Exhibit
10.4
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated as of
December 7, 2006 (the “ Employment Agreement
”), by and between Education Management LLC, a Delaware
limited liability company (together with its successors and
assigns, the “ Company ”), and John T. South III
(the “ Executive ”) (each of the Executive and
the Company, a “ Party ,” and collectively, the
“ Parties ”).
WHEREAS, the Company desires to
employ the Executive and utilize his management services as
indicated herein, and the Executive desires to be employed by the
Company, all on the terms and conditions set forth in this
Employment Agreement; and
WHEREAS, the Executive and Education
Management Corporation, indirect parent of the Company (the
“Parent”), were parties to an Employment Agreement,
dated July 14, 2003 (the “Original Employment
Agreement”), under the terms of which the Executive served as
the Parent’s Chancellor, South University.
NOW, THEREFORE, in consideration of
the mutual covenants contained herein and other valid consideration
the sufficiency of which is acknowledged, the Parties agree as
follows:
Section 1.
Employment .
1.1. Term . The Company
agrees to employ the Executive, and the Executive agrees to be
employed by the Company, in each case pursuant to this Employment
Agreement, for a period commencing on the date hereof (the “
Effective Date ”) and ending on the third
(3rd) anniversary of the Effective Date (the “
Initial Term ”); provided, however, that the term of
this Employment Agreement and the Executive’s employment
hereunder shall renew automatically for successive one
(1) year periods (each, a “ Renewal Term
”), unless at least one hundred eighty (180) days prior
to the end of the Initial Term or any subsequent anniversary of the
Effective Date, either party shall have given notice to the other
party that this Employment Agreement shall terminate on that
anniversary date (the Initial Term, together with any Renewal
Terms, the “ Term ”). Notwithstanding the
foregoing, the Executive’s employment shall be subject to
earlier termination in accordance with Section 3
hereof.
1.2. Duties . During the
Term, the Executive shall serve as the Company’s Senior Vice
President, Chancellor of South University and Chairman of the Board
of Trustees of Argosy University, and such other positions as
officer or director of the Company and its affiliates as the
Executive and the Board of Directors of the Parent (the “
Parent Board ”) shall mutually agree from time to
time. In such positions, the Executive shall perform such duties,
functions and responsibilities during the Term commensurate with
the Executive’s positions. The Executive shall have all
authorities, duties and responsibilities customarily exercised by
an individual serving in the foregoing positions at an entity of
the size and nature of the Company; shall be assigned no duties or
responsibilities that are materially inconsistent with, or that
materially impair his ability to discharge, the foregoing duties
and responsibilities; shall have such additional duties and
responsibilities, consistent with the foregoing, as may be
from
time to time assigned to him; and in his
capacity as Senior Vice President and Chancellor, South University
shall report to the Chief Executive Officer of the Company or, upon
determination by the Chief Executive Officer, the Company’s
President or Chief Operating Officer.
1.3. Exclusivity . During the
Term, the Executive shall devote his full business time and
attention to the business and affairs of the Company, shall
faithfully serve the Company, and shall in all material respects
conform to and comply with such lawful and reasonable directions
and instructions given to him as are consistent with Sections 1.2
and 1.3 hereof. During the Term, the Executive shall use his
reasonable best efforts to promote and serve the interests of the
Company and shall not engage in any other business activity,
whether or not such activity shall be engaged in for pecuniary
profit. Notwithstanding the foregoing provisions of this
Section 1.3, but subject to the other provisions of this
Employment Agreement, the Executive may (i) engage in
charitable activities and community affairs, (ii) serve, with
the prior approval of the Company’s Chief Executive Officer,
on the boards of a reasonable number of business entities, trade
associations and charitable organization, (iii) accept and
fulfill a reasonable number of speaking engagements, and
(iv) manage his personal investments and affairs; provided
that such activities do not either individually or in the aggregate
materially interfere with the performance of his duties
hereunder.
Section 2.
Compensation .
2.1. Salary . As compensation
for the performance of the Executive’s services hereunder,
during the Term, the Company shall pay to the Executive a salary at
an annual rate of Three Hundred Thousand dollars ($300,000),
payable in accordance with the Company’s standard payroll
policies (the “ Base Salary ”). The Base Salary
will be reviewed annually and may be adjusted upward by the Board
of Directors of the Company (the “ Board ”) (or
a committee thereof) in its discretion.
2.2. Annual Bonus . The
Executive will be eligible for an annual incentive bonus (the
“ Annual Bonus ”) for each complete fiscal year
occurring during the Term. The Executive’s target bonus will
be eighty percent (80%) of the Base Salary. The actual Annual
Bonus paid for any year will depend on meeting Company and
individual performance standards established by the Board. The
Annual Bonus will be paid in cash within seventy-five
(75) days of the end of the fiscal year.
2.3. Equity . The Executive
will be eligible for grants of stock options pursuant to the
Company’s 2006 Stock Option Plan as determined by the Parent
Board or a committee thereof.
2.4. Employee Benefits .
During the Term, the Executive shall be eligible to participate in
such health and other group insurance, retirement and other
employee benefit plans and programs of the Company as in effect
from time to time on the same basis as similarly situated
executives of the Company.
2.5. Vacation . During the
Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect
from time to time.
2.6. Business Expenses . The
Company shall pay or reimburse the Executive for all commercially
reasonable business out-of-pocket expenses that the Executive
incurs during the Term in performing his duties under this
Employment Agreement upon presentation of documentation and in
accordance with the expense reimbursement policy of the Company as
approved by the Board (or a committee thereof) and in effect from
time to time.
Section 3.
Employment Termination
.
3.1. Termination of
Employment . The Company may terminate the Executive’s
employment hereunder for any reason during the Term, and the
Executive may voluntarily terminate his employment hereunder for
any reason during the Term, in each case (other than a termination
by the Company for Cause) at any time upon not less than thirty
(30) days’ notice to the other Party. Upon any
termination of the Executive’s employment hereunder for any
reason during the Term, the Executive shall be entitled to
(i) any Base Salary earned but unpaid through the date of
termination; (ii) any other payment or benefit to which he is
entitled under the applicable terms of any applicable plan,
program, agreement or arrangement of the Company or its affiliates
(each, a “ Company Arrangement ”), including the
plans, programs, agreements and arrangements referred to in
Sections 2.2 through 2.6 and 8.1 ((i) and (ii) being,
collectively, the “ Accrued Amounts ”);
provided , however, that if the Executive’s employment
hereunder is terminated (x) by the Company for Cause, or
(y) by the Executive voluntarily without Good Reason and not
for death or Disability, then any Annual Bonus earned pursuant to
Section 2.2 in respect of a prior fiscal year, but not yet
paid or due to be paid, shall be forfeited.
3.2. Certain Terminations
.
(a) Termination by the Company
Other than for Cause; Termination by the Executive for Good
Reason . If the Executive’s employment hereunder is
terminated by the Company during the Term other than for Cause, or
by the Executive with Good Reason, in addition to the Accrued
Amounts the Executive shall be entitled to:
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(i)
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a cash payment
in each of the twelve (12) months following the
Executive’s termination of employment equal to one-twelfth
(1/12) of the sum of the Executive’s Base Salary and
target Annual Bonus; provided, however, that if the
Executive’s termination of employment pursuant to this
Section 3.2(a) occurs within two (2) years following a
“Change in Control” (as defined in the Company’s
2006 Stock Option Plan)) or the Executive reasonably demonstrates
that the termination was In Anticipation Of a Change in Control,
the Executive shall be entitled to a lump sum equal to two
(2) times the sum of his Base Salary and target Annual Bonus
(amounts paid pursuant to this clause (i) herein referred to
as the “ Severance Payment ”);
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(ii)
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the Accrued Amounts and a
pro-rata Annual Bonus (determined by multiplying the target Annual
Bonus for the year of termination by a fraction, the numerator of
which is
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the number of days he was
employed by the Company during such fiscal year and the denominator
of which is the number of days in such fiscal year) (the “
Pro-Rata Annual Bonus Payment ”);
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(iii)
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the
continuation of all welfare benefits, including (to the extent
applicable) medical, dental, vision, life and disability benefits
pursuant to plans maintained by the Company under which the
Executive and/or the Executive’s family is eligible to
receive benefits and/or coverage, for the twelve (12)-month period
following the date of the Executive’s termination, with such
benefits provided to the Executive at no less than the same
coverage level as in effect as of the date of termination and the
Executive shall pay any portion of such cost as was required to be
borne by key executives of the Company generally on the date of
termination; provided, however, that, notwithstanding the
foregoing, the benefits described in this sentence may be
discontinued prior to the end of the twelve (12)-month period to
the extent, but only to the extent, that the Executive receives
substantially similar benefits from a subsequent employer;
and
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(iv)
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key executive
outplacement services, in accordance with Company policies for
senior executives as in effect on the date of termination (or, at
the request of the Executive, a lump sum payment in lieu thereof,
in an amount determined by the Company to be equal to the estimated
cost of those services).
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The Company’s obligations to
make the Payments and provide the benefits described in this
Section 3.2(a) shall be conditioned upon the Executive’s
execution, delivery and non-revocation of a valid and enforceable
general release of claims substantially in the form attached hereto
as Exhibit A (the “ Release
”).
(b) Termination Due to
Disability . Upon a determination that the Executive is
Disabled, the Company may give notice to the Executive that it
intends to replace him. If the Executive does not return to the
performance of his duties on essentially a full-time basis within
thirty (30) days after receiving such notice, the Company may
replace the Executive without breaching this Agreement; provided,
however, that this Agreement shall not terminate until the
anniversary date of this Agreement next following the date that the
Executive is determined to be Disabled. For the period from the
date the Executive is determined to be Disabled through the earlier
of such anniversary date or the date of the Executive’s death
(the “Disability Period”), the Company shall continue
to provide the Executive all compensation and benefits provided for
in Section 2; provided, however, that the Company’s
obligation to pay the Executive’s Base Salary shall be
reduced by the amounts paid to the Executive under any
long-term
disability insurance plan sponsored or otherwise
maintained by the Company (if any) and that in no event shall the
total annual obligation of the Company under this Agreement to make
Base Salary payments to the Executive during the Disability Period
be greater than an amount equal to two-thirds (2/3) of the
Executive’s Base Salary, computed on a pro rata basis
beginning with the date that the Executive is replaced in
accordance with this Section 3.2(b) and continuing until the
expiration of the Disability Period.
(c) Termination Due to Death
. If the Executive’s employment hereunder is terminated by
reason of his death, the Company shall continue to pay the
Executive’s Base Salary at the rate in effect at the time of
his death to such person or persons as the Executive shall have
designated for that purpose in a notice filed with the Company, or,
if no such person shall have been so designated, to his estate, for
a period of six (6) months after the Executive’s date of
death. The Company also shall pay to such person(s) or estate
(i) the amount of the Accrued Amounts and a Pro Rata Annual
Bonus Payment for the year of termination and (ii) an amount
equal to one-twelfth (1/12) of the Executive’s average
annual Bonus paid or payable to the Executive with respect to the
most recent three (3) full fiscal years or, if greater, the
most recent twelve (12)-month period (in each case, determined by
annualizing the bonus paid or payable with respect to any partial
fiscal year) that amount being payable in each of the six
(6) months following the date of termination. Any amounts
payable under this Section 3.2(c) shall be exclusive of and in
addition to any payments which the Executive’s widow,
beneficiaries or estate may be entitled to receive pursuant to any
pension plan, profit sharing plan, employee benefit plan, or life
insurance policy maintained by the Company.
(d) Termination at Expiration of
the Term at the Company’s Request . If the
Executive’s employment hereunder is terminated solely as a
result of the Company’s electing under Section 1.1 not
to renew the Employment Agreement at the expiration of the then
current Term by giving notice thereof to the Executive, and the
Executive terminates his employment within thirty (30) days
after the end of the Term, then such termination of employment
shall be considered a termination without Cause
hereunder.
(e) Definitions . For
purposes of this Section 3.2, the following terms shall have
the following meanings:
(1) “ Good Reason
” shall mean the occurrence of any of the following events
without either the Executive’s prior written consent or full
cure within thirty (30) days after he gives written notice to
the Company describing the event and requesting cure: (i) the
reassignment of the Executive to a position that is not a corporate
officer level position or the assignment to the Executive of duties
that are not consistent with such corporate officer level position,
including a material diminution of Executive’s
responsibilities with the Company; (ii) the removal of the
Executive from his role as Chancellor of South University,
including removal of responsibilities associated with the a chief
executive officer of such university; (iii) any requirement
that Executive work on a full-time basis at the Company’s
corporate offices or on a more regular basis outside of Savannah,
Georgia than he has prior to the execution of this Agreement;
(iv) any material breach by the Company or any of its
affiliates of any material obligation to the Executive; or
(v) any failure of the Company to obtain the assumption in
writing of its obligation to perform this Employment Agreement by
any successor to all or substantially all of the assets of the
Company within fifteen (15) days after any merger,
consolidation, sale or similar transaction,
except where such assumption occurs by operation of law. If the
Company fails to cure a Good Reason event during the thirty
(30) day cure period, the Executive must terminate his
employment within sixty (60) days after the expiration of such
thirty (30) day period if such termination is to be treated as
for Good Reason based on such uncured Good Reason event.
(2) “ Cause ”
shall mean (i) the Executive’s willful and continued
failure to use his best efforts to perform his reasonably assigned
duties (other than on account of Disability); (ii) the
Executive is indicted for, convicted of, or enters a plea of guilty
or nolo contendere to, (x) a felony or (y) a misdemeanor
involving moral turpitude; (iii) the Executive engages in
(x) gross negligence causing material harm to the Parent, the
Company, or its or their business or reputation, (y) willful
and material misconduct, or (z) willful and material breach of
fiduciary duty; or (iv) the Executive willfully and materially
breaches (x) the restrictive covenants described in
Section 4 of this Employment Agreement or (y) any of the
material written policies listed on Exhibit B , as in
effect on the Effective Date. In the event Executive is
terminated for Cause, the Company shall, upon request of Executive,
promptly provide Executive with a written notice that describes
with reasonable specificity the events which constitute the reasons
for such Cause termination.
(3) “ Disability
” shall mean the Executive is entitled to receive long-term
disability benefits under the long-term disability plan of the
Company in which Executive participates, or, if there is no such
plan, the Executive’s inability, due to physical or mental
incapacity, to substantially perform his duties and
responsibilities under this Employment Agreement for one hundred
eighty (180) days out of any consecutive 365 day
period.
(4) “ In Anticipation
Of ” shall mean that the termination (i) was at the
request of a third party that has taken steps reasonably calculated
to effect a Change in Control or (ii) otherwise arose in
connection with a Change in Control that has been proposed, so long
as in either case such Change in Control shall actually have
occurred.
(f) Section 409A . If
the Executive is a “specified employee” for purposes of
Section 409A of the United States Internal Revenue Code of
1986, as amended, and the regulations thereunder (“Section
409A”), any Severance Payment required to be made pursuant to
Section 3.2 which is subject to Section 409A shall not be
paid until one day after the date which is six (6) months from
the date of termination.
3.3. Exclusive Remedy . The
foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due
the Executive upon a termination of his employment under this
Employment Agreement.
3.4. Resignation from All
Positions . Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be
deemed to have resigned, as of the date of such termination, from
all positions he then holds as an officer, director, employee and
member of the board (and any committee thereof) of the Company and
any of its subsidiaries and affiliates.
3.5. Cooperation . Following
the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably
cooperate with the Company upon reasonable request of the Board and
to be reasonably available to the Company with respect to matters
arising out of the Executive’s services to the Company and
its subsidiaries and affiliates. The Company shall
reimbur
