EXHIBIT 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
WITH XXXX X. XxXXXXXX, XX.
August 5, 2003
The parties to this Amended and Restated Employment Agreement (this
"Agreement") are Education Management Corporation, a Pennsylvania corporation
(the "Company"), and Xxxx X. XxXxxxxx, Xx. (the "Executive"). The Company and
the Executive currently are parties to an Employment Agreement dated June 4,
1999 (the "Existing Employment Agreement"). The Executive is presently the
President and Vice Chairman of the Company and the parties wish to provide for
the continued employment of the Executive, subject to the terms provided herein.
From and after the date of this Agreement (the "Effective Date") and for the
remainder of the Employment Term (as defined below), the Executive shall
continue as Vice Chairman of the Company and, effective September 1, 2003, also
shall serve as the Company's Chief Executive Officer. In addition, the Executive
shall continue to serve as the Company's President at the pleasure of the
Company's Board of Directors.
Accordingly, the parties, intending to be legally bound, agree that the
Existing Employment Agreement is amended and restated in its entirety as
follows:
1. Position and Duties. During the Employment Term, the Company shall employ the
Executive, and the Executive shall serve the Company, for the period from the
Effective Date through August 31, 2003 as its President, and effective September
1, 2003 and for the remainder of the Employment Term as its Vice Chairman, Chief
Executive Officer and President. He shall report to and otherwise shall be
subject to the direction and control of the Board of Directors of the Company.
Except as provided below, the Executive's duties, titles and responsibilities
shall not be changed materially at any time without his consent (which consent
shall not be unreasonably withheld); provided, however, that the Board of
Directors of the Company shall
have the discretion, exercisable at any time after September 1, 2003, to appoint
another person as President of the Company to replace the Executive solely in
that capacity, and such action by the Board shall not be deemed a breach of any
provision of this Agreement. Except during vacation periods, periods of illness,
and the like, the Executive shall use his best efforts to promote the Company's
interests and he shall perform his duties and responsibilities faithfully,
diligently and to the best of his ability, consistent with sound business
practices. The Executive shall devote his full working time to the business and
affairs of the Company, but may engage in the following activities that do not,
in the reasonable opinion of the Board of Directors of the Company, either
singly or in the aggregate violate Section 8 or materially interfere with the
performance of his obligations to the Company under this Agreement: (i) making
and managing personal investments and (ii) engaging in community and/or
charitable activities. Subject to the provisions of Section 8, nothing in this
Agreement shall preclude the Executive from serving, with prior approval of the
Board of Directors, as a director of other organizations. The Executive shall
perform his duties under this Agreement predominantly in Pittsburgh,
Pennsylvania, but shall continue to maintain his existing office in Maine for
the conduct of appropriate Company business by the Executive and other
employees.
2. Term of Employment. The term of the Executive's employment by the Company
under this Agreement shall be for a period of five (5) years commencing on the
Effective Date (the "Initial Employment Term"). The Executive's employment under
this Agreement shall be subject to earlier termination under Section 5 or
Section 6. The Executive's employment under this Agreement shall renew
automatically for successive one (1)-year periods, unless at least one hundred
eighty (180) days prior to the end of the Initial Employment Term or any
subsequent anniversary of the Effective Date (each such date referred to herein
as an "Expiration Date") either party shall have given notice to the other party
that the term of employment shall terminate on that anniversary date. The term
during which the Executive is actually employed pursuant to this Agreement shall
be referred to herein as the "Employment Term."
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3. Compensation.
3.1. Base Salary. In consideration of the performance of his duties
hereunder, during the Employment Term, the Executive shall be entitled to
receive a base salary ("Base Salary") at the annual rate of not less than
$400,000 for services rendered to the Company or any of its direct or indirect
subsidiaries, payable in substantially equal biweekly installments. The
Executive's Base Salary under this Section 3.1 shall be increased on each July 1
during the Employment Term, beginning on July 1, 2004, by the percentage
increase, if any, in the United States Bureau of Labor Statistics Consumer Price
Index for Urban Wage Earners and Clerical Workers - all items, for the
Pittsburgh Metropolitan Area during the immediately preceding twelve (12)
months. The Executive's Base Salary shall be subject to further increases, if
any, as may be approved at any time by the Board of Directors of the Company in
its discretion, on the recommendation of the Compensation Committee of the Board
of Directors.
3.2. Incentive Compensation. During the Employment Term, the Executive
shall be entitled to receive incentive compensation (a "Bonus") in such amounts
and at such times as the Board of Directors of the Company (or a duly authorized
Compensation Committee of the Board, if applicable) may determine in its
discretion to award to him under any incentive compensation or other bonus plan
or plans for senior executives of the Company as may be established by the
Company from time to time (collectively, the "Executive Bonus Plan"). The amount
of any Bonus payable to the Executive under the Executive Bonus Plan shall be
paid to the Executive in accordance with the terms of the Executive Bonus Plan.
The Executive shall have an annual target bonus opportunity (a "Bonus
Opportunity") of not less than 130% of the Executive's Base Salary that is
payable during the fiscal year to which the Bonus is applicable, but the actual
bonus amount earned and payable shall be contingent on the Executive meeting or
exceeding performance standards and goals to be established by the Board of
Directors of the Company (or the Compensation Committee, if applicable) in
accordance with the terms of the Executive Bonus Plan. To the extent that the
Executive is entitled to any Bonus that accrued for the fiscal year ending June
30, 2003, but which has not been fully paid to the Executive as of the Effective
Date, this Agreement shall have no effect on the payment of such Bonus and the
Executive shall
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be entitled to payment of such accrued Bonus in accordance with the terms of the
Existing Employment Agreement.
3.3. Equity Compensation.
(a) Stock Options. The Executive shall receive an award of options to
purchase up to 100,000 shares of the Company's common stock at the closing
market price of the common stock as of the Effective Date, which shall be
awarded under the terms of the Education Management Corporation's 1996 Stock
Incentive Plan or any successor plan, as it may be in effect from time to time
(the "Incentive Plan"), and subject to the provisions of the Company's standard
option agreements. In addition, these options will consist of incentive stock
options to the maximum extent permitted under Section 422 of the Internal
Revenue Code of 1986, as amended; the remainder will be nonqualified options.
(b) Future Awards. In addition, the Executive shall be eligible to
receive awards of options to purchase shares of the Company's common stock or
restricted common stock during the Employment Term, under the terms of the
Incentive Plan and subject to the approval of the Company's Board of Directors.
4. Expenses and Other Benefits.
4.1. Reimbursement of Expenses. During the Employment Term, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and practices presently
followed by the Company or as may be established by the Board of Directors of
the Company for its senior executives) in performing services under this
Agreement, provided that the Executive properly accounts for such expenses in
accordance with the Company's policies.
4.2. Employee Benefits. During the Employment Term, the Executive shall be
entitled to participate in and to receive benefits applicable to senior
executive officers of the Company under all of the Company's employee benefit
plans, programs and arrangements, as they may be duly amended, approved or
adopted by the Board of Directors of the Company as of the Effective Date and
from time to time thereafter, including any retirement plan, profit sharing
plan, savings
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plan, life insurance plan, health insurance plan, stock-based compensation or
incentive plan, accident or disability insurance plan, vacation policy and any
perquisites.
5. Termination of Employment.
5.1. Death. The Executive's employment under this Agreement shall terminate
upon his death.
5.2. Termination by the Company.
(a) With or Without Cause. Subject to the provisions of Section
5.2(b), the Company may terminate the Executive's employment under this
Agreement with or without Cause (as defined below) at any time during either the
Initial Employment Term or any extension of the Employment Term under Section 2.
Upon any termination of the Executive's employment under this Section 5.2, the
Company's sole compensation obligation (solely for purposes of and with respect
to this Agreement and the Executive's employment with the Company or any of its
direct or indirect subsidiaries), if any, shall be as provided under Section 7.2
(if the termination is with Cause), or Section 7.3 (if the termination is
without Cause). For purposes of this Agreement, the Company shall have "Cause"
to terminate the Executive's employment under this Agreement if (i) the
Executive willfully, or as a result of gross negligence on his part, fails
substantially to perform and to discharge his duties and responsibilities under
this Agreement for any reason other than the Executive's Disability (as defined
in Section 6) or death, or (ii) the Executive engages in an action or course of
conduct which is both (A) unlawful or materially in violation of his obligations
to the Company under this Agreement and (B) demonstrably and substantially
injurious to the Company, or (iii) the Executive deliberately and intentionally
violates the provisions of Sections 8.1, 8.2, 8.3 or 8.4. For purposes of this
Agreement, a "termination by the Company without Cause" shall include the
termination of the Executive's employment on the Expiration Date solely as a
result of the Company's electing under Section 2 not to extend the term of the
Agreement.
(b) Right to Cure. The Executive shall not be deemed to have been
terminated for Cause unless and until the occurrence of the following two
events:
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(i) The Executive is given a notice from the Board of Directors
of the Company that identifies with reasonable specificity the grounds for the
proposed termination of the Executive's employment and notifies the Executive
that he shall have an opportunity, with his counsel present, to address the
Board of Directors with respect to the alleged grounds for termination at a
meeting of the Board called and held for the purpose of determining whether the
Executive engaged in conduct described in Section 5.2. The notice shall, except
as is otherwise provided in the last sentence of this Subsection (i), provide
the Executive with thirty (30) days from the day such notice is given to cure
the alleged grounds of termination contained in this Agreement. The Board of
Directors shall determine, reasonably and in good faith, whether the Executive
has effectively cured the alleged grounds of termination. If the grounds for
termination are limited to acts or conduct described in Subsections (ii) or
(iii) of Section 5.2(a), and in the reasonable good faith opinion of the Board
of Directors those grounds may not reasonably be cured by the Executive, then
the notice required by this Section 5.2(b)(i) need not provide for any cure
period; and
(ii) The Executive is given a copy of certified resolutions, duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors (excluding the Executive, if applicable) at
a meeting of the Board of Directors called and held for the purpose of finding
that, in the reasonable good faith opinion of a majority of the Board of
Directors, the Executive was guilty of conduct set forth in Section 5.2, which
specify in detail the grounds for termination and indicate that the grounds for
termination have not been cured within the time limits, if any, specified in the
notice referred to in Section 5.2(b)(i).
5.3. Termination by the Executive. The Executive may terminate his
employment under this Agreement with or without Good Reason (as defined below)
at any time during either the Initial Employment Term or any extension thereof
under Section 2. Upon any termination of the Executive's employment under this
Section 5.3, the Company's sole compensation obligation (solely for purposes of
and with respect to this Agreement and the Executive's employment with the
Company or any of its direct or indirect subsidiaries), if any, shall be as
provided under Section 7.2 (if the termination is without Good Reason) or
Section 7.3 (if the termination is with
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Good Reason). If such termination is with Good Reason, the Executive shall give
the Company notice, which shall identify with reasonable specificity the grounds
for the Executive's resignation and provide the Company with thirty (30) days
from the day such notice is given to cure the alleged grounds for resignation
contained in the notice. In the event that the Executive fails, without good
cause, to give such notice and the Executive's employment under this Agreement
in fact terminates at the initiation of the Executive, such termination shall be
deemed a termination by the Executive without Good Reason. For purposes of this
Agreement, "Good Reason" shall mean any of the following to which the Executive
shall not consent in writing: (i) a reduction in the Executive's Base Salary,
(ii) a reduction in the Executive's annual Bonus Opportunity (as defined in
Section 3.2), including a material change in the individual performance goals
applicable to the Executive's annual Bonus Opportunity that (A) as of the date
of such change, makes achievement of those goals highly unlikely even if the
Executive performs his obligations under this Agreement, and (B) would result in
a reduction in the annual Bonus Opportunity, (iii) a relocation of the
Executive's primary place of employment to a location more than fifty (50) miles
from his place of employment as described in Section 1, (iv) any change or
diminution in offices, titles, status or reporting requirements in the
Executive's specific executive officer position, other than (A) the replacement
of the Executive as President of the Company as contemplated in Section 1 of
this Agreement and (B) an insubstantial and inadvertent act that is remedied by
the Company promptly after receipt of notice given by the Executive, or (v) on
or after a Change in Control (as defined in Section 7.3(d)), in addition to
those events stated above, a material reduction in the Executive's actual annual
Bonus.
5.4. Date of Termination. "Date of Termination" shall mean the earlier of
(a) the "Expiration Date" (as defined in Section 2) and (b) if the Executive's
employment is terminated (i) by his death, the date of his death, or (ii)
pursuant to the provisions of Section 5.2 or Section 5.3, as the case may be,
the date on which the Executive's employment with the Company and any subsidiary
actually terminates.
6. Disability. The Executive shall be determined to be "Disabled" (and the
provisions of this Section 6 shall be applicable) if the Executive has been
unable to perform the duties of his
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position under this Agreement on essentially a full-time basis for six (6)
consecutive months by reason of a physical or mental condition (a "Disability")
and, within thirty (30) days after the Company gives notice to the Executive
that it intends to replace him due to his Disability, the Executive shall not
have returned to the performance of his duties on essentially a full-time basis.
Upon a determination that the Executive is Disabled, the Company may replace the
Executive without breaching this Agreement; provided, however, that this
Agreement shall not terminate until the Expiration Date 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 the Date of
Termination 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 Sections 3 and 4, 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 6, and continuing until the expiration of the Disability Period.
7. Compensation Upon Termination.
7.1. Death. If the Executive's employment under this Agreement 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, (a) the
amount of the Executive's Accrued Obligations (as defined below), and (b) an
amount equal to one-twelfth (1/12) of the Executive's average annual Bonus paid
or payable under Section 3.2 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
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by annualizing the bonus paid or payable with respect to any partial fiscal
year) (the "Average Bonus"), that amount being payable in each of the six (6)
months following the Date of Termination. Any amounts payable under this Section
7.1 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. For purposes of this Agreement, the
Executive's "Accrued Obligations" means, as of the Date of Termination, any
accrued but unpaid Base Salary, accrued Bonus (including (1) any accrued but
unpaid Bonus (if any) with respect to the fiscal year prior to the year in which
the Date of Termination occurs, and (2) the amount of the Executive's Average
Bonus multiplied by a fraction, the numerator of which is the number of days
from the first day of the fiscal year of the Company in which such termination
occurs through and including the Date of Termination and the denominator of
which is 365 (the "Pro Rata Bonus")), any accrued but unpaid cash entitlements
(including accrued but unused vacation) and reimbursement of business expenses
per Section 4.1.
7.2. By the Company for Cause or the Executive Without Good Reason. If the
Executive's employment is terminated by the Company for Cause, or if the
Executive terminates his employment other than for Good Reason, the Company
shall pay to the Executive the amount of any Accrued Obligations within 30 days
of the Date of Termination and the Company thereafter shall have no further
obligation to the Executive under this Agreement (solely for purposes of and
with respect to this Agreement and the Executive's employment with the Company
or any of its direct or indirect subsidiaries), other than for payment of any
amounts accrued and vested under any employee benefit plans or programs of the
Company.
7.3. By the Executive for Good Reason or the Company other than for Cause.
(a) Termination Prior to a Change in Control.
(i) Severance Benefits. Subject to the provisions of Section
7.3(a)(ii) and Section 7.3(c), if, prior to (and not "in anticipation of", as
defined in Section 7.4 hereof) or more than two (2) years after a Change in
Control (as defined in Section 7.3(d)), the Company terminates the Executive's
employment without Cause, or the Executive terminates his
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employment for Good Reason, then the Executive shall be entitled to the
following benefits (the "Severance Benefits"):
(A) the amount of his Accrued Obligations, that amount being
payable in a single lump sum cash payment within thirty (30) days of the Date of
Termination;
(B) a cash amount equal to the sum of (1) one-twelfth (1/12) of
the Executive's Base Salary at the highest rate in effect at any time during the
twelve (12)-month period prior to the Date of Termination, and (2) one-twelfth
(1/12) of the Executive's Average Bonus, that total amount being payable in each
of the eighteen (18) months following the month in which the Date of Termination
occurs;
(C) 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, shall be continued for
the eighteen (18)-month period following the Date of 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 Section 7.3(a)(i)(C) may be
discontinued prior to the end of the period provided in this Subsection (C) to
the extent, but only to the extent, that the Executive receives substantially
similar benefits from a subsequent employer;
(D) 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);
(E) notwithstanding any provisions of any applicable stock option
plan and agreement(s) to the contrary, any outstanding nonvested stock options
and restricted stock granted by the Company to the Executive and held by the
Executive as of the Date of
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Termination, shall become vested and immediately exercisable by the Executive as
of the Date of Termination; and
(F) any accrued and vested benefits under any employee benefit
plans or programs.
(ii) Conditions to Receipt of Severance Benefits under Section 7.3(a).
As a condition to receiving any Severance Benefits (other than any Accrued
Obligations or vested employee benefits) to which the Executive may otherwise be
entitled under this Section 7.3(a) only, the Executive shall execute a release
(the "Release"), in a form and substance reasonably satisfactory to the Company,
of any claims, whether arising under Federal, state or local statute, common law
or otherwise, against the Company and its direct or indirect subsidiaries which
arise or may have arisen on or before the date of the Release, other than any
claims under this Agreement or any rights to indemnification from the Company
and its direct or indirect subsidiaries pursuant to any provisions of the
Company's (or any of its subsidiaries') articles of incorporation or by-laws or
any directors and officers liability insurance policies maintained by the
Company. If the Executive fails or otherwise refuses to execute a Release within
a reasonable time after the Company's request to do so, the Executive will not
be entitled to any Severance Benefits or any other benefits provided under this
Agreement (other than any Accrued Obligations and vested employee benefits) and
the Company shall have no further obligations with respect to the payment of
such Severance Benefits. In addition, if, following a termination of employment
that gives the Executive a right to the payment of Severance Benefits under
Section 7.3(a), the Executive engages in any activities that would have violated
any of the covenants in Section 8.3 (had those covenants been applicable), the
Executive shall have no further right or claim to any Severance Benefits (other
than any Accrued Obligations and vested employee benefits) to which the
Executive may otherwise be entitled under this Section 7.3(a) from and after the
date on which the Executive engages in such activities and the Company shall
have no further obligations with respect to the payment of such Severance
Benefits.
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(b) Termination In Anticipation of or After a Change in Control.
(i) Change in Control Severance Benefits. Subject to the provisions of
Section 7.3(c), if, in anticipation of (as defined below) or within a two (2)
year period following the occurrence of a Change in Control, the Company
terminates the Executive's employment without Cause, or the Executive terminates
his employment for Good Reason, then the Executive shall be entitled to the
following benefits (the "Change in Control Severance Benefits"):
(A) the sum of his Accrued Obligations, that amount being payable
in a single lump sum cash payment within thirty (30) days of the Date of
Termination;
(B) a cash amount equal to 2.99 times the sum of (1) the
Executive's annual Base Salary at the highest rate in effect at any time during
the twelve (12)-month period prior to the Date of Termination, and (2) the
Executive's Average Bonus, that total amount being payable in a single lump sum
cash payment within thirty (30) days of the Date of Termination;
(C) 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, shall be continued for
the thirty-six (36) month period following the Date of 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 Section 7.3(b)(i)(C) may be
discontinued prior to the end of the period provided in this Subsection (C) to
the extent, but only to the extent, that the Executive receives substantially
similar benefits from a subsequent employer;
(D) 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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(E) notwithstanding any provisions of any applicable stock option
plan and agreement(s) to the contrary, all outstanding unexercised stock options
and restricted stock held by the Executive as of the Date of Termination shall
become fully vested and shall be immediately exercisable by the Executive
pursuant to the provisions of the applicable plan and agreement(s);
(F) notwithstanding any provisions of the Supplemental Executive
Retirement Plan ("SERP") in which the Executive is or may be a participant to
the contrary, the Executive shall be deemed fully vested and entitled to an
immediate lump sum distribution of his benefit under the SERP, calculated as if
the Executive had been employed during the thirty-six (36) month period
following the Date of Termination and had received compensation as provided
under Section 3 for that period; and
(G) any accrued and vested benefits under any employee benefits
plans or programs.
7.4. Definition of "In Anticipation Of". For purposes of this Section 7.3,
the termination of the Executive's employment shall be deemed to have been "in
anticipation of" a Change in Control if such termination (A) was at the request
of an unrelated third party who has taken steps reasonably calculated to effect
a Change in Control, or (B) otherwise arose in connection with a Change in
Control.
7.5. Superseding Termination. If, subsequent to the giving by either party
of a notice of termination under this Agreement and prior to the actual Date of
Termination pursuant to such notice, the Executive's employment is properly
terminated pursuant to any other provision of this Agreement, the Executive
shall be entitled only to those benefits, if any, arising out of such subsequent
and superseding termination.
7.6. Definition of Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean, and shall be deemed to have occurred upon the
occurrence of, any one of the following events:
(i) The acquisition in one or more transactions by any individual, entity
(including any employee benefit plan or any trust for an employee benefit plan)
or group (within the
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meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares or other
securities (as defined in Section 3(a)(10) of the Exchange Act) representing 50%
or more of either (1) the shares of common stock of the Company (the "Company
Common Stock") or (2) the combined voting power of the securities of the Company
entitled to vote generally in the election of directors (the "Company Voting
Securities"), in each case calculated on a fully-diluted basis in accordance
with generally accepted accounting principles after giving effect to the
acquisition; provided, however, that none of the following acquisitions shall
constitute a Change in Control as defined in this clause (i): (A) any
acquisition by any shareholder or group consisting solely of shareholders of the
Company immediately prior to the date of this Agreement or (B) any acquisition
by the Company so long as such acquisition does not result in any Person (other
than any shareholder or shareholders of the Company immediately prior to the
date of this Agreement), beneficially owning shares or securities representing
50% or more of either the Company Common Stock or Company Voting Securities; or
(ii) Any election has occurred of persons to the Board that causes
two-thirds of the Board to consist of persons other than (A) persons who were
members of the Board on the date of this Agreement and (B) persons who were
nominated for elections as members of the Board at a time when two-thirds of the
Board consisted of persons who were members of the Board on the date of this
Agreement; provided, however, that any person nominated for election by a Board
at least two-thirds of whom constituted persons described in clauses (A) and/or
(B) or by persons who were themselves nominated by such Board shall, for this
purpose, be deemed to have been nominated by a Board composed of persons
described in clause (A);
(iii) The shareholder rights plan of the Company is triggered and the Board
fails to redeem the rights within the time provided for in the rights agreement;
(iv) Approval by the shareholders of the Company of a reorganization,
merger, consolidation or similar transaction (a "Reorganization Transaction"),
in each case, unless, immediately following such Reorganization Transaction,
more than 50% of, respectively, the
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outstanding shares of common stock (or similar equity security) of the
corporation or other entity resulting from or surviving such Reorganization
Transaction and the combined voting power of the securities of such corporation
or other entity entitled to vote generally in the election of directors, in each
case calculated on a fully-diluted basis in accordance with generally accepted
accounting principles after giving effect to such Reorganization Transaction, is
then beneficially owned, directly or indirectly, by the shareholders of the
Company immediately prior to such approval; or
(v) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation or other entity, with respect to which immediately following such
sale or other disposition more than 50% of, respectively, the shares of common
stock (or similar equity security) of such corporation or other entity and the
combined voting power of the securities of such corporation or other entity
entitled to vote generally in the election of directors, in each case calculated
on a fully-diluted basis in accordance with generally accepted accounting
principles after giving effect to such sale or other disposition, is then
beneficially owned, directly or indirectly, by the shareholders of the Company
immediately prior to such approval.
7.7. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Section 7 by seeking other
employment or otherwise, and, except as otherwise expressly provided in Sections
7.3(a)(i)(C) and 7.3(b)(i)(C), the amounts of compensation or benefits payable
or otherwise due to the Executive under this Section 7 or other provisions of
this Agreement shall not be reduced by compensation or benefits received by the
Executive from any other employment he shall choose to undertake following
termination of his employment under this Agreement; provided, however, that the
Executive's entitlement to Severance Benefits or Change in Control Severance
Benefits, as the case may be, shall be subject to his compliance with the
covenants set forth in Section 8.
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7.8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any economic benefit, payment or distribution
by the Company to or for the benefit of the Employee, whether paid, payable,
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties with respect to such excise tax (such excise tax and any
applicable interest and penalties, collectively referred to in this Agreement as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up-Payment") in an amount such that after payment by the
Executive of all applicable taxes (including any interest or penalties imposed
with respect to such taxes), the Executive retains an amount equal to the amount
he would have retained had no Excise Tax been imposed upon the Payment.
(b) Subject to the provisions of Section 7.8(c), all determinations
required to be made under this Section 7.8, including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall be made by the
Company's regular outside independent public accounting firm (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the Date of Termination, if
applicable, or such earlier time as is requested by the Company. The initial
Gross-Up Payment, if any, as determined pursuant to this Section 7.8, shall be
paid to the Executive within 5 business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with an opinion that he
has substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm, it is possible that Gross-Up Payments that have not been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made under this Section 7.8(b). In the event that
the Company exhausts its remedies pursuant to Section 7.8(c) and the Executive
thereafter is
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required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment under the terms of this Section 7.8. This notice shall be
given as soon as practicable but no later than ten business days after the later
of either (i) the date the Executive has actual knowledge of the claim, or (ii)
ten days after the Internal Revenue Service issues to the Executive either a
written report proposing imposition of the Excise Tax or a statutory notice of
deficiency with respect to the Excise Tax, and shall apprise the Company of the
nature of the claim and the date on which the claim is requested to be paid. The
Executive shall not pay the claim prior to the expiration of the thirty-day
period following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to the
claim is due). If the Company notifies the Executive prior to the expiration of
the above period that it desires to contest the claim, the Executive shall: (A)
give the Company any information reasonably requested by the Company relating to
the claim, (B) take such action in connection with contesting the claim as the
Company shall reasonably request in writing from time to time, including
accepting legal representation with respect to the claim by an attorney
reasonably selected by the Company, (C) cooperate with the Company in good faith
in order to effectively contest the claim, (D) permit the Company to participate
in any proceedings relating to the claim; provided, however, that the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and expenses.
Without limitation of the foregoing provisions of this Section 7.8(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
the claim and may,
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at its sole option, either direct the Executive to request or accede to a
request for an extension of the statute of limitations with respect only to the
tax claimed, or pay the tax claimed and xxx for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the claim and xxx for a refund, the Company shall advance the amount of the
required payment to the Executive, on an interest-free basis and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to any advance or with respect to any imputed income in relation to any
advance; and further provided that any extension of the statute of limitations
requested or acceded to by the Executive at the Company's request and relating
to payment of taxes for the taxable year of the Executive with respect to which
the contested amount is claimed to be due is limited solely to the contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable under the
Agreement and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.8(c), the Executive becomes entitled to receive
any refund with respect to the claim, the Executive shall (subject to the
Company's complying with the requirements of Section 7.8(c)) promptly pay to the
Company the amount of that refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7.8(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
the claim and the Company does not notify the Executive of its intent to contest
such denial of refund prior to the expiration of thirty days after the
determination, then the advance shall be forgiven and shall not be required to
be repaid and the amount of the advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
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(e) In the event that any state or municipality or subdivision thereof
shall subject any Payment to any special tax which shall be in addition to the
generally applicable income tax imposed by the state, municipality, or
subdivision with respect to receipt of the Payment, the foregoing provisions of
this Section 7.8 shall apply, mutatis mutandis, with respect to such special
tax.
7.9. Severance Benefits Not Includable for Employee Benefits Purposes.
Subject to all applicable federal and state laws and regulations, income
recognized by the Executive pursuant to the provisions of this Section 7 (other
than income accrued but unpaid as of the Date of Termination) shall not be
included in the determination of benefits under any employee benefit plan (as
that term is defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended) or any other benefit plans, policies or programs
applicable to the Executive that are maintained by the Company or any of its
direct or indirect subsidiaries and the Company shall be under no obligation to
continue to offer or provide such benefits to the Executive after the Date of
Termination other than as provided under this Section 7 or to the extent to
which any benefit under a pertinent plan has accrued as of the Date of
Termination.
7.10. Exclusive Benefits. The Severance Benefits payable under Section
7.3(a) and the Change in Control Severance Benefits payable under Section
7.3(b), if either benefits become applicable under the terms of this Agreement,
shall be mutually exclusive and shall be in lieu of any other severance or
similar benefits that would otherwise be payable under any other agreement,
plan, program or policy of the Company. In addition, the Company and the
Executive agree that, in the event of a termination of the Executive's
employment under any provision of Section 5, the Executive shall be entitled
solely to the payments and other benefits provided under the applicable
provisions of this Section 7 with respect to such termination, and the Company,
upon satisfaction of such payments and other benefits, thereafter shall have no
further obligation to the Executive under this Agreement or with respect to the
Executive's employment with the Company or any direct or indirect subsidiaries
of the Company, other than for payment of any amounts accrued and vested under
any employee benefit plans or programs of the Company.
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8. Restrictive Covenants.
8.1. Confidentiality. The Executive recognizes that the services to be
performed by him under this Agreement are special, unique and extraordinary in
that, by reason of his employment with the Company and any Affiliate (as defined
below), he may acquire confidential information and trade secrets concerning the
operation of the Company or an Affiliate, the use or disclosure of which could
cause the Company or an Affiliate substantial loss and damages which could not
be readily calculated and for which no remedy at law would be adequate. For
purposes of this Section 8, the term "Affiliate" means any direct or indirect
subsidiary of the Company, including any individual, partnership, firm,
corporation or other business organization or entity that controls, is
controlled by, or is under common control with, the Company. Accordingly, during
the Employment Term and at all times thereafter, the Executive covenants and
agrees with the Company that he shall not at any time, except in the performance
of his obligations to the Company under this Agreement or with the prior written
consent of the Board of Directors of the Company, directly or indirectly,
disclose any secret or confidential information that he may learn or has learned
by reason of his association with the Company, or any predecessors to their
business, or use any such information to the detriment of the Company or an
Affiliate. The term "confidential information" includes information not
previously disclosed to the public or to the trade by the Company's management
or otherwise known by the public or the trade with respect to the Company's
products, facilities and methods, research and development, trade secrets and
other intellectual property, systems, patents and patent applications,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Company's products), business plans, prospects or opportunities;
provided, however, that the term "confidential information" shall not include,
and the Executive shall have no obligation under this Agreement with respect to,
any information that (a) becomes generally available to the public other than as
a result of a disclosure by the Executive or his agent or other representative
or (b) becomes available to the Executive on a non-confidential basis from a
source other than the Company or any Affiliate. The Executive shall have no
obligation under this Agreement to keep confidential any of the
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confidential information to the extent that a disclosure of it is required by
law or is consented to by the Company; provided, however, that if and when such
a disclosure is required by law, the Executive promptly shall provide the
Company with notice of such requirement, so that the Company may seek an
appropriate protective order.
8.2. Exclusive Property. The Executive confirms that all confidential
information is the exclusive property of the Company. All business records,
papers and documents kept or made by the Executive relating to the business of
the Company or its direct or indirect subsidiaries shall be and remain the
property of the Company or the applicable subsidiary during the Employment Term
and at all times thereafter. Upon the termination of his employment with the
Company or upon the request of the Company at any time, the Executive shall
promptly deliver to the Company, and shall retain no copies of, any written
materials, records and documents made by the Executive or coming into his
possession concerning the business or affairs of the Company or its direct or
indirect subsidiaries; provided, however, that the Executive shall be permitted
to retain copies of any documents or materials of a personal nature or otherwise
related to the Executive's rights under this Agreement.
8.3. Non Competition. During the Employment Term and, except as provided in
the last sentence of this Section 8.3, for a period of eighteen (18) months
after the Date of Termination, the Executive shall not, unless he receives the
prior written consent of the Company, directly or indirectly, own an interest
in, manage, operate, join, control, lend money or render financial or other
assistance to, participate in or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, or engage in any activity or
capacity (collectively, the "Competitive Activities") with respect to any
individual, partnership, limited liability company, firm, corporation or other
business organization or entity (each, a "Person"), that (a) is engaged directly
or indirectly in the ownership or operation of proprietary post-secondary
schools (whether or not degree-granting) or (b) is in competition with any of
the business activities of the Company or its direct or indirect subsidiaries
either (i) anywhere in the United States or (ii) in any other country in which
the Company or its direct or indirect subsidiaries conduct, or actively intend
to conduct, business as of the Date of Termination;
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provided, however, that (1) subsection (b) of this Section 8.3 shall not apply
with respect to any line-of-business in which the Company or its direct or
indirect subsidiaries was not engaged on or before the Expiration Date or the
Date of Termination, as the case may be, and (2) this Section 8.3 shall not
prohibit the Executive from (i) lecturing or teaching, whether paid or unpaid,
and whether for a competitor of the Company or otherwise; (ii) writing or
publishing academic materials for a Person that is not a competitor of the
Company, or (iii) owning, or otherwise having an interest in, less than one
percent (1%) of any publicly-owned entity or three percent (3%) or less of any
private equity fund or similar investment fund that invests in education
companies, provided the Executive has no active role with respect to any
investment by such fund in any Person referred to in this Section 8.3. The
Executive shall not be subject to the covenants contained in this Section 8.3
and such covenants shall not be enforceable against the Executive from and after
the date that the Executive's employment is terminated (i) by the Company
without Cause, (ii) by the Executive for Good Reason or (iii) in anticipation of
or within two (2) years after a Change in Control.
8.4. Non-Solicitation. During the Term of the Executive's Employment and
for a period of eighteen (18) months after the Date of Termination, the
Executive shall not, whether for his own account or for the account of any other
Person (other than the Company or its direct or indirect subsidiaries),
intentionally solicit, endeavor to entice away from the Company or its direct or
indirect subsidiaries, or otherwise interfere with the relationship of the
Company or its direct or indirect subsidiaries with, any person who is employed
by the Company or its direct or indirect subsidiaries (including, but not
limited to, any independent sales representatives or organizations).
8.5. Injunctive Relief. Subject to the exceptions contained in Section 8.3,
the Executive acknowledges that a breach of any of the covenants contained in
this Section 8 may result in material, irreparable injury to the Company for
which there is no adequate remedy at law, that it shall not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat of breach, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining the
Executive from
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engaging in activities prohibited by this Section 8 or such other relief as may
be required to specifically enforce any of the covenants in this Section 8. The
Executive agrees and consents that injunctive relief may be sought in any state
or federal court of record in the Commonwealth of Pennsylvania, or in the state
and county in which a violation may occur or in any other court having
jurisdiction, at the election of the Company; to the extent that the Company
seeks a temporary restraining order (but not a preliminary or permanent
injunction), the Executive agrees that a temporary restraining order may be
obtained ex parte. The Executive agrees and submits to personal jurisdiction
before each and every court designated above for that purpose.
8.6. Blue-Pencilling. The parties consider the covenants and restrictions
contained in this Section 8 to be reasonable. However, if and when any such
covenant or restriction is found to be void or unenforceable and would have been
valid had some part of it been deleted or had its scope of application been
modified, such covenant or restriction shall be deemed to have been applied with
such modification as would be necessary and consistent with the intent of the
parties to have made it valid, enforceable and effective.
9. Miscellaneous.
9.1. Assignment; Successors; Binding Agreement. This Agreement may not be
assigned by either party, whether by operation of law or otherwise, without the
prior written consent of the other party, except that any right, title or
interest of the Company arising out of this Agreement may be assigned to any
corporation or entity controlling, controlled by, or under common control with
the Company, or to any successor of the Company or any entity acquiring all or
substantially all of the assets of the Company; provided, however, that as a
precondition thereto, the assignee shall first deliver to the Executive, an
express written assumption of this Agreement and the Company's obligations
hereunder. No such assignment shall relieve the Company of its obligations
hereunder without the express written consent of the Executive. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective heirs, legatees, devisees, personal
representatives, successors and assigns.
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9.2. Modification and Waiver. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification or discharge is
duly approved by the Board of Directors of the Company and is agreed to in
writing by the Executive and such officer(s) as may be specifically authorized
by the Board of Directors of the Company to effect it. No waiver by any party of
any breach by any other party of, or of compliance with, any term or condition
of this Agreement to be performed by any other party, at any time, shall
constitute a waiver of similar or dissimilar terms or conditions at that time or
at any prior or subsequent time.
9.3. Entire Agreement. No agreement or representation, oral or otherwise,
express or implied, with respect to the subject matter of this Agreement, has
been made by either party which is not set forth expressly in this Agreement.
Further, this Agreement shall amend and supersede any and all previously
existing employment or consulting agreements between the Executive and the
Company or any of its direct or indirect subsidiaries or affiliates.
9.4. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania other than the conflict of laws provision thereof.
9.5. Arbitration. In the event of any dispute, controversy or claim between
the Company and the Executive arising out of or relating to the interpretation,
application or enforcement of any provision of this Agreement (other than with
respect to provisions under Section 8 of this Agreement), either the Company or
the Executive may, by written notice to the other, require such dispute or
difference to be submitted to arbitration. The arbitrator or arbitrators shall
be selected by agreement of the parties or, if they do not agree on an
arbitrator or arbitrators within 30 days after one party has notified the other
of his or its desire to have the question settled by arbitration, then the
arbitrator or arbitrators shall be selected by the American Arbitration
Association (the "AAA") in Pittsburgh, Pennsylvania. The determination reached
in such arbitration shall be final and binding on all parties without any right
of appeal or further dispute. Execution of the determination by such arbitrator
may be sought in any court of competent jurisdiction. The arbitrators shall not
be bound by judicial formalities and may abstain from following the strict rules
of evidence and shall interpret this Agreement as an honorable
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engagement and not merely as a legal obligation. Unless otherwise agreed by the
parties, any such arbitration shall take place in Pittsburgh, Pennsylvania, and
shall be conducted in accordance with the Commercial Arbitration Rules of the
AAA.
9.6. Consent to Jurisdiction and Service of Process. In the event of any
dispute, controversy or claim between the Company and the Executive arising out
of or relating to the interpretation, application or enforcement of the
provisions of Section 8 or Section 9.5, the Company and the Executive agree and
consent to the personal jurisdiction of the Court of Common Pleas for Allegheny
County, Pennsylvania and/or the United States District Court for the Western
District of Pennsylvania for resolution of the dispute, controversy or claim,
and that those courts, and only those courts, shall have exclusive jurisdiction
to determine any dispute, controversy or claim related to, arising under or in
connection with Section 8 of this Agreement. The Company and the Executive also
agree that those courts are convenient forums for the parties to any such
dispute, controversy or claim and for any potential witnesses and that process
issued out of any such court or in accordance with the rules of practice of that
court may be served by mail or other forms of substituted service to the Company
at the address of its principal executive offices and to the Executive at his or
her last known address as reflected in the Company's records.
9.7. Resignation from Board. Upon a termination of the Executive's
employment under this Agreement for any reason, the Executive shall, if
requested by the Company's Board of Directors, promptly resign as a member of
the Board of Directors of the Company or its direct or indirect subsidiaries.
9.8. Withholding of Taxes. The Company shall withhold from any amounts
payable under the Agreement all Federal, state, local or other taxes as legally
shall be required to be withheld.
9.9. Notice. For the purposes of this Agreement, notices and all other
communications to either party provided for in this Agreement shall be furnished
in writing and shall be deemed to have been duly given when delivered or when
mailed if such mailing is by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to such party
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(notices to the Company being addressed to the Secretary of the Company) at the
Company's principal executive office, or at other address as either party shall
have designated by giving written notice of such change to the other party at
anytime hereafter.
9.10. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
9.11. Indemnification. The Executive shall be entitled to the same
indemnification rights as other executive officers of the Company pursuant to
the Company's Articles of Incorporation and By-laws, as in effect from time to
time, and shall be covered under any directors and officers insurance coverage
maintained by the Company with respect to its executive officers. Without
limiting any other provision of this Agreement, this Section 9.11 shall survive
the termination or expiration of this Agreement for any reason whatsoever.
9.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
9.13. Headings. The headings used in this Agreement are for convenience
only, do not constitute a part of the Agreement, and shall not be deemed to
limit, characterize, or affect in any way the provisions of the Agreement, and
all provisions of the Agreement shall be construed as if no headings had been
used in the Agreement.
9.14. Construction. As used in this Agreement, unless the context otherwise
requires: (a) the terms defined herein shall have the meanings set forth herein
for all purposes; (b) references to "Section" are to a section hereof; (c) all
"Schedules" referred to herein are incorporated herein by reference and made a
part hereof; (d) "include," "includes" and "including" are deemed to be followed
by "without limitation" whether or not they are in fact followed by such words
or words of like import; (e) "writing," "written" and comparable terms refer to
printing, typing, lithography and other means of reproducing words in a visible
form; (f) "hereof," "herein," "hereunder" and comparable terms refer to the
entirety of this Agreement and not to any particular section or other
subdivision hereof or attachment hereto; (g) references to
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any gender include references to all genders; (h) references to any agreement or
other instrument or statute or regulation are referred to as amended or
supplemented from time to time (and, in the case of a statute or regulation, to
any successor provision); and (i) the word "or" shall be deemed to mean "and/or"
unless the context clearly indicates otherwise.
(Remainder of Page Intentionally Left Blank)
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date and year first above written.
EDUCATION MANAGEMENT CORPORATION
By: /s/ XXXXXXX X. XXXXXXXX, III
-----------------------------------------
Xxxxxxx X. Xxxxxxxx, III
Chairman of the Compensation Committee
EXECUTIVE
/s/ XXXX X. XXXXXXXX, XX.
---------------------------------------------
Xxxx X. XxXxxxxx, Xx.
