4, 1999. Those agreements are on substantially the same terms as the
Employment Agreement but reflect each such officer's individual position and
current compensation.
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 2000, the Committee was comprised of four non-employee
directors, James J. Burke, Jr., Albert Greenstone, James S. Pasman, Jr., and
William M. Campbell, III. The Committee met three times during fiscal 2000.
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 2000 is
fully deductible.
BASE SALARIES
The annual base salaries for the Company's executive officers for fiscal
2000 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 BONUSES
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. The Company has established an incentive bonus plan for executive
officers and other key employees. The plan provides that bonuses are to be paid
based on the attainment of certain earnings and revenue targets, placement rates
and
10
<PAGE> 14
average starting salaries for graduates of the Company's schools, as well as the
achievement of individual performance objectives.
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 5,000,000
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 2000, options for a total of 1,228,500 shares of Common Stock
were granted to officers and other key employees. All such options have an
exercise price at least 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.
11
<PAGE> 15
COMPENSATION OF CHIEF EXECUTIVE OFFICER
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. 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.
12
<PAGE> 16
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,
2000. 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., Career Education Corp., Computer
Learning Centers, Inc., Corinthian Colleges, 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 CUMULATIVE TOTAL RETURN
AMONG EDUCATION MANAGEMENT CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP INDEX
<TABLE>
<CAPTION>
EDUCATION
MANAGEMENT NASDAQ STOCK
CORPORATION PEER GROUP MARKET (U.S.)
----------- ---------- -------------
<S> <C> <C> <C>
10/96 100.00 100.00 100.00
6/97 173.00 126.00 119.00
6/98 219.00 180.00 156.00
6/99 277.00 150.00 224.00
6/00 240.84 155.12 332.52
</TABLE>
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN 2001
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 2001 is September 3, 2001.
By order of the Board of Directors,
/s/ FREDRICK W. STEINBERG
Frederick W. Steinberg
Vice President, General Counsel and
Secretary
October 2, 2000
13
<PAGE> 17
APPENDIX A
EDUCATION MANAGEMENT CORPORATION
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
APRIL 27, 2000
I. PURPOSE
The primary purpose of the Audit Committee (the Committee) of the Board of
Directors (the Board) of Education Management Corporation (EDMC or the Company)
is to provide independent and objective oversight of the accounting functions
and internal controls of Education Management Corporation and its subsidiaries
to ensure the objectivity of EDMC's financial statements. The Committee and the
Board shall have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent accountants.
II. FUNCTIONS
The Audit Committee shall perform the following functions:
1. INDEPENDENT ACCOUNTANTS -- Recommend to the Board the firm to be employed
by EDMC as its independent accountants. The Committee will also recommend
for approval the proposed annual audit fees. This "firm" shall be
ultimately accountable to the Board and the Committee as representatives of
EDMC's shareholders.
2. PLAN OF AUDIT -- Consult with the independent accountants regarding the
plan of audit. The Committee also shall review with the independent
accountants both their audit report(s) and the independent accountants'
suggested changes or improvements in EDMC's accounting practices and
internal controls.
3. ACCOUNTING PRINCIPLES AND DISCLOSURE -- Review significant developments in
accounting rules and review with management recommended changes in EDMC's
methods of accounting or financial statements. The Committee also shall
review with the independent accountants any significant proposed changes in
accounting principles and financial statements.
4. INTERNAL ACCOUNTING CONTROLS -- Consult with the independent accountants
regarding the adequacy of internal accounting controls.
5. FINANCIAL REPORTING -- Conduct quality of earnings discussions with the
independent accountants, as needed. These meetings should include
appropriate members of management, usually the Chief Financial Officer,
Controller, Internal Auditor, and where necessary, legal counsel. Such
discussions will be timed so that the Committee can affect the judgments
influencing the quality of the financial reports issued and should include
the following:
- The quality of EDMC's accounting principles as applied in its
financial reporting
- The clarity of EDMC's financial disclosures
- The degree of aggressiveness or conservatism of EDMC's accounting
principles and underlying estimates
- An open and frank discussion of other significant decisions made by
management in preparing the financial disclosures.
6. ETHICAL ENVIRONMENT -- Consult with management on the establishment and
maintenance of an environment that promotes ethical behavior, including the
establishment, communication, and enforcement of codes of conduct to guard
against dishonest, unethical, or illegal activities.
14
<PAGE> 18
7. OVERSIGHT OF EXECUTIVE OFFICERS AND DIRECTORS AND CONFLICTS OF
INTEREST -- Review significant conflicts of interest involving directors or
executive officers. The Committee shall review compliance with EDMC's
policies and procedures with respect to officers' expense accounts,
including their use of corporate assets, and consider the results of any
review of these areas by the internal auditor or the independent
accountant. The Committee shall also review significant questionable or
illegal payments.
8. OVERSIGHT OF INDEPENDENT ACCOUNTANTS -- Evaluate the independent
accountants on an annual basis and where appropriate, recommend a
replacement. In such evaluation, the Committee shall ensure that the
independent accountants deliver to the Committee a formal written statement
delineating all relationships between the accountants and EDMC. The
Committee shall also engage in a dialogue with the accountants with respect
to any disclosed relationships or services that may impact the objectivity
and independence of the independent accountant. In response to the
independent accountant's report, the Committee will take, or recommend that
the Board take, appropriate action to satisfy itself of the independent
accountant's independence.
9. OVERSIGHT OF INTERNAL AUDIT AND INTERNAL CONTROL SYSTEMS -- Review with
management and internal audit EDMC's internal control systems intended to
ensure the reliability of financial reporting and compliance with
applicable codes of conduct, laws, and regulations. The review shall
include any significant problems and regulatory concerns. The Committee
also shall review both the internal audit plans in significant compliance
areas and the scope and frequency of internal audit field visits.
10. ADEQUACY OF PERSONNEL -- Periodically review the adequacy of EDMC's
accounting, financial, and auditing personnel resources.
11. RISK MANAGEMENT -- Review and evaluate risk management policies in light of
EDMC's business strategy, capital strength, and overall risk tolerance. The
Committee shall also periodically evaluate EDMC's investment and any
derivative risk management policies, including the internal system to
review operational risks, procedures for derivatives investment and trading
(if any), and safeguards to ensure compliance with established procedures.
12. OFFERINGS OF SECURITIES -- Perform appropriate due diligence on behalf of
the Board with respect to any offering of securities by EDMC.
13. CHARTER AMENDMENTS -- Review this Charter annually, assess its adequacy,
and propose appropriate amendments to the Board.
The Committee's function is one of oversight and review, and is not expected to
audit EDMC, to define audit scopes, to control EDMC's accounting practices, or
to define the standards to be used in the preparation of EDMC's financial
statements.
III. COMPOSITION & INDEPENDENCE
The Committee shall consist of not less than three independent members, who
shall be appointed by the Board. Members of the Committee shall be financially
literate, as defined by the Board. At least one member of the Committee shall
have accounting, related financial management expertise, or any other comparable
experience or background that results in the individual's financial
sophistication. No member of the Committee shall be employed or otherwise
affiliated with EDMC's independent accountants.
In the event that a Committee member faces a potential or actual conflict
of interest with respect to a matter before the Committee, that Committee member
shall be responsible for alerting the Committee Chairperson. In cases where the
Committee Chairperson faces a potential or actual conflict of interest, the
Chairperson shall advise the Chairman of the Board. In the event that the
Committee Chairperson, or the Chairman of the Board, concurs that a potential or
actual conflict exists, an independent substitute Director shall be appointed as
a Committee member until the matter, posing the potential or actual conflict of
interest, is resolved.
15
<PAGE> 19
IV. QUORUM AND MEETINGS
A quorum of the Committee shall be declared when a majority of the
appointed members of the Committee are in attendance. The Committee shall meet
on a regular basis. Meetings shall be scheduled at the discretion of the
Chairman. Notice of the meeting shall be provided at least ten days in advance.
The Committee may ask members of management or others to attend the meeting and
to provide pertinent information as necessary.
V. REPORTS
The Committee will report to the Board from time to time with respect to
its activities and its recommendations. When presenting any recommendation or
advice to the Board, the Committee will provide such background and supporting
information as may be necessary for the Board to make an informed decision. The
Committee will keep minutes of its meetings and will make such minutes available
to the full Board for its review.
VI. OTHER AUTHORITY
The Committee is authorized to confer with Company management and other
employees to the extent it may deem necessary or appropriate to fulfill its
duties. The Committee is authorized to conduct or authorize investigations into
any matters within the Committee's scope of responsibilities. The Committee is
also authorized to seek outside legal or other advice to the extent it deems
necessary or appropriate, provided it shall keep the Board advised as to the
nature and extent of such outside advice.
The Committee will perform such other functions as are authorized for this
Committee by the Board.
16
<PAGE> 20
PROXY
EDUCATION MANAGEMENT CORPORATION
300 Sixth Avenue, Pittsburgh, Pennsylvania 15222
Proxy for Annual Meeting of Shareholders on November 2, 2000
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 2, 2000, commencing at 10:00 a.m., local time, at the Doubletree
Hotel, 1000 Penn Avenue, Pittsburgh, Pennsylvania 15222, or any adjournment or
postponement thereof, as designated on the reverse side of this proxy card.
PLEASE DATE AND SIGN ON REVERSE SIDE
/\ FOLD AND DETACH HERE /\
<PAGE> 21
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL
Please mark [ X ]
your votes as
indicated in
this example
<TABLE>
<S> <C> <C> <C>
1. The election of three directors, each for a term of three years: 2. The proposal to ratify the selection by the Board
of Directors of Arthur Andersen, LLP as Independent
FOR WITHHOLD public accountants for the Company.
all nominees AUTHORITY
listed below to
(except as marked to vote for
the contrary). all nominees FOR AGAINST ABSTAIN
NOMINEES: Robert H. Atwell William M. Campbell, III THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN
Albert Greenstone THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
INSTRUCTIONS: To withhold authority to vote for any individual BE VOTED "FOR" PROPOSALS 1 AND 2.
nominee, draw a line through such nominee's name.)
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
DATED ________________________________________________
______________________________________________________
(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.
/\ FOLD AND DETACH HERE /\
</TABLE>
