SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
KINDERCARE LEARNING CENTERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which
the filing fee is calculated and state how it was determined.
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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<PAGE>
[LOGO]
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
825 NE Multnomah, Suite 1050
Portland, Oregon 97232
September 25, 1997
Dear Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of KinderCare Learning Centers, Inc. which will be held at 825 NE Multnomah,
Suite 1050, Portland, Oregon, on the 11th day of November, 1997, at 9:00 a.m.
local time.
The matters to be considered and voted upon this year are explained in the
accompanying Proxy Statement. Even if you are planning to attend the meeting,
please complete the enclosed proxy card and return it to us so that your shares
may be voted. You will still be able to vote your shares in person if you attend
the meeting.
Affiliates of Kohlberg, Kravis, Roberts & Co., a private investment firm
("KKR"), own approximately 83.6% of KinderCare's Common Stock and have advised
KinderCare that they intend to vote their shares of Common Stock in favor of the
matters specified in the Proxy Statement. Accordingly, approval of such matters
by the Stockholders of KinderCare is assured.
If you have any questions about the Proxy Statement, please contact Eva M.
Kripalani, Vice President, General Counsel and Secretary of the Company at (503)
872-1325.
Sincerely,
DAVID J. JOHNSON
DAVID J. JOHNSON
Chief Executive Officer and
Chairman of the Board
<PAGE>
KINDERCARE LEARNING CENTERS, INC.
2400 Presidents Drive
Montgomery, Alabama 36116
825 NE Multnomah, Suite 1050
Portland, Oregon 97232
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on November 11, 1997
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of KinderCare Learning Centers, Inc. (the "Company"), will be held at
825 NE Multnomah, Suite 1050, Portland, Oregon, on November 11, 1997, at 9:00
a.m. local time:
1. To elect seven directors to serve until the 1998 Annual Meeting of
Stockholders;
2. To ratify the selection of Deloitte & Touche, LLP as independent
auditors to serve for the fiscal year ending May 29, 1998;
3. To approve the 1997 Stock Purchase and Option Plan for Key
Employees of KinderCare Learning Centers, Inc. and Subsidiaries; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only those Stockholders of record at the close of business on September 22,
1997, are entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. A complete list of Stockholders entitled to vote at the
Annual Meeting will be available at the offices of the Company during the 10
days prior to the Annual Meeting.
By Order of the Board of Directors,
EVA M. KRIPALANI
EVA M. KRIPALANI
Secretary
Portland, Oregon
September 25, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE
VOTE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
BUSINESS REPLY ENVELOPE. IF YOU DO ATTEND THE MEETING YOU MAY, IF YOU WISH,
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
KINDERCARE LEARNING CENTERS, INC.
2400 Presidents Drive
Montgomery, Alabama 36116
825 NE Multnomah, Suite 1050
Portland, Oregon 97232
September 25, 1997
Proxy Statement
For Annual Meeting of Stockholders
to be Held on November 11, 1997
INTRODUCTION
This Proxy Statement is furnished to Stockholders of KinderCare Learning
Centers, Inc., a Delaware corporation ("KinderCare" or the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
from holders of the outstanding shares of common stock of the Company ("Common
Stock") for use at the Annual Meeting of Stockholders of the Company to be held
at 825 NE Multnomah, Suite 1050, Portland, Oregon, on November 11, 1997, at 9:00
a.m., local time, and at any adjournments thereof (the "Annual Meeting").
The Annual Meeting will be held for the following purposes: (i) to elect
seven directors to serve until the 1998 Annual Meeting of Stockholders; (ii) to
ratify the selection of Deloitte & Touche LLP as independent auditors for the
fiscal year ending May 29, 1998; (iii) to approve the 1997 Stock Purchase and
Option Plan for Key Employees of KinderCare Learning Centers, Inc. and
Subsidiaries (the "1997 Plan"); and (iv) to transact such other business as may
properly come before the Annual Meeting or any adjournments thereof.
The Company's mailing address and the location of its principal executive
offices is 2400 Presidents Drive, Montgomery, Alabama 36116. The Company is in
the process of relocating its principal executive offices to Portland, Oregon
and expects the relocation to be complete prior to the Annual Meeting. This
Proxy Statement and the accompanying Proxy are first being mailed to
Stockholders of the Company on or about September 25, 1997.
On October 3, 1996, the Company and KCLC Acquisition Corp. ("KCLC") entered
into an Agreement and Plan of Merger (the "Merger Agreement"). KCLC was a wholly
owned subsidiary of KLC Associates, L.P. (the "Partnership"), a partnership
formed at the direction of Kohlberg Kravis Roberts & Co., a private investment
firm ("KKR"). Pursuant to the Merger Agreement, on February 13, 1997, KCLC was
merged with and into the Company (the "Merger"), with the Company continuing as
the surviving corporation. Upon completion of the Merger, affiliates of KKR
owned 7,828,947 shares, or approximately 83.6%, of the Company's Common Stock
outstanding after the Merger.
Only holders of Common Stock at the close of business on September 22, 1997
will be entitled to receive notice of and to vote at the Annual Meeting. On that
date, the Company had outstanding and entitled to vote 9,368,421 shares of
Common Stock. Each share of Common Stock is entitled to one vote on each matter
to be voted on at the Annual Meeting. The Common Stock does not have cumulative
voting rights.
The presence, in person or by proxy, at the Annual Meeting of the holders
of at least a majority of the shares entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Broker
non-votes will be counted for purposes of determining whether or not a quorum is
present at the meeting but will not be considered to have been voted in favor of
any matter and will be disregarded in determining the outcome of the vote on any
proposal. Abstentions will be counted as
1
<PAGE>
present for the purposes of determining whether a quorum is present but will not
be counted as votes cast in favor of any proposal and will have the same effect
as votes against the ratification of the selection of independent accountants
and approval of the 1997 Plan. Directors are elected by a plurality of the votes
of the shares present in person or represented by proxy and entitled to vote at
the Annual Meeting. The affirmative vote of a majority of the votes cast is
required for the ratification of the selection of independent accountants,
approval of the 1997 Plan and the approval of any other matter that may be
proposed at the Annual Meeting.
Shares of Common Stock which are entitled to vote and are represented by a
proxy properly signed and received at or prior to the Annual Meeting, unless
subsequently properly revoked, will be voted in accordance with the instructions
indicated thereon. If a proxy is signed and returned without indicating any
voting instructions, shares of Common Stock represented by such proxy will be
voted FOR the election of all nominees for director of the Company, FOR the
ratification of the auditors proposal and FOR the proposal to approve the 1997
Plan. The Board of Directors is not currently aware of any business to be acted
upon at the Annual Meeting other than as described in this Proxy Statement. If,
however, other matters are properly brought before the Annual Meeting or any
adjournments or postponements thereof, the persons appointed as proxies will
have the discretion to vote or act thereon in accordance with their best
judgment, unless authority to do so is withheld in the proxy.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted at
the Annual Meeting by (i) attending and voting in person at the Annual Meeting,
(ii) giving notice of revocation of the proxy at the Annual Meeting, or (iii)
delivering to the Secretary of the Company (a) a written notice of revocation or
(b) a duly executed proxy relating to the same shares and matters to be
considered at the Annual meeting, bearing a date later than the proxy previously
executed. Attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: KinderCare Learning Centers, Inc., 825 NE Multnomah, Suite 1050,
Portland, Oregon, 97232, Attention: Secretary, and must be received before the
taking of the votes at the Annual Meeting.
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Board of Directors has nominated David J. Johnson, Nils P.
Brous, Stephen A. Kaplan, Henry R. Kravis, Clifton S. Robbins, George R. Roberts
and Sandra W. Scarr, Ph.D. for election as directors to hold office until the
1998 Annual Meeting of Stockholders of the Company or until their successors
shall have been elected or appointed (as the case may be) and qualified. Each
nominee is now a member of the Board of Directors of the Company. If, for any
reason, any of said nominees becomes unavailable for election, the holders of
the proxies may exercise discretion to vote for substitutes proposed by the
Board of Directors. Management has no reason to believe that the persons named
will be unable to serve if elected or decline to do so.
If a Stockholder wishes to withhold authority to vote for any nominee, such
Stockholder can do so by following the directions set forth on the enclosed
Proxy or on the ballot to be distributed at the Annual Meeting, if such
Stockholder wishes to vote in person. The persons named in the enclosed proxy
will vote the shares of Common Stock covered by such proxy for the election of
the nominees set forth below, unless instructed to the contrary.
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<PAGE>
CERTAIN INFORMATION CONCERNING NOMINEES AND DIRECTORS
The following table sets forth the names of the nominees, their ages, the
year in which each was first elected a director, their positions with the
Company, their principal occupations and employers for at least the last five
years and any other directorships held by them in companies that are subject to
the reporting requirements of the Securities Exchange Act of 1934 or any company
registered as an investment company under the Investment Company Act of 1940.
For information concerning membership on committees of the Board of Directors,
see "Meetings of the Board of Directors and Committees" below. For information
concerning directors' ownership of Common Stock, see "Security Ownership of
Certain Beneficial Owners" below.
MEMBERS OF BOARD OF DIRECTORS
NOMINATED TO CONTINUE IN OFFICE
Position with Company, Principal
Name and Year First Occupation During at Least the
Elected Director Age Last Five Years, and Other Directorships
- ------------------- --- ----------------------------------------
David J. Johnson 51 Mr. Johnson joined the Company as Chief
(1997) Executive Officer and Chairman of the Board
in February 1997. Between September 1991 and
November 1996, Mr. Johnson served as
President, Chief Executive Officer and
Chairman of the Board of Red Lion Hotels,
Inc. (formerly a KKR affiliate) or its
predecessor. From 1989 to September 1991,
Mr. Johnson was a general partner of Hellman
& Freidman, a private equity investment firm
based in San Francisco.
Nils P. Brous 32 Mr. Brous has served as a director since
(1997) February 1997. Mr. Brous has been, since
1992, an executive of KKR. Prior to that
time, he was an associate at Goldman, Sachs
& Co. Mr. Brous is a director of Bruno's,
Inc., Randalls Food Markets, Inc. and
Canadian General Insurance Group Limited.
Stephen A. Kaplan 37 Mr. Kaplan has served as a director since
(1996) January 1996. He has been a Principal of
Oaktree Capital Management, LLC ("Oaktree")
since 1995. Oaktree provides investment
management credit services pursuant to a
sub-advisory agreement with TCW Asset
Management Company, the general partner of
TCW Special Credits Fund V--The Principal
Fund. Mr. Kaplan was a Managing Director of
Trust Company of the West from 1993 to 1995.
Prior thereto, Mr. Kaplan was a partner with
the law firm of Gibson, Dunn & Crutcher. Mr.
Kaplan is a director of Acorn Products, Inc.
and Decorative Home Accents, Inc.
3
<PAGE>
Henry R. Kravis 53 Mr. Kravis has served as a director since
(1997) February 1997. Mr. Kravis is a Founding
Partner of KKR and effective January 1, 1996
he became a managing member and member of
the Executive Committee of the limited
liability company which serves as the
general partner of KKR. He is also a
director of AutoZone, Inc., Borden, Inc.,
Bruno's, Inc., Flagstar Companies, Inc.,
Flagstar Corporation, The Gillette Company,
IDEX Corporation, K-III Communications
Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc,
Owens-Illinois, Inc., Owens-Illinois Group,
Inc., Safeway, Inc., Sotheby's Holdings,
Inc., Union Texas Petroleum Holdings, Inc.,
and World Color Press, Inc.
Clifton S. Robbins 38 Mr. Robbins has served as a director since
(1997) February 1997. Mr. Robbins was a General
Partner of KKR from January 1, 1995 until
January 1, 1996 when he became a member of
the limited liability company which serves
as the general partner of KKR. Prior to
that, he was an executive of that company.
Mr. Robbins is a director of AEP Industries
Inc., Borden Inc., Borden Chemicals &
Plastics, L.P., IDEX Corporation and
Newsquest Capital plc.
George R. Roberts 54 Mr. Roberts has served as a director since
(1997) February 1997. Mr. Roberts is a Founding
Partner of KKR and effective January 1, 1996
he became a managing member and member of
the Executive Committee of the limited
liability company which serves as the
general partner of KKR. He is also a
director of AutoZone, Inc., Borden, Inc.,
Bruno's, Inc., Flagstar Companies Inc.,
Flagstar Corporation, IDEX Corporation,
K-III Communications Corporation, Merit
Behavioral Care Corporation, Newsquest
Capital plc, Owens-Illinois, Inc.,
Owens-Illinois Group, Inc., Safeway, Inc.,
Union Texas Petroleum Holdings, Inc., and
World Color Press, Inc.
Sandra W. Scarr, Ph.D. 60 Dr. Scarr was elected a Director in June
(1990) 1990 and served as Chairman from July 1994
until February 1997 and as Chief Executive
Officer of the Company from June 1995 until
February 1997. She was a Commonwealth
Professor, Department of Psychology of the
University of Virginia, from September 1983
until joining the Company.
Messrs. Kravis and Roberts are first cousins.
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<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
Board of Directors. The business and affairs of the Company are under the
general management of the Board of Directors as provided by the laws of Delaware
and the Bylaws of the Company. The Company has standing Executive, Audit and
Compensation Committees. The Company does not have a Nominating Committee.
The Board of Directors met four times during the 1997 fiscal year. Each
director, during the period he or she was a director, attended at least 75% of
the meetings of the Board of Directors and Board committees.
Executive Committee. The members of the Executive Committee are David J.
Johnson, Clifton S. Robbins and Nils P. Brous. The Executive Committee exercises
the authority of the Board of Directors, to the extent permitted by law, in the
management of the business of the Company between meetings of the Board of
Directors. The Executive Committee held no meetings during the 1997 fiscal year.
Audit Committee. The members of the Audit Committee are Nils P. Brous and
Clifton S. Robbins. The Audit Committee reviews and makes recommendations to the
Board of Directors regarding the selection of independent auditors, the annual
audit of the Company's financial statements and the Company's internal controls,
accounting practices and policies. The Audit Committee held no meetings during
the 1997 fiscal year.
Compensation Committee. The members of the Compensation Committee are
Clifton S. Robbins, Nils P. Brous and Henry R. Kravis. The Compensation
Committee is responsible for reviewing and making recommendations to the Board
of Directors related to salaries, wages, bonuses, stock options, and other
benefits for the officers of the Company. The Compensation Committee is also
responsible for administering executive compensation plans as authorized by the
Board of Directors. The Compensation Committee held one meeting during the 1997
fiscal year.
COMPENSATION OF DIRECTORS
During the period from June 1, 1996 to February 13, 1997, non-employee
directors received, as direct compensation for their services as directors,
$12,000 in annual base compensation, $2,500 per regular or special directors'
meeting attended in person, $1,000 per regular or special directors' meeting
attended via conference call, $1,000 for serving as a committee chairman, $1,000
per committee meeting attended in person, $500 per committee meeting attended
via conference call, and $2,000 for serving as Lead Director. Following the
Merger, non-employee directors of the Company received an annual retainer of
$30,000, paid in quarterly installments. Directors who are employees of the
Company were not paid any additional compensation for their service as
directors. All directors were reimbursed for travel and other expenses incurred
in connection with the performance of their duties.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of August 29, 1997 certain information
concerning ownership of shares of Common Stock by: (i) persons who are known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each person named in the Summary
Compensation Table; and (iv) all directors and executive officers of the Company
as a group.
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<PAGE>
<TABLE>
<CAPTION>
Beneficial Percentage of
Ownership of Class
Name of Beneficial Owner Common Stock Outstanding (a)
- ------------------------ ------------ --------------
<S> <C> <C>
KKR-KLC L.L.C. (and certain
affiliated entities)
c/o Kohlberg Kravis Roberts
& Co., L.P. 7,828,947 83.6%
9 West 57th Street
New York, NY 10019(b)
The TCW Group, Inc. (and
certain affiliated entities
("TCW")) 949,244 10.1%
865 South Figueroa Street
Los Angeles, CA 90017(c)
Henry R. Kravis (b) -- --
George R. Roberts (b) -- --
Clifton S. Robbins (b) -- --
Nils P. Brous (b) -- --
Stephen A. Kaplan (c) -- --
Sandra W. Scarr, Ph.D -- --
David J. Johnson (d)(e) 157,895 1.7%
Philip L. Maslowe (f) 14,363 *
William E. Bailey -- --
Rebecca S. Bryan -- --
Robert H. Fries -- --
Jerry B. Hill -- --
All directors and executive
officers as a group (17
persons) (b)(c)(d)(e) 157,895 1.7%
- ----------------------
* Less than one percent
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<PAGE>
(a) The amounts and percentage of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination
of beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person
has or shares "voting power," which includes the power to vote or to direct
the voting of such security, or "investment power," which includes the
power to dispose of or to direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which he has no economic interest. The percentage of class
outstanding is based on the 9,368,421 shares of Common Stock outstanding as
of August 29, 1997.
(b) Shares of Common Stock shown as beneficially owned by KKR-KLC L.L.C. are
held by the Partnership. KKR-KLC L.L.C. is the sole general partner of KKR
Associates (KLC). KKR Associates (KLC), a limited partnership, is the sole
general partner of the Partnership and possesses sole voting and investment
power with respect to such shares. KKR-KLC L.L.C. is a limited liability
company, the members of which are Messrs. Henry R. Kravis, George R.
Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, James
H. Greene, Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott
M. Stuart and Edward A. Gilhuly. Messrs. Kravis and Roberts are members of
the Executive Committee of KKR-KLC L.L.C. Messrs. Kravis, Roberts and
Robbins are also directors of the Company. Mr. Nils P. Brous is a limited
partner of KKR Associates (KLC) and is also a director of the Company. Each
of such individuals may be deemed to share beneficial ownership of the
shares shown as beneficially owned by KKR-KLC L.L.C. Each of such
individuals disclaims beneficial ownership of such shares. KKR Partners II,
L.P. owns 1.1% of the outstanding Common Stock.
(c) As of August 29, 1997, TCW beneficially owned 949,244 shares of Common
Stock, or 10.1% of the shares of Common Stock outstanding on such date. TCW
and certain of its affiliates have voting and dispositive powers over such
shares as an investment manager on behalf of TCW Special Credits Fund V-The
Principal Fund (the "Principal Fund"). In addition, Oaktree is an
investment subadvisor with respect to the Principal Fund. Stephen A. Kaplan
is a director of the Company. To the extent Mr. Kaplan, on behalf of
Oaktree or affiliates of TCW, as applicable, participates in the process to
vote or dispose of any such shares, Mr. Kaplan may be deemed under such
circumstances for the purpose of Section 13 of the Exchange Act to be the
beneficial owner of such shares. Mr. Kaplan disclaims beneficial ownership
of all shares beneficially held by Oaktree and TCW.
(d) Does not include shares of Common Stock that may be reserved for options
and other stock purchase rights that are anticipated to be granted to
management under the 1997 Plan.
(e) Following the Merger, Mr. Johnson purchased 157,895 shares of Common Stock,
which are subject to restrictions on transfer, at a purchase price of
$19.00 per share. In accordance with such purchase, Mr. Johnson was granted
options to acquire an additional 421,053 shares of Common Stock, subject to
Stockholder approval, at an exercise price of $19.00 per share.
(f) Comprised of 1,064 shares of Common Stock held in a trust of which Mr.
Maslowe is the trustee and 13,299 shares of Common Stock held jointly with
Mr. Maslowe's spouse. Mr. Maslowe disclaims beneficial ownership of the
shares of Common Stock held in the trust.
</TABLE>
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<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company (the
"Committee"), whose members are listed below, is composed entirely of
non-employee Directors. The Committee reviews and makes recommendations to the
Board of Directors regarding compensation arrangements for executive officers
and has developed compensation policies for the Company's executives. The
Committee is also responsible for administering executive compensation plans as
authorized by the Board of Directors.
The compensation policies of the Company seek to enhance the profitability
of the Company with an appropriate balance between long-term and short-term
profitability goals and to assure the ability of the Company to attract and
retain executive employees with competitive compensation. The compensation
program of the Company seeks specifically to motivate the executives of the
Company to achieve objectives which benefit the Company within their respective
areas of responsibility, with particular emphasis on continued growth in
revenues, expense control, operating efficiency, and the ultimate realization of
profits for the Company, approximately equal weight being given to each of these
criteria in evaluating performance.
Base salary levels for the Company's executive officers, including the
Chief Executive Officer, are set so that the overall cash compensation package
for executive officers, including bonus opportunity, compares favorably to
companies with which the Company competes for executive talent. In determining
salaries, the Compensation Committee also takes into account a number of
factors, which primarily include individual experience and performance, the
officer's level of responsibility, the cost of living and historical salary
levels. The measures of individual performance considered include, to the extent
applicable to an individual executive officer, a number of quantitative and
qualitative factors such as the Company's historical and recent financial
performance, the individual's achievement of particular nonfinancial goals
within his or her responsibility, and other contributions made by the officer to
the Company's success. The Compensation Committee has not found it practicable
to, and has not attempted to, assign relative weights to the specific factors
considered in determining base salary levels, since the specific factors used
may vary among officers. As is typical for most companies, payment of base
salary amounts generally is not conditioned upon the achievement of any
specific, pre-determined performance targets.
In addition to base salary, each executive, including the Chief Executive
Officer, is eligible to participate in an annual incentive program. For fiscal
1997, awards under the annual incentive program were based entirely on Company
performance and there were no payouts made to executive officers under the
program. However, small discretionary bonuses were awarded based upon a
subjective determination of the overall contribution of such officers to Company
performance.
For fiscal 1998, the Chief Executive Officer's annual incentive target is
60% of his annual salary. The annual incentive target for other executive
officers ranges from 30% to 45% of annual salary. Awards under the annual
incentive program are based 90% on Company performance (achievement of targeted
earnings before interest, taxes, depreciation and amortization) and 10% on
achievement of individual objectives.
The long-term component of the Company's executive compensation package
consists of an equity component to be provided pursuant to the 1997 Plan, which
is being submitted for Stockholder approval in this proxy statement. See
"Proposal III: Approval of 1997 Plan." The 1997 Plan is designed to provide
stock-based incentives in the form of stock options generally coupled with a
requirement that participants invest their own personal resources in the stock
of the Company. The objective of the 1997 Plan has been to align the interests
of executive employees with those of the Company's Stockholders.
8
<PAGE>
The compensation of David J. Johnson, the Company's Chief Executive Officer
following the Merger, and the compensation of Sandra L. Scarr W. Scarr, Ph. D.,
the Company's former Chief Executive Officer, were based on factors applicable
to the Company's executive officers, discussed above, as well as certain
subjective factors, including the leadership provided by each of them in their
role as Chief Executive Officer.
Legislation enacted in 1993 imposes certain limits on the tax deductibility
of executive compensation. The Committee's policy is to maximize the tax
deductibility of executive compensation to the extent consistent with its
responsibility to effectively compensate executives based on performance.
Compensation Committee Report Submitted By:
Henry R. Kravis
Clifton S. Robbins
Nils P. Brous
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the Merger, the Board of Directors of the Company approved the
appointment of a Compensation Committee composed of Henry R. Kravis, Clifton S.
Robbins and Nils P. Brous. Messrs. Kravis and Robbins are general partners of
KKR and Mr. Brous is an executive of KKR. See "Certain Transactions."
The Company, from time to time, has made loans or advances to its executive
officers, primarily for relocation expenses. On August 14, 1995, the Company
loaned Dr. Sandra W. Scarr, Chief Executive Officer and Chairman of the Board
the amount of $125,000. No interest accrued on this loan and $107,000 was repaid
to the Company in August of 1996. The balance of the loan was forgiven by the
Company pursuant to Dr. Scarr's relocation package.
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities for the fiscal year ended May 30, 1997, the fiscal year ended May 31,
1996, and the fiscal year ended June 2, 1995, for (i) David J. Johnson, the
Chief Executive Officer and Chairman of the Board of Directors of the Company,
and each of the other four most highly compensated executive officers of the
Company (determined as of May 30, 1997); (ii) Sandra W. Scarr, Ph.D., who was
succeeded as Chief Executive Officer and Chairman of the Board of Directors by
Mr. Johnson and (iii) Mr. Philip J. Maslowe, who resigned as an executive
officer of the Company effective May 9, 1997.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation ------------
--------------------------------------------------- Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options(#) Compensation
- ------------------ ------ ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David J. Johnson (a) 1997 $ 175,385 $ 105,231 -- 421,053(b) $ --
Chief Executive Officer and 1996 -- -- -- -- --
Chairman of the Board 1995 -- -- -- -- --
Sandra W. Scarr, Ph.D. 1997 $ 424,238 $ 375,000(c) $ 31,113(d) -- $ 597,900(e)
Former Chief Executive 1996 339,242 151,637(f) -- -- 12,064(h)
Officer and Chairman of the 1995 -- -- -- 100,000(g) --
Board
Philip L. Maslowe (i) 1997 $ 276,306 $ 250,000(c) -- -- $1,032,609(j)
Former Executive Vice 1996 226,923 63,000 -- -- 11,361(h)
President and Chief 1995 211,288 90,000 97,683(k) 25,000(f) --
Financial Officer
Rebecca S. Bryan (l) 1997 $ 104,035 $ 105,000(c) -- -- $90,000(e)
Former Vice President, 1996 98,484 24,555 -- -- --
General Counsel and 1995 90,019 20,475 -- -- --
Corporate Secretary
Jerry B. Hill (m) 1997 $ 98,522 $ 15,000(c) -- -- $150,300(n)
Former Vice President, Human 1996 90,692 20,356 -- -- --
Resources 1995 85,173 19,345 -- -- --
William E. Bailey (n) 1997 $ 90,836 $ 108,500(c) -- -- $54,000(e)
Former Vice President, 1996 84,980 20,739 -- -- --
Controller 1995 78,057 18,225 -- -- --
Robert H. Fries (p) 1997 $ 82,351 $57,500(c) -- -- $32,000(e)
Vice President and 1996 98,280 24,344 -- 10,000(g) --
Treasurer 1995 -- -- -- --
10
<PAGE>
- --------------
(a) Mr. Johnson became Chief Executive Officer and Chairman of the Board
effective February 13, 1997.
(b) Stock options granted under the 1997 Plan, subject to Stockholder approval.
(c) Amounts shown include bonus paid in connection with completion of the
Merger as follows: Sandra W. Scarr, Ph.D., $375,000; Philip L. Maslowe,
$250,000; Rebecca S. Bryan, $100,000; William E. Bailey, $100,000; and
Robert H. Fries, $50,000.
(d) Payment of relocation expenses.
(e) Payment made in connection with cancellation of stock options granted under
the Company's 1993 Stock Option and Incentive Plan. See "Employment
Agreements and Severance Arrangements" for a description of certain
payments to be made to Dr. Scarr in connection with her retirement.
(f) Includes payment of a signing bonus in the amount of $29,137 pursuant to
Dr. Scarr's employment agreement.
(g) Stock options granted under the Company's 1993 Stock Option and Incentive
Plan. All such options that remained unexercised were cancelled and
exchanged for payment in the Merger.
(h) Term life insurance premiums paid by the Company.
(i) Mr. Maslowe resigned his positions with the Company effective May 9, 1997.
(j) This amount includes $500,000 in severance benefits paid pursuant to Mr.
Maslowe's employment agreement, $530,750 paid to Mr. Maslowe in connection
with cancellation of stock options granted under the Company's 1993 Stock
Option and Incentive Plan and $1,859 in term life insurance premiums paid
by the Company. See "Employment Agreements and Severance Arrangements."
(k) Payment of relocation expenses in the amount of $92,665 and the value of
the personal use of an automobile in the amount of $5,018.
(l) Ms. Bryan resigned her positions with the Company effective August 15,
1997.
(m) Mr. Hill resigned his position with the Company effective June 1, 1997.
(n) This amount includes $96,300 in severance benefits paid to Mr. Hill
pursuant to a severance agreement and $54,000 paid to Mr. Hill in
connection with cancellation of stock options granted under the Company's
1993 Stock Option and Incentive Plan. See "Employment Agreements and
Severance Arrangements."
(o) Mr. Bailey resigned his positions with the Company effective August 29,
1997.
(p) Mr. Fries will resign his positions with the Company effective October 3,
1997.
</TABLE>
11
<PAGE>
STOCK OPTION PLANS
Prior to the Merger, the Company maintained a 1993 Stock Option and
Incentive Plan (the "Pre-Merger Option Plan") for its employees and a Director
Stock Option Plan for its non-employee directors (the "Pre-Merger Director Plan"
and, together with the Pre-Merger Employee Plan, the "Pre-Merger Plans"). In
connection with the Merger, all options granted under the Pre-Merger Plans
vested and the Pre-Merger plans were terminated.
Effective February 14, 1997, the Board of Directors approved the
establishment of the 1997 Plan. See "Proposal III: Approval of 1997 Plan.
Following the Merger, under the 1997 Plan, the Company awarded stock options to
David J. Johnson. See "Proposal III: Approval of 1997 Plan--Purchases and Grants
Under the 1997 Plan."
The following table shows information regarding option grants during the
fiscal year ended May 30, 1997 for the Named Executive Officers.
<TABLE>
<CAPTION>
Option Grants in Fiscal Year
Ended May 30, 1997
Individual Grants
----------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees Exercise or Grant Date
Options in the Base Price Expiration Present
Name Granted Fiscal Year(a) ($/Sh) Date Value(b)
- ---------------- ---------- --------------- ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
David J. Johnson 421,053 100% $19.00 February 14, 2007 $8.35
(a) These options were granted under the 1997 Plan, subject to Stockholder
approval. The options become exercisable 20% per year over a five year
period, with the first 20% becoming exercisable on February 14, 1998. See
"Proposal III: Approval of 1997 Plan--Purchases and Grants Under the 1997
Plan" for additional information regarding the terms of the options.
(b) Although the Company believes that it is not possible to place a value on
an option, in accordance with the rules of the Securities and Exchange
Commission, the Company has used a modified Black-Scholes model of option
valuation to estimate grant date present value. The actual value realized,
if any, may vary significantly from the values estimated by this model. Any
future values realized will ultimately depend upon the excess of the stock
price over the exercise price on the date the option is exercised. The
assumptions used to estimate the grant date present value of this option
were volatility (28%), risk-free rate of return (5.75%), dividend yield
(0%), and time to exercise (7 years), with the resulting value reduced by
0% to reflect the risks of forfeiture and early termination of the options.
</TABLE>
12
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
AND 1997 FISCAL YEAR END OPTION VALUES
The following table shows the number of shares acquired upon exercise of
options, the value realized upon exercise of options and the unexercised options
held as of May 30, 1997 by the persons named in Summary Compensation Table.
There were no "in-the-money" options outstanding on May 30, 1997.
<TABLE>
<CAPTION>
Number of Unexercised
Options at May 31, 1997 (#)
Shares Acquired Value -----------------------------
Name on Exercise(#) Realized ($)(1) Exercisable Unexercisable
- ---------------------- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
David J. Johnson -- -- -- 421,053
Sandra W. Scarr, Ph.D. 46,400 $261,000 -- --
Philip L. Maslowe 50,000 $369,600 -- --
(1) The value realized represents the aggregate difference between the market
value on the date of exercise and the applicable exercise price.
</TABLE>
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
Pursuant to an agreement between KCLC Acquisition and Dr. Sandra W. Scarr
(the "Scarr Letter Agreement"), as of the effective time of the Merger (the
"Effective Time"), Dr. Scarr retired from her position as Chairman of the Board
and Chief Executive Officer of the Company. Dr. Scarr continues to serve as a
director of the Company following her retirement. In connection with the Scarr
Letter Agreement, (i) she received a lump sum payment equal to a pro rata
portion of her salary for the period from the Effective Time through June 15,
1997; (ii) the Company agreed to purchase her residence in the Montgomery,
Alabama area for an amount up to $360,000 and to reimburse her for relocation
expenses of up to $25,000; (iii) from the Effective Time until December 15,
1999, she will perform consulting, advisory and other services for the Company
and will be subject to a non-competition covenant and (iv) in consideration of
the services Dr. Scarr will be required to provide to the Company and her
obligation not to complete with the Company, she will receive monthly payments
of $36,666.67 from the Company for a period of 30 months beginning July 15,
1997. In addition, pursuant to the Scarr Letter Agreement, the Company will
continue to provide certain medical, disability and life insurance coverage
through December 15, 1998.
Under the terms of an employment agreement between the Company and Mr.
Maslowe, Mr. Maslowe received an amount equal to two times his annual base
salary in effect on the date of termination, which amount is reflected in the
Summary Compensation Table above. The Company is also obligated to continue to
provide certain insurance and other benefits under Mr. Maslowe's employment
agreement. In addition, the agreement contains (i) a confidentiality provision
prohibiting Mr. Maslowe for a period of two years following termination of the
agreement from disclosing, with certain exceptions, any confidential information
obtained by him while employed by the Company and (ii) a noncompetition clause
prohibiting Mr. Maslowe for a period of 12 months following termination of the
agreement from competing with, owning, managing, or having any financial
interest in any business which competes with the Company.
Under the terms of an Employment Separation Agreement between the Company
and Jerry B. Hill, the Company's former Vice President, Human Resources, the
Company paid to Mr. Hill in a lump sum $96,300 and agreed to provide Mr. Hill
with certain outplacement services. In consideration for such benefits, Mr. Hill
executed a release in favor of the Company and agreed, subject to certain
exceptions, not to disclose any confidential information obtained by him while
employed by the Company.
13
<PAGE>
Effective April 1997, the Company adopted the KinderCare Transition Stay
and Severance Plan to provide a severance benefit and stay bonus until
separation of employment in connection with the relocation of KinderCare's
corporate headquarters to Portland, Oregon. Under the plan, officers of the
Company with less than ten years of service receive a severance benefit equal to
six months' base salary and officers with ten years or more of service receive
one year's base salary. In addition to the severance payment, employees receive
a stay bonus equal to 25% of their monthly salary for each month worked from
March 15, 1997 until their employment termination date. Officers are also
eligible to receive certain outplacement benefits. The following executive
officers named in the Summary Compensation Table have received or will receive
severance and stay benefits under this plan: Rebecca S. Bryan, former Vice
President, General Counsel and Corporate Secretary; William E. Bailey, former
Vice President, Controller and Robert H. Fries, Vice President and Treasurer.
14
<PAGE>
STOCKHOLDER RETURN ANALYSIS
The following graph provides a comparison of the cumulative total returns
of the Company, the Nasdaq Stock Market (U.S. Companies) and the Nasdaq
Non-Financial Stocks for the period beginning on May 29, 1992 and ending on
February 13, 1997 (assuming the investment of $100 in the Company's Common
Stock, and reinvestment of all dividends). Following the Merger, the Common
Stock was delisted from Nasdaq and has since been traded only in the
over-the-counter market, in the "pink sheets" published by the National
Quotation Bureau. An active trading market for the Common Stock has not existed
since February 13, 1997.
Total return calculations for the Nasdaq Stock Market (U.S. Companies) and
the Nasdaq Non-Financial Stocks were prepared by the Center for Research in
Security Prices.
[Graphic line chart depicting the Comparison of Five-Year Cumulative Total
Returns
<TABLE>
<CAPTION>
May 29, May 28, May 31, May 31, May 31, May 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
KinderCare Learning Centers, Inc. 100.0 392.3 370.1 392.3 440.4 558.9
Nasdaq Stock Market (U.S. Companies) 100.0 120.3 126.6 150.6 219.0 246.7
Nasdaq Non-Financial Stocks 100.0 118.3 121.5 145.5 213.4 231.6]
</TABLE>
15
<PAGE>
CERTAIN TRANSACTIONS
KKR-KLC L.L.C. and certain affiliated entities beneficially own
approximately 83.6% of the Company's outstanding shares of Common Stock. The
members of KKR-KLC L.L.C., are Messrs. Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz,
James H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and
Edward A. Gilhuly. Messrs. Kravis, Roberts and Robbins are also directors of the
Company, as is Mr. Nils P. Brous who is a limited partner of KKR Associates
(KLC). Each of the members of KKR-KLC L.L.C. is also a member of the limited
liability company which serves as the general partner of KKR and Mr. Brous is an
executive of KKR. KKR, an affiliate of the Partnership and KKR-KLC L.L.C.,
received a fee of $8.0 million in cash for negotiating the Merger and arranging
the financing therefor, plus the reimbursement of its expenses in connection
therewith. From time to time in the future, KKR may receive customary investment
banking fees for services rendered to the Company in connection with
divestitures, acquisitions and certain other transactions. KKR has received
$312,500 in fees from the Company for management, consulting and financial
services rendered to the Company during the 1997 fiscal year.
The Partnership has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of Common Stock held by it pursuant to a registration rights agreement
entered into in connection with the Merger and certain stockholders' agreements.
Such registration rights will generally be available to the Partnership until
registration under the Securities Act is no longer required to enable it to
resell the Common Stock owned by it. Such registration rights agreement
provides, among other things, that the Company will pay all expenses in
connection with the first six registrations requested by the Partnership and in
connection with any registration commenced by the Company as a primary offering.
In addition, Oaktree has the right, under certain circumstances and subject to
certain conditions, to participate in any registration process, and other
Stockholders besides the Partnership and Oaktree, including certain members of
management, may be allowed to participate in any registration process, subject
to certain conditions and exceptions.
During fiscal 1997, the Company paid a consulting fee of $200,000 to David
J. Johnson for consulting services rendered prior to and in connection with the
Merger.
The spouse of Ms. Rebecca S. Bryan, the Company's former Vice President,
General Counsel and Secretary, is a partner in a law firm that received $68,996
in fees from the Company for legal services rendered during the 1997 fiscal
year. The Company and the law firm have negotiated an hourly billing rate which
was approved by the Audit Committee of the Board of Directors and ratified by
the Board.
16
<PAGE>
PROPOSAL II
RATIFICATION OF SELECTION OF AUDITORS
At the Annual Meeting, Stockholders will be asked to ratify the selection
of Deloitte & Touche LLP as independent certified public accountants of the
Company for the current fiscal year. The Board of Directors recommends that the
Stockholders ratify such selection of Deloitte & Touche LLP.
Deloitte & Touche LLP, independent certified public accountants, have
audited the financial statements of the Company for the fiscal year ended May
30, 1997. Representatives of Deloitte & Touche LLP are expected to attend this
meeting, will be afforded the opportunity to make a statement, if they desire,
and will be available to respond to appropriate questions.
On April 14, 1997, the Company dismissed KPMG Peat Marwick LLP as its
independent accountants. The reports of KPMG Peat Marwick LLP on the financial
statements for the past two years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. The Company's Audit Committee participated in and approved
the decision to change independent accountants.
In connection with its audit for the two most recent fiscal years and
through April 14, 1997, there were no disagreements with KPMG Peat Marwick LLP
on any matter of accounting principle or practice, financial statements
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of KPMG Peat Marwick LLP, would have caused them to make
reference in their report on the financial statements for such years.
Representatives of KPMG Peat Marwick LLP are not expected to attend the Annual
Meeting.
The Company engaged Deloitte & Touche LLP as its new independent
accountants as of April 14, 1997. During the two most recent years and through
April 14, 1997, the Company has not consulted with Deloitte & Touche LLP on
items which concerned the subject matter of a disagreement or reportable event
with the former auditor (as described in Regulation S-K Item 304(a)(2)).
17
<PAGE>
PROPOSAL III
APPROVAL OF 1997 PLAN
At the Annual Meeting, Stockholders will be also asked to consider and
approve the 1997 Stock Purchase and Option Plan for Key Employees. Certain
provisions of the 1997 Plan are summarized below. The complete text of the Plan
is attached to this proxy statement as Appendix A.
THE PLAN
Under the terms of the 1997 Plan, the Company may grant incentive awards
("Grants") to employees of, or other persons having a unique relationship to,
the Company or one of its subsidiaries. Grants may be in the form of "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), other stock options, stock appreciation rights, restricted
stock, purchase stock, dividend equivalent rights or other stock-based grants or
any combination thereof. The Board of Directors of the Company adopted and
approved the Plan as of February 14, 1997 and reserved 2,500,000 shares of
Common Stock for purposes of the Plan.
Purposes of the Plan
The purposes of the Plan are:
(1) to promote the long term financial interests and growth of the Company
and its subsidiaries by attracting and retaining management personnel with the
training, experience and ability to enable them to make a substantial
contribution to the success of the Company's business;
(2) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(3) to further the identity of interests of participants with those of the
Stockholders of the Company through opportunities for increased stock, or
stock-based, ownership in the Company.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and it is not intended to be qualified under
Section 401(a) of the Code.
Eligibility
Grants may be awarded to employees of, or other persons having a
relationship with, the Company or any of its subsidiaries ("Participants"). No
Grants may be made under the Plan to non-employee directors of the Company or
its subsidiaries. "Employees" are persons, including officers, in the regular
full-time employment of the Company or any of its subsidiaries who, in the
opinion of the Compensation Committee of the Board of Directors (the
"Committee"), are, or are expected to be, primarily responsible for the
management, growth or protection of some part or all of the business of the
Company.
Administration of the Plan
The Committee conducts the general administration of the Plan in accordance
with the Plan's provisions. The Committee may delegate to the Chief Executive
Officer and to other senior officers of the Company its duties under the Plan
subject to such conditions and limitations as the Committee shall prescribe,
except that only the Committee may designate and make Grants to Participants who
are subject to Section 16 of the Securities Exchange Act of 1934.
18
<PAGE>
The Committee may from time to time make Grants under the Plan to
Participants in such form and having such terms, conditions and limitations as
the Committee may determine, subject to the provisions of the Plan. The terms,
conditions and limitations of each Grant under the Plan are set forth in an
agreement (the "Grant Agreement"). The Committee has the authority to make such
amendments to any terms and conditions applicable to outstanding Grants as are
consistent with the Plan; provided that, except for adjustments under the
adjustment provisions discussed below, no such action shall modify such Grant in
a manner adverse to the Participant without the Participant's consent except as
such modification is provided for or contemplated in the terms of the Grant.
Securities Offered Pursuant to the Plan
The total number of shares of Common Stock available for grants under the
Plan is 2,500,000 shares of Common Stock. The number of shares of Common Stock
subject to grants under the Plan to any one Participant may not exceed 1,000,000
shares. Unless restricted by applicable law, shares of Common Stock related to
Grants that are forfeited, terminated, canceled or expire unexercised will
immediately become available for other Grants.
In the event of any change in the outstanding Common Stock by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, change of control, or similar event, the Committee
may adjust appropriately the number of shares of Common Stock subject to the
Plan and available for or covered by Grants and prices per share of Common Stock
related to outstanding Grants and make such other revisions to outstanding
Grants as it deems are equitably required.
In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide that stock options or stock-based grants
cannot be exercised after a merger or certain other transactions involving the
Company and may provide a period prior to such event for participants to
exercise all awards and may provide that any stock options or stock-based grants
shall be exercisable only for a different kind and amount of securities or other
property, receivable as a result of such event by the holder of a number of
shares of stock for which such stock option or stock-based grant could have been
exercised immediately prior to such event.
Grants
Grants may be made singly, in combination or in tandem. Grants may take the
form of incentive stock options, other stock options, stock appreciation rights,
restricted stock, purchase stock, dividend equivalent rights or other
stock-based grants.
"Incentive Stock Options" are stock options within the meaning of Section
422 of the Code to purchase Common Stock. In addition to other restrictions
contained in the Plan and the Code, an Incentive Stock Option (i) may not be
exercised more than ten years after the date it is granted, (ii) may not have an
option price less than the fair market value of Common Stock on the date the
option is granted, and (iii) must otherwise comply with Section 422 of the Code.
The maximum aggregate fair market value of Common Stock (determined at the time
of each Grant) with respect to which any Participant may first exercise
Incentive Stock Options under the Plan and any Incentive Stock Options granted
to the Participant for such year under any plans of the Company or any of its
subsidiaries in any calendar year is $100,000. Payment of the option price must
be made in cash or in shares of Common Stock, or a combination thereof, in
accordance with the terms of the Plan, the Grant Agreement and any applicable
guidelines of the Committee in effect at the time.
"Other Stock Options" or "Non-Qualified Options" are options to purchase
Common Stock which are not designated by the Committee as "Incentive Stock
Options". At the time of the Grant the Committee will determine the option price
and such other conditions or restrictions on the grant or exercise of the Option
as the Committee deems appropriate, which may include the requirement that the
grant of options is predicated on the acquisition of Purchase Stock by the
optionee. In addition to other restrictions contained
19
<PAGE>
in the Plan, a Non-Qualified Option (i) may not be exercised more than 10 years
after the date it is granted and (ii) may not have an option exercise price less
than 50% of the fair market value of Common Stock on the date the option is
granted.
"Stock Appreciation Rights" or "SARS" are rights that on exercise entitle
the holder to receive the excess of (i) the fair market value of a share of
Common Stock on the date of exercise over (ii) the fair market value on the date
of Grant (the "base value") multiplied by (iii) the number of rights exercised
in cash, stock or a combination thereof as determined by the Committee. Stock
Appreciation Rights granted under the Plan may, but need not be, granted in
conjunction with an option. The Committee, in the Grant Agreement or by other
Plan rules, may impose such conditions or restrictions on the exercise of Stock
Appreciation Rights as it deems appropriate, and may terminate, amend or suspend
such Stock Appreciation Rights at any time. No Stock Appreciation Right granted
under the Plan may be exercised less than six months or more than 10-years after
the date it is granted except in the event of death or disability of a
Participant.
"Restricted Stock" is Common Stock delivered to a Participant with or
without payment of consideration with restrictions or conditions on the
Participant's right to transfer or sell such stock; provided that the price of
any Restricted Stock delivered for consideration and not as bonus stock may not
be less than 50% of the fair market value of Common Stock on the date such
Restricted Stock is granted or the price of such Restricted Stock may be the par
value. If a Participant irrevocably elects in writing in the calendar year
preceding a Grant of Restricted Stock, dividends paid on the Restricted Stock
granted may be paid in shares of Restricted Stock equal to the cash dividend
paid on Common Stock. The number of shares of Restricted Stock and the
restrictions or conditions on such shares will be as the Committee determines,
in the Grant Agreement, and the certificate for the restricted Stock will bear
evidence of the restrictions or conditions. No Restricted Stock may have a
restriction period of less than six months, other than in the case of death or
disability.
"Purchase Stock" are shares of Common Stock offered to a Participant at
such price as determined by the Committee, the acquisition of which will make
the Participant eligible to receive a Grant under the Plan, including, but not
limited to Other Stock Options; provided that the price of such Purchase Stock
may not be less than 50% of the fair market value of the Common Stock on the
date such shares of Purchase Stock are offered.
"Dividend Equivalent Rights" are rights to receive cash payments from the
Company at the same time and in the same amount as any cash dividends paid on an
equal number of shares of Common Stock to Stockholders of record during the
period such rights are effective. The Committee, in the Grant Agreement or by
other Plan rules, may impose such restrictions and conditions on the Dividend
Equivalent Rights, including the date such rights will terminate, as it deems
appropriate and may terminate, amend or suspend such Dividend Equivalent Rights
at any time.
The Committee may make "Other Stock-Based Grants" under the Plan pursuant
to which shares of Common Stock (which may, but need not, be shares of
Restricted Stock) are or may in the future be acquired, or Grants denominated in
stock units, including Grants valued using measures other than market value.
Other Stock-Based Grants may be granted with or without consideration; provided,
however, that the price of any such Grant made for consideration that provides
for the acquisition of shares of Common Stock or other equity securities of the
Company may not be less than 50% of the fair market value of the Common Stock or
such other equity securities on the date of grant of such Grant.
Under the terms of the Plan, "fair market value" means such value of a
share of Common Stock as reported for stock exchange transactions and/or
determined in accordance with any applicable resolutions or regulations of the
Committee in effect at the relevant time.
20
<PAGE>
The Committee may make Grants to employees who are subject to the laws of
nations other than the United States, which Grants may have terms and conditions
that differ from the terms thereof as provided elsewhere in the Plan for the
purpose of complying with foreign laws.
Rights in the Event of Death or Termination of Employment or Change of
Control
Grant Agreements will contain provisions dealing with the treatment of
Grants in the event of the termination, death or disability of a Participant and
may include provisions concerning the treatment of Grants in the event of a
change of control of the Company.
The Plan provides that nothing contained therein shall affect the right of
the Company to terminate any Participant's employment at any time or for any
reason.
Amendment and Termination of the Plan
The Board may amend, suspend or terminate the Plan at any time.
CERTAIN FEDERAL INCOME TAX MATTERS
With respect to the United States federal income tax consequences of the
Plan, the Company has been advised as follows:
Incentive Stock Options. Under federal income tax law currently in effect,
the optionee will recognize no income upon grant or exercise of the Incentive
Stock Options. If an employee exercises an Incentive Stock Option and does not
dispose of any of the option shares within two years following the date of grant
and within one year following the date of exercise, then the gain will be
realized upon subsequent disposition of the shares. If an employee disposes of
shares acquired upon exercise of an Incentive Stock Option before the expiration
of either the one-year holding period or the two-year waiting period, any amount
realized will be taxable for federal income tax purposes in the year of such
disqualifying disposition to the extent that the lesser of the fair market value
of the shares on the exercise date or the fair market value of the shares on the
date of disposition exceeds the exercise price. The Company will not be allowed
any deduction for federal income tax purposes at either the time of the grant or
exercise of an Incentive Stock Option. Subject to Section 162(m) of the Code (as
described below) upon any disqualifying disposition by an employee, the Company
will be entitled to a deduction to the extent the employee realized income.
Non-Qualified Stock Options. Non-Qualified Stock Options will be treated as
nonstatutory stock options for federal income tax purposes. Under federal income
tax law presently in effect, no income is realized by the grantee of a
Non-Qualified Stock Option pursuant to the Plan until the option is exercised.
At the time of exercise of a nonstatutory stock option, the optionee will
realize income, and, subject to Section 162(m) of the Code, the Company will be
entitled to a deduction, in the amount by which the market value of the shares
subject to the option at the time of exercise exceeds the exercise price. Upon
the sale of shares acquired upon exercise of a nonstatutory stock option, the
excess of the amount realized from the sale over the market value of the shares
on the date of exercise will be taxable.
Stock Appreciation Rights. Amounts received by the Participant upon the
exercise of Stock Appreciation Rights are taxed at ordinary rates when received.
The Company is generally allowed an income tax deduction equal to the amount
recognized as ordinary income by the Participant.
Other Stock-Based Awards. A Participant who receives stock in connection
with the performance of services will generally realize taxable income at the
time of receipt unless the shares are substantially nonvested for purposes of
Section 83 of the Code. Absent an election under Section 83(b), an employee who
receives substantially nonvested stock in connection with performance of
services will realize taxable income in each year in which a portion of the
shares substantially vest. The Company will
21
<PAGE>
be entitled to a tax deduction in the amount includable as income by the
participant at the same time or times as the employee recognizes income with
respect to the shares.
Compliance with Section 162(m). The Plan is intended to allow certain
Incentive Stock sOptions, Other Stock Options, Stock Appreciation Rights and
Other Stock Based Awards granted under the Plan to be treated as qualified
performance-based compensation under Section 162(m) of the Code. The Committee
may, however, from time to time award compensation that is not deductible under
Section 162(m) of the Code.
PURCHASES AND GRANTS UNDER THE PLAN
Under the Plan, the Company and David Johnson executed (i) a Stockholder's
Agreement, pursuant to which, among other things, Mr. Johnson purchased 157,895
shares of Common Stock (the "Management Shares") at a purchase price of $19.00
per share and (ii) a Non-Qualified Stock Option Agreement, pursuant to which Mr.
Johnson was granted Non-Qualified Options to purchase, at a price of $19.00 per
share, up to 421,053 shares of Common Stock. The options vest 20% per year over
the five year period following the award date. Vesting ceases upon termination
of employment; however, options vest in full upon death or disability. The
options expire upon the earlier of (i) 10 years following the grant date, (ii)
the first anniversary of death or disability or retirement, (iii) a specified
period following any termination of employment other than for cause, (iv)
termination for cause and (v) the date of any merger or certain other
transactions. Exercisability of options will accelerate upon a change of control
of the Company. The Company expects to enter into similar agreements relating to
approximately 16 other officers of the Company, covering a total of
approximately 135,000 shares to be purchased at $19.00 per share and
approximately 337,000 option shares with an exercise price of $19.00 per share.
Of those shares, current executive officers are expected to receive
approximately 95,000 shares to be purchased at $19.00 per share and
approximately 238,000 option shares with an exercise price of $19.00 per share.
As of September 15, 1997, the market price of the Common Stock, as reported in
the over-the-counter market "pink sheets" was $19.25.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends approval of the Plan.
STOCKHOLDER PROPOSALS
Any proposal which a Company Stockholder intends to be presented at the
next Annual Meeting of Stockholders to be held in 1998 must be received by the
Company on or before June 25, 1998. Only proper proposals which are timely
received will be included in the Proxy Statement and Proxy.
BENEFICIAL OWNERSHIP REPORTING--SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
Officers, directors and greater than ten percent beneficial owners are required
by applicable regulations to furnish the Company with copies of all Section
16(a) forms they file.
22
<PAGE>
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that during
the 1997 fiscal year all of its officers and directors complied with all
applicable filing requirements except that Initial Statements of Beneficial
Ownership on Form 3 were not timely filed for KKR-KLC L.L.C., KKR Associates
(KLC) and all persons other than David J. Johnson who became directors or
officers following the Merger.
OTHER MATTERS
Availability of Annual Report
Accompanying this Proxy Statement is a copy of the Company's Annual Report
to Stockholders for the fiscal year ended May 30, 1997.
Method and Cost of Soliciting Proxies
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited by directors, officers or other
employees of the Company, personally, or by telephone. The Company does not
expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers, custodians or other persons holding stock in their names or
in the names of nominees for their expenses in sending proxy materials to
principals and obtaining their instructions.
23
<PAGE>
APPENDIX A TO PROXY STATEMENT
PLAN DOCUMENT
1997 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
1. Purpose of Plan
The 1997 Stock Purchase and Option Plan for Key Employees of KinderCare
Learning Centers, Inc. and Subsidiaries (the "Plan") is designed:
(a) to promote the long term financial interests and growth of KinderCare
Learning Centers, Inc. (the "Corporation") and its subsidiaries by attracting
and retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of the
Corporation's business;
(b) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(c) to further the identity of interests of participants with those of the
stockholders of the Corporation through opportunities for increased stock, or
stock-based, ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following meanings:
(a) "Grant" means an award made to a Participant pursuant to the Plan and
described in Paragraph 5.
(b) "Grant Agreement" means an agreement between the Corporation and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(c) "Board of Directors" means the Board of Directors of the Corporation.
(d) "Committee" means the Compensation Committee of the Board of Directors.
(e) "Common Stock" or "Share" means common stock of the Corporation which
may be authorized but unissued, or issued and reacquired.
(f) "Employee" means a person, including an officer, in the regular
full-time employment of the Corporation or one of its Subsidiaries who, in the
opinion of the Committee, is, or is expected, to be primarily responsible for
the management, growth
<PAGE>
2
or protection of some part or all of the business of the Corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" means such value of a Share as reported for stock
exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time.
(i) "Participant" means an Employee, or other person having a unique
relationship with the Corporation or one of its Subsidiaries, to whom one or
more Grants have been made and such Grants have not all been forfeited or
terminated under the Plan; provided, however, that a non-employee director of
the Corporation or one of its Subsidiaries may not be a Participant.
(j) "Stock-Based Grants" means the collective reference to the grant of
Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stocks and
Other Stock Based Grants.
(k) "Stock Options" means the collective reference to "Incentive Stock
Options" and "Other Stock Options".
(l) "Subsidiary" means any corporation other than the Corporation in an
unbroken chain of corporations beginning with the Corporation if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
3. Administration of Plan
(a) The Plan shall be administered by the Committee. The members of the
Committee shall qualify to administer the Plan for purposes of Rule 16b-3 (and
any other applicable rule) promulgated under Section 16(b) of the Exchange Act
to the extent that the Corporation is subject to such rule. The Committee may
adopt its own rules of procedure, and the action of a majority of the Committee,
taken at a meeting or taken without a meeting by a writing signed by such
majority, shall constitute action by the Committee. The Committee shall have the
power and authority to administer, construe and interpret the Plan, to make
rules for carrying it out and to make changes in such rules. Any such
interpretations, rules, and administration shall be consistent with the basic
purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
<PAGE>
3
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Grants, and all members of the Committee shall be fully
protected by the Corporation with respect to any such action, determination or
interpretation.
4. Eligibility
The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a relationship with Corporation or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine. No Grants may be made under this Plan to
non-employee directors of Corporation or any of its Subsidiaries. Grants may be
granted singly, in combination or in tandem. The terms, conditions and
limitations of each Grant under the Plan shall be set forth in a Grant
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan; provided, however, that such Grant Agreement shall contain
provisions dealing with the treatment of Grants in the event of the termination,
death or disability of a Participant, and may also include provisions concerning
the treatment of Grants in the event of a change of control of Corporation.
5. Grants
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to
purchase Common Stock. In addition to other restrictions contained in the Plan,
an option granted under this Paragraph 5(a), (i) must be granted within ten
years from the earlier of (A) the date the Plan is adopted and (B) the date the
Plan is approved by the stockholders, (ii) may not be exercised more than 10
years after the date it is granted, (iii) may not have an option price less than
the Fair Market Value of Common Stock on the date the option is granted, (iv)
must otherwise comply with Code Section 422 and (v) must be designated as an
"Incentive Stock Option" by the Committee. The maximum aggregate Fair Market
Value of Common Stock (determined at the time of each Grant) with respect to
which any Participant may first exercise Incentive Stock Options under this Plan
and any
<PAGE>
4
Incentive Stock Options granted to the Participant for such year under any plans
of the Corporation or any Subsidiary in any calendar year is $100,000. Payment
of the option price shall be made in cash or in shares of Common Stock, or a
combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at the
time.
(b) Other Stock Options - These are options to purchase Common Stock which
are not designated by the Committee as "Incentive Stock Options". At the time of
the Grant the Committee shall determine, and shall have contained in the Grant
Agreement or other Plan rules, the option exercise period, the option price, and
such other conditions or restrictions on the grant or exercise of the option as
the Committee deems appropriate, which may include the requirement that the
grant of options is predicated on the acquisition of Purchase Shares under
Paragraph 5(e) by the Optionee. In addition to other restrictions contained in
the Plan, an option granted under this Paragraph 5(b), (i) may not be exercised
more than 10 years after the date it is granted and (ii) may not have an option
exercise price less than 50% of the Fair Market Value of Common Stock on the
date the option is granted. Payment of the option price shall be made in cash or
in shares of Common Stock, or a combination thereof, in accordance with the
terms of the Plan and of any applicable guidelines of the Committee in effect at
the time.
(c) Stock Appreciation Rights - These are rights that on exercise entitle
the holder to receive the excess of (i) the Fair Market Value of a share of
Common Stock on the date of exercise over (ii) the Fair Market Value on the date
of Grant (the "base value") multiplied by (iii) the number of rights exercised
as determined by the Committee. Stock Appreciation Rights granted under the Plan
may, but need not be, granted in conjunction with an Option under Paragraph 5(a)
or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may
impose such conditions or restrictions on the exercise of Stock Appreciation
Rights as it deems appropriate, and may terminate, amend, or suspend such Stock
Appreciation Rights at any time. No Stock Appreciation Right granted under this
Plan may be exercised less than 6 months or more than 10 years after the date it
is granted except in the event of death or disability of a Participant. To the
extent that any Stock Appreciation Right that shall have become exercisable, but
shall not have been exercised or cancelled or, by reason of any termination of
employment, shall have become non-exercisable, it shall be deemed to have been
exercised automatically, without any notice of exercise, on the last day of
which it is exercisable, provided that any conditions or limitations on its
exercise are satisfied (other than (i) notice of exercise and (ii) exercise or
election to exercise during the period prescribed) and the Stock Appreciation
Right shall then have value. Such exercise shall be deemed to specify
<PAGE>
5
that the holder elects to receive cash and that such exercise of a Stock
Appreciation Right shall be effective as of the time of automatic exercise.
(d) Restricted Stock - Restricted Stock is Common Stock delivered to a
Participant with or without payment of consideration with restrictions or
conditions on the Participant's right to transfer or sell such stock; provided
that the price of any Restricted Stock delivered for consideration and not as
bonus stock may not be less than 50% of the Fair Market Value of Common Stock on
the date such Restricted Stock is granted or the price of such Restricted Stock
may be the par value. If a Participant irrevocably elects in writing in the
calendar year preceding a Grant of Restricted Stock, dividends paid on the
Restricted Stock granted may be paid in shares of Restricted Stock equal to the
cash dividend paid on Common Stock. The number of shares of Restricted Stock and
the restrictions or conditions on such shares shall be as the Committee
determines and shall be set forth in the Grant Agreement, and the certificate
for the Restricted Stock shall bear evidence of the restrictions or conditions.
No Restricted Stock may have a restriction period of less than 6 months, other
than in the case of death or disability.
(e) Purchase Stock - Purchase Stock are shares of Common Stock offered to a
Participant at such price as determined by the Committee, the acquisition of
which will make the Participant eligible to receive under the Plan, including,
but not limited to, Other Stock Options; provided, however, that the price of
such Purchase Shares may not be less than 50% of the Fair Market Value of the
Common Stock on the date such shares of Purchase Stock are offered.
(f) Dividend Equivalent Rights - These are rights to receive cash payments
from the Corporation at the same time and in the same amount as any cash
dividends paid on an equal number of shares of Common Stock to shareholders of
record during the period such rights are effective. The Committee, in the Grant
Agreement or by other Plan rules, may impose such restrictions and conditions on
the Dividend Equivalent Rights, including the date such rights will terminate,
as it deems appropriate, and may terminate, amend, or suspend such Dividend
Equivalent Rights at any time.
(g) Other Stock-Based Grants - The Committee may make other Grants under
the Plan pursuant to which shares of Common Stock (which may, but need not, be
shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future
be acquired, or Grants denominated in stock units, including ones valued using
measures other than market value. Other Stock-Based Grants may be granted with
or without consideration; provided, however, that the price of any such Grant
made for consideration that provides for the acquisition of shares of Common
Stock or other equity
<PAGE>
6
securities of the Corporation may not be less than 50% of the Fair Market Value
of the Common Stock or such other equity securities on the date of grant of such
Grant. Such Other Stock-Based Grants may be made alone, in addition to or in
tandem with any Grant of any type made under the Plan and must be consistent
with the purposes of the Plan.
6. Limitations and Conditions
(a) The number of Shares available for Grants under this Plan shall be
2,500,000 shares of the authorized Common Stock as of the effective date of the
Plan. The number of Shares subject to Grants under this Plan to any one
Participant shall not be more than 1,000,000 shares. Unless restricted by
applicable law, Shares related to Grants that are forfeited, terminated,
cancelled or expire unexercised, shall immediately become available for Grants.
(b) At the time a Grant is made or amended or the terms or conditions of a
Grant are changed, the Committee may provide for limitations or conditions on
such Grant.
(c) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.
(e) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Subsidiary, along with interest, dividend, and
other expenses accrued on deferred Grants shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Subsidiary or by both the Corporation and a Subsidiary
during the period for which the Grant is made, the Participant's Grant and
related expenses will be allocated between the companies employing the
Participant in a manner prescribed by the Committee.
(f) Other than as specifically provided with regard to the death of a
Participant, or as specifically provided in a Grant Agreement or by the
Committee, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit shall, prior to
receipt thereof by the Participant, be in any manner liable for or subject to
the debts, contracts, liabilities, engagements, or torts of the Participant.
(g) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Grant
<PAGE>
7
unless and until certificates representing any such Shares have been issued by
the Corporation to such Participants.
(h) No election as to benefits or exercise of Stock Options, Stock
Appreciation Rights, or other rights may be made during a Participant's lifetime
by anyone other than the Participant except by a legal representative appointed
for or by the Participant, or as specifically provided in a Grant Agreement.
(i) Absent express provisions to the contrary, any grant under this Plan
shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Corporation or its Subsidiaries
and shall not affect any benefits under any other benefit plan of any kind or
subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Corporation or any of
its Subsidiaries, nor shall any assets of the Corporation or any of its
Subsidiaries be designated as attributable or allocated to the satisfaction of
the Corporation's obligations under the Plan.
7. Transfers and Leaves of Absence
For purposes of the Plan, unless the Committee determines otherwise: (a) a
transfer of a Participant's employment without an intervening period of
separation among the Corporation and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the
Corporation during such leave of absence.
8. Adjustments
In the event of any change in the outstanding Common Stock by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, change of control, or similar event, the Committee
may adjust appropriately the number of Shares subject to the Plan and available
for or covered by Grants and Share prices related to outstanding Grants and make
such other revisions to outstanding Grants as it deems are equitably required.
9. Merger, Consolidation, Exchange, Acquisition, Liquidation or Dissolution
In its absolute discretion, and on such terms and conditions as it deems
appropriate, coincident with or after the grant of
<PAGE>
8
any Stock Option or any Stock-Based Grant, the Committee may provide that such
Stock Option or Stock-Based Grant cannot be exercised after the merger or
consolidation of the Corporation into another corporation, the exchange of all
or substantially all of the assets of the Corporation for the securities of
another corporation, the acquisition by another corporation of 80% or more of
the Corporation's then outstanding shares of voting stock or the
recapitalization, reclassification, liquidation or dissolution of the
Corporation, and if the Committee so provides, it shall, on such terms and
conditions as it deems appropriate in its absolute discretion, also provide,
either by the terms of such Stock Option or Stock-Based Grant or by a resolution
adopted prior to the occurrence of such merger, consolidation, exchange,
acquisition, recapitalization, reclassification, liquidation or dissolution,
that, for some period of time prior to such event, such Stock Option or
Stock-Based Grant shall be exercisable as to all shares subject thereto,
notwithstanding anything to the contrary herein (but subject to the provisions
of Paragraph 6(b)) and that, upon the occurrence of such event, such Stock
Option or Stock-Based Grant shall terminate and be of no further force or
effect; provided, however, that the Committee may also provide, in its absolute
discretion, that even if the Stock Option or Stock-Based Grant shall remain
exercisable after any such event, from and after such event, any such Stock
Option or Stock-Based Grant shall be exercisable only for the kind and amount of
securities and/or other property, or the cash equivalent thereof, receivable as
a result of such event by the holder of a number of shares of stock for which
such Stock Option or Stock-Based Grant could have been exercised immediately
prior to such event.
10. Amendment and Termination
The Committee shall have the authority to make such amendments to any terms
and conditions applicable to outstanding Grants as are consistent with this Plan
provided that, except for adjustments under Paragraph 8 or 9 hereof, no such
action shall modify such Grant in a manner adverse to the Participant without
the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant.
The Board of Directors may amend, suspend or terminate the Plan at any time
from time to time.
11. Foreign Options and Rights
The Committee may make Grants to Employees who are subject to the laws of
nations other than the United States, which Grants may have terms and conditions
that differ from the terms thereof as provided elsewhere in the Plan for the
purpose of complying with foreign laws.
<PAGE>
9
12. Withholding Taxes
The Corporation shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Corporation to deliver shares upon the exercise of an Option
or Stock Appreciation Right, upon payment of Performance units or shares, upon
delivery of Restricted Stock or upon exercise, settlement or payment of any
Other Stock-Based Grant that the Participant pay to the Corporation such amount
as may be requested by the Corporation for the purpose of satisfying any
liability for such withholding taxes. Any Grant Agreement may provide that the
Participant may elect, in accordance with any conditions set forth in such Grant
Agreement, to pay a portion or all of such withholding taxes in shares of Common
Stock.
13. Effective Date and Termination Date
The Plan shall be effective on and as of the date of its approval by the
stockholders of the Corporation and shall continue until terminated by the Board
of Directors pursuant to Paragraph 10.
<PAGE>
PROXY
KINDERCARE LEARNING CENTERS, INC.
2400 Presidents Drive
Montgomery, Alabama 36116
825 NE Multnomah, Suite 1050
Portland, Oregon 97232
The undersigned Stockholder of KinderCare Learning Centers, Inc. (the
"Company"), hereby constitutes and appoints Beth A. Ugoretz and Eva M.
Kripalani, or either one of them, each with full power of substitution, to vote
the number of shares of common stock of the Company that the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders
to be held at Portland, Oregon, on November 11, 1997, at 9:00 a.m. local time,
or at any adjournments thereof (the "Annual Meeting"), upon the proposals
described in the Notice of Annual Meeting of Stockholders and Proxy Statement,
both dated September 25, 1997, the receipt of which is acknowledged, in the
manner specified below.
1. Election of Directors. To elect David J. Johnson, Nils P. Brous, Stephen A.
Kaplan, Henry R. Kravis, Clifton S. Robbins, George R. Roberts and Sandra W.
Scarr, Ph.D. to serve as directors until the 1998 Annual Meeting of
Stockholders, or until their successors are elected and qualified.
[ ] FOR [ ] WITHHOLD AUTHORITY
To withhold authority to vote for any individual nominee(s), write the
name(s) of the nominee(s) in the space provided:
-----------------------------------------
-----------------------------------------
-----------------------------------------
2. Ratification of Auditors: To ratify the selection of Deloitte & Touche LLP to
serve as the independent auditors of the Company for the fiscal year ending May
29, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the 1997 Stock Purchase and Option Plan for Key Employees of
KinderCare Learning Centers, Inc. and Subsidiaries.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy, when properly executed, will be voted in the manner directed by
the undersigned Stockholder. If no direction is made, this Proxy will be voted
FOR Proposals 1, 2, and 3 and with discretionary authority on all other matters
that may properly come before the Annual Meeting or any adjournment thereof.
<PAGE>
Please sign exactly as your name appears on your stock certificate and
date. Where shares are held jointly, each Stockholder should sign. When signing
as executor, administrator, trustee, or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Shares Held:..................................
..............................................
Signature of Stockholder
..............................................
Signature of Other Stockholder
Dated ________________________, 1997
Month Day
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
KINDERCARE LEARNING CENTERS, INC. AND MAY BE REVOKED
BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.
