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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 reimburse the
Executive for expenses reasonably incurred in connection with such
matters as agreed by the Executive and the Board and, to the extent
the Executive is required to spend substantial time on such
matters, the Company shall compensate the Executive at an hourly
rate based on the Executive’s most recent Base
Salary.
Section 4. Unauthorized Disclosure; Non-Solicitation;
Non-Competition; Proprietary Ri
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