1
Exhibit 4.23
August 9, 1996
Education Management Corporation
000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Ladies and Gentlemen:
This letter agreement (this "Agreement") confirms the agreement between
the Education Management Corporation Employee Stock Ownership Trust (the
"Trust") and Education Management Corporation, a Pennsylvania corporation (the
"Company"), as contemplated by Section 2(e) of the Waiver and Modification
Agreement, dated as of July 26, 1996, by and among the Company, the Trust, and
the other parties named therein, with respect to, among other things, the
Trust's acquisition of an aggregate of 1,188,470 shares of Class B Common Stock
of the Company, par value $0.0001 per share (the "Shares"), from several
management stockholders of the Company. The Trust, intending to be legally
bound, hereby covenants to the Company that:
(i) it will not, within the three-year period beginning on the date
hereof, "dispose" (as that term is used in Section 4978(a) of the Internal
Revenue Code of 1986, as amended (the "Code")), of any of the Shares if
such disposition would result in the imposition of an excise tax on the
Company under Section 4978 of the Code, unless (i) the Trust reasonably
determines, upon the written advice of its outside legal counsel, that such
disposition is necessary for the Trust to comply with any fiduciary duty
imposed on the Trust by the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Code, or (ii) such disposition is made
as part of an acquisition in one or more transactions by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), 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 (A) the
shares of common stock of the Company or (B) the combined voting power of
the securities of the Company 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 the
acquisition, other than any acquisition by any shareholder of the Company
as of the date of such acquisition or any group that consists solely of
such shareholders; and
2
(ii) it will, if the Company exercises its right of optional
redemption under Article Fourth, Section A(6) of the Restated Articles of
Incorporation of Education Management Corporation (the "Articles") with
respect to the shares of Series A 10.19% Preferred Stock of the Company,
par value $0.0001 per share ("Preferred Stock") then held by the Trust, and
at the request of the Company, exercise its right under Article Fourth,
Section A(5) of the Articles to convert such Preferred Stock into shares of
Class A Common Stock of the Company, par value $0.0001 per share, and waive
its right to all but two days' prior notice of redemption under Article
Fourth, Section C of the Articles; provided, however, that (i) the
obligation to make such conversion shall be contingent upon the
consummation of an initial public offering of common stock by the Company,
(2) the offering price per share (before underwriting discounts or
commissions) sold in the initial public offering must equal or exceed (A)
$6.57 plus accrued and unpaid dividends, if the offering is consummated
prior to October 26, 1996 or (B) $6.48 plus accrued and unpaid dividends,
if the offering is consummated thereafter (with such amounts in this clause
(A) and (B) to be appropriately adjusted to take into account any stock
splits, reverse stock splits or similar events with respect to the
Company's capital stock as may occur after the date of this letter), and
(3) the Trust shall not be required to convert such Preferred Stock or
waive such notice if the Trust reasonably determines, upon the written
advice of its outside legal counsel, that such conversion or waiver would
cause the Trust to violate any fiduciary duty imposed on the Trust by
ERISA or the Code.
If the foregoing terms correctly reflect the understanding and
agreement between the parties, please indicate your acceptance of these terms
by executing this Agreement where indicated below.
Very truly yours,
MARINE MIDLAND BANK, not in its
corporate capacity, but solely in its
capacity as trustee, and on behalf, of the
Education Management Corporation
Employee Stock Ownership Trust
By:
--------------------------------------
Title:
-----------------------------------
AGREED TO AND ACCEPTED:
EDUCATION MANAGEMENT CORPORATION
By:
--------------------------------------
Title:
-----------------------------------
